Justin Sun claims that World Liberty Financial’s USD1 stablecoin contains “backdoor functionalities” that could allow user assets to be frozen or destroyed.
Sun stated in a statement via X that his legal team successfully countered World Liberty Financial’s attempt to move their dispute to private arbitration and close the related court files to the public in a federal court in California. According to Sun, the court ruled that all of his personal claims should continue to be heard in public court.
Sun claimed that during the process, he learned that World Liberty Financial’s USD1 stablecoin also had similar authorization mechanisms. Sun argued that this technical structure gave World Liberty the ability to freeze or destroy users’ assets at any time.
In his statement, Sun also warned USD1 users, arguing that such powers pose a significant counterparty risk, especially in centralized stablecoin structures. Sun further claimed that World Liberty had previously been willing to use similar powers against WLFI token holders.
Another issue Sun raised was the financial status of World Liberty Financial and USD1. Sun emphasized that the collateral supporting USD1’s market capitalization of approximately $4 billion belongs to stablecoin users, arguing that these reserves cannot be used to meet his potential demands, which could reach hundreds of millions of dollars, or other company liabilities.
Sun stated that, excluding USD1 reserves, it saw no evidence that World Liberty Financial had sufficient capital to meet potential court orders and other liabilities. Therefore, it urged investors to exercise “extreme caution.”
World Liberty Financial has not yet issued a public statement regarding Justin Sun’s recent allegations concerning the technical structure of USD1 and the company’s financial adequacy. Sun’s statements remain allegations at this stage.
