[English Thread] Hyperliquid Economic Model Optimization Proposal: Reduce Total HYPE Supply by 45%

Chainfeeds Guide:

It is recommended to revoke the unminted HYPE authorization in FECR, destroy the HYPE held and to be obtained by the Aid Fund (AF), and remove the maximum supply cap of 1 billion tokens, so that subsequent issuance will directly increase the total supply.

Source:

Author:

Jon Charbonneau

Opinion:

Jon Charbonneau: Hyperliquid’s current economic model has a prominent issue: the amount of authorized but non-circulating HYPE is too large, mainly concentrated in the Aid Fund (AF, about 31 million tokens) and future emissions and community rewards (FECR, about 421 million tokens). Although these tokens do not immediately enter the market, they are included in the total supply for market cap calculations, causing the protocol to be severely undervalued in valuation. The market typically uses two metrics: circulating market cap (MCAP) and fully diluted valuation (FDV). The former is too low because it ignores the team and investor shares with known unlock schedules; the latter is too high because it includes tokens that are authorized but have no circulation plan. For example, CoinMarketCap defaults to calculating FDV using the maximum supply, even if HYPE’s supply has been reduced by burning, it still uses 1 billion tokens; CoinGecko uses the total supply, but still includes the FECR authorized portion. Meanwhile, HYPE bought back by the AF is also included in the circulating market cap, so it cannot reduce FDV. As a result, Hyperliquid is penalized in data provider metrics, while the real economic situation is not accurately reflected. Our view is that such tokens with no circulation plan (analogous to treasury stock and unissued authorized shares in equities) should be excluded, and only those with clear unlock schedules and economic use should be counted. Many professional investors use similar logic for modeling, but most market participants still rely on headline FDV data. This directly leads to HYPE being undervalued. To solve this problem, we propose to modify the economic model: revoke the unminted FECR authorization, destroy the existing and future repurchased tokens in the AF, and cancel the maximum supply cap of 1 billion tokens. These adjustments will result in a reduction of more than 45% of the total supply, thereby improving the protocol’s financial transparency and market recognition. The goals of this proposal are twofold: first, to improve the clarity of the protocol’s economics to the external market, making it easier for potential participants to accurately assess Hyperliquid, thus reducing the risk of being misled by inflated FDV metrics and helping the protocol attract more capital and ecosystem resources; second, to increase transparency for community members, avoiding the psychological effect of “pre-allocated funds,” so that capital allocation decisions are more based on economic logic. The core measures of the proposal include: (1) revoking all unissued FECR authorizations; (2) destroying the HYPE currently held by the AF, as well as any tokens the AF may acquire in the future; (3) removing the 1 billion supply cap, so that any future issuance is directly included in the total supply. These changes will not affect the relative share of existing HYPE holders, nor will they weaken Hyperliquid’s ability to support value-added projects. They are merely a restructuring at the accounting and governance level. More importantly, if this proposal is implemented and has a positive impact on market value, the number of tokens Hyperliquid needs to allocate for future incentives will decrease, thereby improving capital efficiency. The common objections we encounter are twofold: one is that the market and governance should be smart enough to understand the current model, so no changes are needed; the other is that Hyperliquid is still in its early stages and should retain tokens to fund growth. However, we believe the former is too idealistic; in reality, market participants lack the time and resources to study the economics in depth and generally rely on simple metrics. The latter is a false proposition, as destroying old allocations does not conflict with future issuance—the protocol can always issue new tokens as needed. Removing the supply cap is not unprecedented in the crypto industry. Bitcoin’s 21 million hard cap is a product of social contract, but most tokens do not have such religious consensus. Both ETH and SOL have no hard cap; they support ecosystem development through ongoing issuance. For HYPE, the supply cap is merely an expression of current social consensus; if there is a need for value-creating issuance in the future, the community will likely support it. That is why we believe removing the cap is realistic. More broadly, many protocols have begun to burn excess treasury tokens or migrate to a no hard cap model to reduce market discounts and turn them into advantages. As an L1 with autonomous forking capability, Hyperliquid can implement such changes smoothly without complex migrations. The industry trend is moving toward rational accounting, i.e., using more transparent financial structures to improve market understanding of valuation. Ultimately, we believe this proposal brings significant economic benefits to Hyperliquid with virtually no substantive risk. It eliminates the market penalty for excess supply, enhances financial and strategic alignment, and maintains the protocol’s flexibility and future scalability. In the long run, this is not only an optimization attempt for Hyperliquid itself, but may also become a paradigm for more protocols in the industry to follow. [Original text in English]