Justin Sun Wins Court Bid to Keep WLFI Dispute Public, Alleging Token Backdoor

A California federal court handed Justin Sun a procedural victory Friday, denying World Liberty Financial's bid to shunt their escalating legal battle into private arbitration. The ruling keeps the dispute, and Sun's explosive allegations about a "backdoor" in the WLFI smart contract, in the public docket. Sun, the TRON founder and one of WLF's earliest backers with a $45 million investment, has argued for months that World Liberty Financial embedded administrative functions in the WLFI token contract granting the team unilateral power to freeze, restrict, or burn any holder's balance without notice or due process. In a post on X Friday, Sun said his legal team "argued forcefully that this case belongs in open court, and the Court agreed with us. The judge ordered both sides to confer on which claims stay in federal court and which, if any, proceed to arbitration. Sun called the decision "a significant win," though he acknowledged it does not resolve the underlying lawsuit.

The origin of the feud

The conflict traces back to April 2026, when Sun first went public with claims that WLF had deposited roughly 5 billion WLFI tokens as collateral on the lending platform Dolomite and borrowed at least $75 million in stablecoins, including USD1. World Liberty Financial responded in May with a defamation lawsuit against Sun, escalating a financial disagreement into a legal war. Sun's latest court filing alleges WLF exercised the contested backdoor against his own WLFI holdings, which he characterizes as an unlawful seizure. He further claims WLF threatened criminal referrals when he moved to enforce his rights. A subsequent court order barred WLF from burning, destroying, reallocating, or permanently disposing of Sun's tokens, relief Sun said was necessary because WLF had both the technical ability and the stated intent to eliminate them.

USD1 under scrutiny

Sun's warning extends beyond WLFI. He asserts that USD1, World Liberty Financial's dollar-pegged stablecoin, carries comparable administrative controls that could allow the issuer to freeze or potentially destroy tokens at will. "In my opinion, there is serious reason to be cautious about both $WLFI and USD1," Sun wrote. The allegation strikes at a core promise of fiat-backed stablecoins: that holders retain unfettered access to their funds. If verified, such controls would place USD1 in the same category as centralized stablecoins like USDC and USDT, which maintain freeze functions for regulatory compliance, but without the same transparency or legal framework.

Market reaction muted

TRX, the native token of the TRON network Sun founded, showed little immediate reaction to the court development. CoinGecko data at 14:00 UTC Friday put TRX at $0.344, up 0.30% in 24 hours and 4.40% over the trailing seven days. Volume clocked in at $688.7 million against a market capitalization of $32.69 billion, leaving TRON ranked eighth by market cap. | Circulating Supply | 94.91B TRX | Current | The broader crypto market slid 4.42% in total capitalization to $2.60 trillion over the same 24-hour window, with Bitcoin dominance holding at 59.3%. The court's order for a meet-and-confer on claim allocation sets up the next procedural milestone. Sun's team must now negotiate which allegations, the backdoor claim, the token seizure, the criminal referral threat, remain in public litigation and which might still shift to arbitration. WLF has not issued a public response to Friday's ruling. For USD1 holders, the practical question is whether the stablecoin's contract contains the freeze-and-burn functions Sun describes, and whether WLF has ever exercised them. On-chain verification of the USD1 contract's admin roles would settle the technical dispute, but neither party has published a formal audit addressing the specific allegation.