A crypto asset management firm that holds HYPE — the token behind decentralized derivatives exchange Hyperliquid — has proposed cutting the total supply of HYPE by 45% to make its tokenomics more attractive to investors.
In a post to X on Monday, DBA Asset Management investment manager Jon Charbonneau outlined three changes to Hyperliquid’s economic model: Revoking authorization for all unminted HYPE tokens for future emissions and community rewards (FECR), burning all HYPE in Hyperliquid’s Assistance Fund (AF), and removing HYPE’s 1 billion supply cap.
His proposal was co-authored by pseudonymous crypto researcher Hasu.
While the plan would need to be voted on and passed through Hyperliquid’s governance structure, DBA would be a major participant, given that it actively stakes HYPE and holds a material position in the token.
The DBA executive said the proposed change would seek to correct the market’s misvaluation of HYPE, which he said is distorted by the fully diluted valuation metric that includes unissued tokens.
“This is problematic because the market penalizes this excess supply in valuing the protocol, and pre-allocating these tokens may unduly bias future capital allocation decisions,” he said, adding that the change would make HYPE even more appealing to investors and stakers, while preserving the protocol’s ability to fund initiatives through new issuances.
The proposal — which would see 421 million HYPE from the future emissions and community rewards category and 21 million from the assistance fund slashed — comes amid a recent uptick in investor interest in the Hyperliquid ecosystem.
Within a week of revealing its new US dollar stablecoin, USDH, Hyperliquid opened a vote to decide who would issue the stablecoin, drawing interest from Paxos, Frax, Sky, Agora and Native Markets, which came out victorious last week.
Hyperliquid handled $330 billion in trading volume in July with a team of 11 people, making it one of the industry’s most efficient platforms.
Charbonneau noted that USDH would contribute significantly to Hyperliquid’s revenue when rolled out.
Other institutional crypto investors support DBA’s proposal
Dragonfly managing partner Haseeb Qureshi agreed with Charbonneau’s take, stating that the nearly 50% community allocation is an “amorphous slush fund” for Hyperliquid governance members to figure out what to do with at a later date.
Qureshi said it was fine to spend tokens on growth incentives as long as it is done transparently, but allocating nearly 50% of the total supply “to do whatever with is silly and we should end it.”
Charbonneau’s proposal met with criticism
Crypto pundit Mister Todd described the proposal as “absolutely foolish and a disaster,” stating that future emissions are the most powerful growth tool that Hyperliquid has at hand.
Related: Hyperliquid whale withdraws $122M HYPE tokens as Arthur Hayes exits
Others suggested that Hyperliquid should always have tokens set aside in the event of a fine or sanction from the Department of Justice or similar entity.
However, Charbonneau countered both claims that the proposal doesn’t reduce the HYPE available in such a scenario; rather, it just changes the accounting of it.
HYPE cooled off after rallying to a new high
It comes as HYPE soared to a new all-time high of $59.30 on Thursday, while the rest of the crypto market continues to trend downward and sideways.
HYPE has, however, fallen more than 22% to $46.08 since then, as market sentiment cooled and investment firms like Arthur Hayes-led Maelstrom Fund offloaded their entire HYPE holdings.
Hayes said the firm sold its HYPE holdings in anticipation of selling pressure from nearly $12 billion worth of token unlocks over the next 24 months.
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