World Liberty Financial, tied to Donald Trump, has received OCC approval to form a national trust bank for its USD1 stablecoin, even as a $112 million DeFi loan backed by WLFI tokens faces mounting liquidation risk on Dolomite.
World Liberty Financial, a decentralized finance (DeFi) company associated with President Donald Trump, has secured preliminary conditional approval from the Office of the Comptroller of the Currency (OCC) to charter a national trust bank. The new entity, World Liberty Trust Company, is designed to bring the issuance and custody of the USD1 stablecoin-currently valued at around $4 billion-under direct federal oversight, pending final regulatory conditions.
Stablecoin Ambitions and Regulatory Oversight
The OCC's conditional approval marks a significant step for World Liberty Financial's stablecoin ambitions. If the trust bank meets capital, audit, and business-plan requirements, it will assume direct responsibility for USD1 issuance and reserves, shifting these functions from a DeFi structure to a federally supervised institution. The company's leadership has positioned this move as an effort to build trust in digital dollars and reinforce the U.S. dollar's role in global markets. However, the trust bank will not operate as a full-service bank: it cannot take deposits or make loans in the traditional sense, and its accounts will not be covered by FDIC insurance.
DeFi Leverage and Collateral Risks
While the regulatory process advances, World Liberty Financial continues to face scrutiny over its use of the WLFI token as collateral in DeFi lending. In April, the company pledged 5 billion WLFI tokens-about 5% of the total supply-on the Dolomite protocol to borrow $75 million in stablecoins. This move drained the USD1 lending pool, leaving some depositors unable to withdraw funds as normal. More than $40 million of the borrowed stablecoins were transferred to Coinbase Prime, removing liquidity from Dolomite's ecosystem. The company stated it could add more collateral if needed, but the structure left open questions about risk concentration and market depth.
Repayments and Renewed Liquidation Pressure
World Liberty Financial repaid $25 million of its DeFi debt in April, reducing the outstanding balance to $50 million. At the time, the WLFI collateral was valued at roughly $445 million, resulting in a loan-to-value (LTV) ratio near 11%. However, as the WLFI token price has since fallen by about 35% to $0.058, the LTV ratio has climbed back to approximately 17%, nearly erasing the benefit of the repayment. On-chain data shows that Dolomite's core contract still holds nearly 5 billion WLFI tokens as collateral, with at least $112 million in stablecoin debt spread across multiple wallets. One wallet's position is especially precarious, with a health metric of 1.07-meaning only a 6-7% further drop in WLFI's price could trigger forced liquidation.
Parallel Risk Structures
The company's risk profile is now split between two architectures: the pending federally supervised trust bank for USD1, and the ongoing leveraged WLFI positions on DeFi protocols. The trust bank must maintain at least $20 million in capital and meet strict audit and reporting requirements before receiving final approval. Meanwhile, the WLFI-backed loans remain exposed to market volatility and liquidity constraints. The situation echoes recent market events where companies have faced pressure to shore up reserves or unwind risky positions, as seen when Fold sold Bitcoin to repay debt and proposed a reverse stock split to address compliance concerns.
As of the latest available data, Dolomite's smart contracts hold approximately 4.998 billion WLFI tokens as collateral, with $123.7 million in USD1 and $27.5 million in USDC on the platform. The largest single wallet has supplied 3 billion WLFI against $41.4 million in stablecoin debt, while another multisig-linked position has borrowed at least $112.6 million in USD1 with a health metric just above the liquidation threshold. These figures suggest that World Liberty Financial's DeFi exposure is broader and more complex than initially reported, with multiple wallets and varying risk levels.
Stablecoins like USD1 are typically designed to maintain a 1:1 peg to the U.S. dollar, backed by reserves such as cash or Treasuries. However, when a stablecoin's ecosystem is intertwined with leveraged positions in its own governance token, the risk of a feedback loop increases. If the price of WLFI falls further, forced liquidations could depress the token's value even more, potentially threatening the stability of the lending protocol and the broader ecosystem. The outcome will depend on whether World Liberty Financial can manage its DeFi risk while transitioning USD1 to a federally supervised structure.
