A crypto asset management firm that holds HYPE — the token behind decentralized derivatives exchange Hyperliquid — has proposed reducing the total supply of HYPE by 45% to enhance its tokenomics for investors.
In a post on X on Monday, DBA Asset Management’s investment manager Jon Charbonneau highlighted three proposed 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 eliminating HYPE’s 1 billion supply cap.
His proposal was co-authored by pseudonymous crypto researcher Hasu.
Although the plan will require a vote through Hyperliquid’s governance structure, DBA is expected to play a significant role, given its active staking of HYPE and substantial position in the token.
The DBA executive mentioned that the proposed changes aim to address the market’s misvaluation of HYPE, which he believes is skewed by the fully diluted valuation metric that factors in 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 stated, adding that the adjustment would make HYPE even more attractive to investors and stakers while maintaining the protocol’s capacity to fund initiatives through new issuances.
The proposal — which would cut 421 million HYPE from the future emissions and community rewards category and 21 million from the assistance fund — comes amidst a rise in investor interest in the Hyperliquid ecosystem.
After unveiling its new US dollar stablecoin, USDH, Hyperliquid opened a vote to determine who would issue the stablecoin, drawing interest from Paxos, Frax, Sky, Agora, and Native Markets, the latter emerging victorious last week.
Hyperliquid reported $330 billion in trading volume in July, supported by a team of 11, making it one of the industry’s most efficient platforms.
Charbonneau noted that USDH would significantly boost Hyperliquid’s revenue upon its launch.
Other institutional crypto investors support DBA’s proposal
Dragonfly managing partner Haseeb Qureshi concurred with Charbonneau’s assessment, stating that the nearly 50% community allocation is an “amorphous slush fund” for Hyperliquid governance members to decide how to utilize later.
Qureshi noted that while spending tokens on growth incentives is acceptable if executed transparently, 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 commentator Mister Todd described the proposal as “absolutely foolish and a disaster,” asserting that future emissions are Hyperliquid’s most potent growth tool.
Related: Hyperliquid whale withdraws $122M HYPE tokens as Arthur Hayes exits
Others suggested that Hyperliquid should maintain some tokens set aside in case of penalties or sanctions from the Department of Justice or similar entities.
However, Charbonneau countered both claims, stating that the proposal does not decrease the HYPE available in such scenarios; instead, it merely alters the accounting of it.
HYPE cooled off after rallying to a new high
It comes as HYPE reached a new all-time high of $59.30 on Thursday, while the broader crypto market continues to exhibit downward and sideways trends.
Since then, HYPE has declined more than 22% to $46.08, as market sentiment has cooled and investment firms, including Arthur Hayes-led Maelstrom Fund, have liquidated their entire HYPE holdings.
Hayes remarked that the firm divested its HYPE assets in anticipation of sell pressure from almost $12 billion worth of token unlocks over the next 24 months.
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