World Liberty Financial (WLF) has committed billions to Dolomite and then drawn liquidity back through a $75 million loan, all while most of its users remain locked into positions they cannot exit. And they’re not happy about it. They’re discovering only too late that what was advertised as a decentralised network is not an organic or open market at all.
FTX-esque “Circular Borrowing”
WLF deposited $3 billion tokens into Dolomite, a lending protocol whose co-founder Corey Caplan serves as WLF’s CTO. Capital moves into Dolomite, strengthens its liquidity base, and then a portion is extended back to the originating party. The result is a closed circuit where funding, lending, and operational control intersect.
Investors who had already lost half of the value of their initial investment stand to lose more, and many are not allowed to withdraw their funds because WLF won’t allow it. Meanwhile, internal liquidity continues to move through affiliated channels.
WLF is operating a tightly controlled liquidity system where token supply is actively managed through mint and burn activity, capital is routed through BitGo and Coinbase Prime, and liquidity is cycled through Dolomite, a closely linked counterparty. Gizmodo observed that the “circular borrowing” relationship is akin to that between FTX and Alameda Research, which contributed to the renowned Crypto Winter of 2022.
The Illusion of Movement
The transaction patterns show repeated deposit and withdrawal loops between WLF and Dolomite alongside coordinated flows to exchanges, indicating internal balance sheet management rather than open market activity.
Taken together, the structure points to centralized control over supply, liquidity, and price formation, with market makers and external counterparties operating within that framework rather than driving independent demand.
That creates a system where access to capital is uneven and closely tied to position within the structure. Currently, WLF’s treasury collateral makes up 55% of Dolomite’s total value locked, meaning that average depositors on Dolomite could have their positions liquidated by a drop in WLFI’s price. In effect, lenders would pay the price of failure.
A Market With No Exit
The most powerful of the WLF investors, Justin Sun, has launched another broadside against his erstwhile patrons, the Trump family, to whom he owes his freedom.
Sun accuses WLF of lying to its investors about the locked system into which they deposited their funds. WLF’s decision to restrict withdrawals for a large portion of its users defines the environment in which all of this takes place. When holders cannot exit, price becomes the only visible indicator of value. That puts pressure on secondary market activity to carry more meaning than it otherwise would.
A locked user base depends on external price signals. If those signals are influenced by affiliated liquidity, then price formation reflects internal relationships rather than independent demand. In a market with limited float, small amounts of coordinated liquidity can influence price formation.
Who’s Actually Trading Here?
Prior reporting at Disruption Banking examined World Liberty Financial’s reliance on market makers to sustain trading activity. The model depended on controlled liquidity and a limited float, with volume that appeared consistent but traced back to a narrow set of participants, according to our reporting, Wintermute, DWF Labs, and Auros Global.
In thin conditions, these players influence both price and volume. When supply is restricted, their impact increases. Trading activity continues, but it does not necessarily reflect broad participation. Investors’ positions are marked against a market they do not control and cannot access.
However, Disruption Banking analysed all transactions over $1,000,000 during the last month, and the market makers have taken a backseat to custody and protocol infrastructure, especially Dolomite. WLF is running a tightly managed treasury and liquidity system centered on four rails: TokenGovernor and mint-burn control, BitGo custody, Dolomite as the main DeFi balance sheet, and exchange offramps through Binance and Coinbase Prime.
Liquidity Without Participation
Disruption Banking observed $431.7 million of direct WLF outflows to Dolomite, almost entirely in WLFI, against about $75.7 million of inflows back from Dolomite, split between roughly $65.4 million in USD1 and $10.3 million in USDC.
The combination of addresses with major transactions shows a system operating primarily through treasury plumbing, issuance control, and liquidity routing, not broad market participation. WLF received about $402.6 million of inbound flow from BitGo-labeled wallets, as well as $489.1 million of WLF outflows to the Null Address, about $79.2 million of Null Address inflows back into WLF, approximately $76.5 million of WLF outflows to Binance deposits, and about $50.0 million of WLF outflows to Coinbase Prime deposits.
On March 24, WLF sent about $112.0 million of WLFI to Dolomite. On April 2, Dolomite sent $45.4 million of USD1 to WLF while WLF simultaneously sent about $199.7 million of WLFI into Dolomite. On April 7, Dolomite sent about $20.0 million of USD1 and $10.3 million of USDC to WLF, while WLF sent another $95.0 million of WLFI into Dolomite.
Later the same day, WLF sent another $15.0 million of USD1 to Dolomite, and on April 10, another $10.0 million of USD1. Read in sequence, that looks like a live collateral-management cycle: WLFI goes in, stablecoins come out, then some stablecoins get pushed back. CoinDesk noted that the activity pushed Dolomite’s USD1 pool utilisation up to 93%, making withdrawals difficult or impossible for other depositors until the borrower repays.
Meanwhile, supply is being actively managed by treasury logic, not left to diffuse in the market. The money is flowing through Dolomite, BitGo, Coinbase Prime, Binance deposits, mint-burn channels, and a few large unlabeled wallets.
Justin Sun Steps Back In
Sun has already challenged WLFl over its handling of user restrictions and disclosures. His current position focuses on whether investors were actually informed about the extent of those limitations. The back and forth got pretty salty, ending with threats of litigation, typical of the Trump family.
However, Sun’s history tarnishes his credibility in the crypto realm because, as Disruption Banking has also already reported here and here, he has been investigated by various law enforcement agencies and regulators in multiple countries for the same questionable activity. And he always found ways to weasel out of the wheels of justice.
The result is a dispute where credibility is contested across all parties involved. X users were quick to dismiss Sun’s complaints in light of the presidential pardon he seemed to have purchased with his multimillion-dollar investment, after which the SEC dropped its enforcement case against him.
World Liberty Financial has built a system where capital, liquidity, and supply are tightly controlled within a closed network that routes funds through Dolomite, custody providers, and a small set of counterparties. Investors are left exposed to price movements in a market they cannot access, while internal flows continue to shape liquidity and valuation behind the scenes.
The conflict with Justin Sun does not clarify the situation so much as expose it, placing competing actors with similar histories inside the same controlled structure.
Author: Tim Tolka, Senior Reporter
#Crypto #Blockchain #DigitalAssets #DeFi
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
See Also:
Is Tron’s Justin Sun Dumping Crypto Again? | Disruption Banking
Justin Sun Manipulates The Markets With Impunity (Again) | Disruption Banking
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