A wallet believed to belong to World Liberty Financial, which is controlled by President Donald Trump’s sons, withdrew approximately 173 wrapped Bitcoins from Aave V3 on February 5th and sold them to pay off $11.75 million in stablecoin debt.
This sequence reveals the mechanism of voluntary deleveraging. If Bitcoin’s drawdown falls below $63,000, whales will be forced to sell collateral and reduce leverage, causing the protocol liquidation engine to operate under worse conditions.
Address 0x77a…F94F6, labeled WLFI on Arkham Intelligence, withdrew approximately 73 WBTC and 100 WBTC from Aave V3’s collateral pool and subsequently repaid 5,037,001 USDC and 6,710,808 USDC to the protocol in separate actions.
Although there is no confirmation regarding ownership of the wallet, on-chain intelligence platforms and previous reporting have linked a similar pattern of activity to World Liberty Financial’s documented position regarding Aave, which includes WBTC and ETH collateral.
Nevertheless, the wallet turned Bitcoin exposure into cash, reducing leverage and increasing the buffer for health factors. The wallet still holds significant exposure, including approximately 13,298 WETH and 167 WBTC as Aave collateral backing $18.47 million in floating rate USDC debt.
However, its soundness factor is currently 1.54, comfortably above Aave’s liquidation threshold of 1.0.
Why are whales selling collateral now?
Chaos Labs reported approximately $140 million in Aave V3 liquidations in a 24-hour period in the latest wave. Meanwhile, 21 stocks recorded $3.7 billion in liquidations over the weekend.
These numbers reveal that leverage is being flushed across the system, not just in Aave and decentralized lending, as positions reach health factor thresholds and protocols force collateral sales to cover bad loans.
The difference between voluntary and forced deleveraging is the quality of the execution, not the market impact.
Selling 173 WBTC for $69,000 would generate approximately $12 million, enough to cover debt repayments. Waiting until the health factor drops below 1.0 means that Aave will auction the same collateral at a 5-10% discount during the stress period, and the whales will no longer have control over the timing.
Both outcomes remove Bitcoin from the market and eliminate leverage that would have recycled capital into future purchases.
With a health factor of 1.54, it’s great for your wallet, but not for comfort. A 38% decline in collateral value triggers liquidation.
Bitcoin is already down ~50% from its all-time highs, and technical models point to $38,000 as a potential support level, suggesting a further 43% decline from current prices.
Therefore, selling collateral to increase the health factor will buffer rational risk management even if selling pressure is applied.
Market-wide feedback loops
Aave’s variable borrowing interest rate changes depending on usage. As whales deleverage and demand for stablecoin liquidity soars, borrowing costs rise. This increases the cost of maintaining leverage and forces more whales into trim positions.
At the same time, exit liquidity will also deteriorate. The bid-ask spread widens, the depth of the order book shrinks, and the slippage of large trades increases. The result is a feedback loop where selling leads to more selling, due to balance sheet calculations rather than panic.
Spot Bitcoin ETF flows add to the pressure. Cryptocurrency market capitalization has fallen to less than $2.1 trillion since its October 6 peak, consistent with continued ETF outflows as institutional investors move toward safer assets.
21Shares has recorded a high volume of redemption dates in recent weeks. When ETFs were building up through 2024 and early 2025, they absorbed supply during times of volatility.
This bidding has reversed, and the marginal price setters have become DeFi whales, who are selling collateral to pay off debt rather than adding exposure.
Three paths forward
Orderly deleveraging is the base case.
Whales gradually sell collateral, pay down debt, and reduce leverage without causing mass liquidations. The market becomes less leveraged and stabilizes at lower prices, but any recovery attempts are shallow due to sustained selling pressure from collateral sales and the disappearance of reflexive bidding.
Auction cascade is a downside scenario. Before the whale acts of its own accord, another sharp leg drop triggers a protocol liquidation. Aave, Compound, and other platforms compete to clear bad debts, clearing collateral faster than the market can absorb it.
Drawdowns are amplified by surges in liquidations, exploding spreads, and forced sales at auction discounts.
Intermarket liquidity shocks constitute tail risk. ETF outflows accelerate, derivatives open interest continues to compress, and whales rush to sell collateral before they are the last to exit.
Voluntary deleveraging and forced liquidations combine to create disruptions where spot prices diverge from derivatives and on-chain exchanges trade at a discount to centralized exchanges.
| Features | Voluntary deleveraging (early sale/early repayment) | Forced liquidation (auction) | Why is this drawdown important? |
|---|---|---|---|
| timing control | expensive | none | Avoid selling when liquidity is at its worst |
| Execution price | Market/Slippage | Auction discount (stress) | Negative aspects increase due to unreasonable sales |
| position results | Decrease in leverage, rise in HF | Collateral foreclosure | Change behavior from “diamond hand” to “runway management” |
| Market impact | distributed selling pressure | Spiky liquidation print | Explain why drawdown accelerates |
What is a collateral sale signal?
The sale of 173 WBTC to generate debt service is not an isolated event, but a data point within a broader pattern evident across liquidation indicators, open interest compression, and ETF flows.
The whale has not surrendered. Instead, they are converting Bitcoin into stablecoins to manage health factors and extend their runway. This prevents cascading, but not drawdown.
Lower leverage means less money is recycled into purchases. The reflexive bid that pushed Bitcoin from $30,000 to $100,000 was done using leverage. Whales borrowed collateral to buy more Bitcoin, amplifying their profits.
Conversely, whales sell collateral to pay off debts, eliminating both risk and a mechanism to extend recovery.
The outflow of spot ETFs eliminates the institutional buyers who were previously absorbing this supply. The remaining liquidity vacuum means that selling pressure from deleveraging whales is meeting weak demand from all buyer categories, as institutional allocators safely take turns, leveraged traders reduce risk, and retail participants wait for clearer signals.
Wallet’s $11.75 million debt repayment, funded by the sale of 173 WBTC, makes clear the choice to face any leveraged position. Manage the exit now or let the protocol mechanics decide for you later.
The choices most people make now, and the cumulative effect of those individual decisions, has resulted in a market that no longer equals compound interest in conviction and magnitude. This corresponds to an orderly liquidation, with one WBTC sale at a time.
(Tag translation) Bitcoin
