Trump-linked World Liberty Financial sold $5M in Bitcoin at a loss to avoid Aave liquidation. The forced sale reveals poor risk management and highlights how leverage destroys capital during volatility.
Trump's WLFI Forced to Sell Bitcoin at Loss to Avoid Liquidation
World Liberty Financial, the DeFi protocol backed by President Trump's family, was forced to liquidate approximately 73 wrapped Bitcoin worth $5 million on February 5th to avoid catastrophic liquidation on Aave. On-chain data from Arkham Intelligence and Lookonchain shows the transactions were executed through CoW Protocol and Aave at an average price near $69,000 as Bitcoin crashed below $67,000.
The sale itself is straightforward—WLFI swapped WBTC for USDC to reduce debt exposure and avoid forced liquidation that would have occurred if collateral ratios fell further. What makes this significant is the realized loss embedded in the transaction. Blockchain records indicate WLFI accumulated most of its Bitcoin position in late 2025 and early 2026 when prices ranged between $90,000-$100,000. Selling at $69,000 represents a 25-30% loss on those holdings, confirming this wasn't profit-taking or strategic rebalancing—it was damage control.
The mechanics reveal classic overleveraged positioning. WLFI borrowed $7.5 million USDT against $52 million in crypto collateral on Aave, likely expecting Bitcoin to remain stable or appreciate. When Bitcoin crashed 15-20% in a matter of days, collateral values plummeted while debt obligations remained fixed, forcing the protocol into a corner: either add more collateral, repay debt, or face automatic liquidation at even worse prices.
WLFI chose to repay by selling Bitcoin at a loss, crystallizing damage rather than risking total liquidation. The decision preserved remaining positions—Arkham data shows the protocol still holds 267 WBTC worth approximately $18 million—but the forced sale demonstrates poor treasury risk management. Properly managed DeFi positions maintain conservative loan-to-value ratios specifically to avoid forced selling during volatility.
Market reaction was swift. The WLFI governance token dropped 14% following the news, underperforming Bitcoin and Ethereum which both fell 13%. That divergence signals the market interpreted the liquidation as a red flag about the project's financial health and operational competence. When your native token falls harder than the broader market during a crisis, it means participants are pricing in additional risk beyond general crypto exposure.
The timing compounds the optics problem. This liquidation occurred while U.S. lawmakers opened an investigation into WLFI over a reported $500 million UAE-linked investment deal, examining potential conflicts of interest given the Trump family's controlling stake and Donald Trump's position as sitting president. Selling Bitcoin at a loss during congressional scrutiny amplifies questions about governance, treasury management, and whether the project can survive both market stress and regulatory pressure simultaneously.
From a DeFi perspective, this episode illustrates why leverage destroys capital during volatility. WLFI's strategy—borrow stablecoins against crypto collateral to deploy capital elsewhere—works beautifully in stable or rising markets but becomes catastrophic when assets decline sharply. The $5 million sale prevented worse outcomes, but it also locked in permanent capital loss that undermines the entire treasury strategy.
The remaining 267 WBTC position faces the same structural risk. If Bitcoin declines further toward $60,000 or below, WLFI either needs to inject fresh capital, sell more Bitcoin at even worse prices, or face liquidation on remaining positions. None of those options are attractive, and all of them suggest the project's financial foundation is shakier than public messaging indicated.
For the broader crypto industry, WLFI's forced liquidation serves as a case study in what not to do with protocol treasuries. Leverage magnifies gains during bull markets but guarantees losses during drawdowns. Projects that survive cycles tend to maintain conservative balance sheets, avoid excessive borrowing, and never put themselves in positions where they're forced sellers at the worst possible times. WLFI violated all three principles and is now paying the price publicly.