Looking at more data, the overall assessment is that USD1 and WLFI are temporarily safe.

Taking the following address as an example: the USD1 borrowed against collateralized WLFI is also deposited back into the protocol; borrow USD1, then deposit USDC again, borrow USDC, and add the USDC back into WLFI’s debt position. This has three meanings:
1) Funds don’t flow out or evaporate; the money just makes a round inside domilete. This is the most essential difference from Curve. The Curve founder’s borrowed money was already used to buy a villa long ago, and they never intended to repay it.
2) This behavior fits the logic of “supplying liquidity/charging up” for lending platforms. Also, subsidies can be recovered. Calculated by 280M * 30% average cost, the monthly subsidy is 7 million. Getting back 5 million from your own deposits isn’t a big problem—so the actual cost is only about 200w per month, which is nothing compared to other previous activities.
3) After loop (cycle) lending, WLFI’s vault becomes hybrid collateral. Even if wlfi goes to zero, it won’t be liquidated. Only if WLFI and USD1 both go to zero will liquidation occur.
I have to say, the team behind WLFI has a real expert—someone who truly understands DeFi, and also truly understands Marketing.
I’ll add a bit of salt and try the flavor.