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Dolomite is a next-generation margin trading and lending protocol.
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Duke University Scholar: WLFI May Be an Unregistered Security; Questions SEC’s Independence in Launching Investigation
According to The Block, Lee Reiners—a lecturer in law at Duke University and former examiner at the New York Federal Reserve—published a post on May 8 stating that WLFI, the governance token issued by the DeFi project World Liberty Financial—which is closely associated with the Trump family—may constitute an unregistered security. Reiners cited the Securities and Exchange Commission’s (SEC) recently released token classification framework, arguing that WLFI is not a “pure digital commodity” and therefore falls under SEC regulatory scrutiny. He contends that WLFI was publicly presold—approximately 25 billion tokens—prior to the protocol’s launch and was marketed leveraging the Trump family’s brand, leading buyers to reasonably expect profits—a key element of the SEC’s “Howey Test” for determining whether an asset qualifies as a security. Regarding decentralization claims, Reiners referenced litigation filed by Justin Sun, noting that World Liberty unilaterally froze Sun’s tokens and revoked his governance rights—revealing a high degree of centralized control. Additionally, he highlighted clear conflicts of interest: the project borrowed $75 million in stablecoins from the Dolomite protocol, using 5 billion WLFI tokens as collateral; notably, a co-founder of Dolomite also serves as an advisor to World Liberty, and part of the borrowed stablecoins flowed directly to World Liberty itself.
Chaos Lab: WLFI Team Engages in Large-Scale Circular Lending, Collateral Utilization Approaches Cap
Risk management firm Chaos Labs tweeted that the World Liberty Finance (WLFI) team has recently significantly increased its borrowing activity on the Dolomite protocol, pushing WLFI token collateral utilization close to the 510 million token cap. The activity primarily involves two multisig wallets (0x5be9 and 0x44a6). Wallet 0x44a6 pledged 300 million WLFI tokens (approximately $242 million) and borrowed roughly $40.7 million in stablecoins—primarily USD1. Wallet 0x5be9 employed a circular borrowing structure: it borrowed $111 million in USD1 and $89 million in USDC, then reused the borrowed USD1 as collateral to borrow additional USDC. Under the current setup, WLFI would need to decline by approximately 75% before liquidation is triggered. The team has already repaid about $10 million in USD1 and stated it will add further collateral if needed. As of now, World Liberty Finance accounts for 82.7% of Dolomite’s total supply and 85.3% of its total borrows. This situation remains ongoing and evolving.