Hyperliquid Token HYPE Faces Potential 45% Supply Cut Proposal

TLDR

• DBA proposes cutting HYPE supply by 45% to make its tokenomics more attractive.
• 421 million HYPE tokens could be revoked, reducing future emissions.
• The proposal seeks to correct the market’s misvaluation of HYPE’s full supply.
• HYPE’s price fell 22% after hitting an all-time high of $59.30 recently.

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A proposal to cut the total supply of HYPE, the token behind decentralized derivatives exchange Hyperliquid, by 45% has been put forward by a prominent crypto asset management firm. The firm aims to make the token’s economics more appealing and simplify its valuation process. This suggestion comes amidst growing interest in the Hyperliquid ecosystem, especially after the release of the USDH stablecoin.

Key Changes in the Proposal

The proposal, introduced by DBA Asset Management’s investment manager Jon Charbonneau, suggests three major adjustments to the Hyperliquid platform’s tokenomics. The first change involves revoking the authorization for all unminted HYPE tokens that are meant for future emissions and community rewards. This would prevent the creation of new tokens, reducing the potential supply.

Another proposed change is the burning of all HYPE tokens currently in the Hyperliquid Assistance Fund (AF). The removal of these tokens would further reduce the total available supply. Finally, the proposal calls for removing the 1 billion HYPE supply cap, allowing for greater flexibility in future token issuance if needed.

Charbonneau explained that these changes are necessary to correct what he sees as a misvaluation of HYPE in the market. He argued that the current valuation includes unissued tokens, which distorts the market’s view of the protocol’s true value.

Institutional Backing and Market Reaction

The proposal has received some support from other institutional crypto investors. Haseeb Qureshi, managing partner at Dragonfly Capital, agreed with Charbonneau’s assessment, describing the current community allocation of HYPE as inefficient. According to Qureshi, nearly half of the token’s supply is allocated for future governance decisions without a clear purpose. He believes this approach should be reconsidered, especially in light of transparency concerns.

Meanwhile, the proposal has drawn criticism from some quarters. Crypto commentator Mister Todd described it as a “disaster,” arguing that future emissions are vital for Hyperliquid’s growth. He believes that reducing the potential token supply could hinder the platform’s long-term development.

Despite the criticisms, Charbonneau defended the plan, clarifying that it does not reduce the HYPE tokens available for emergency situations. Instead, it simply changes how the tokens are accounted for, leaving room for more strategic decisions in the future.

HYPE’s Price and Market Performance

The proposal comes at a time when HYPE has experienced notable price fluctuations. The token recently reached an all-time high of $59.30 before falling by over 22% to $46.08. This price drop was partly driven by the market’s cooling sentiment and the large-scale sell-offs by investment firms, such as the Maelstrom Fund, led by Arthur Hayes.

Investors are particularly concerned about upcoming token unlocks, with nearly $12 billion worth of HYPE tokens set to be released over the next two years. This event is expected to exert significant selling pressure on the token, which may further affect its market performance.

Despite these challenges, Charbonneau remains optimistic that the proposed changes will make HYPE more attractive to both investors and stakers. The goal is to adjust the economic model to create a more sustainable environment for the token’s growth, while ensuring that the platform can still fund its initiatives when necessary.

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