TLDR
- DBA proposes cutting 45% of HYPE’s supply to improve tokenomics and appeal.
- The plan would burn 421 million HYPE tokens from future emissions and rewards.
- Some institutional investors support reducing HYPE’s unclear token distribution.
- HYPE price fell 22% after hitting an all-time high amid market sentiment changes.
A crypto asset management firm has proposed a drastic reduction in the total supply of HYPE, the token behind the decentralized derivatives exchange Hyperliquid. The firm seeks to lower the token supply by 45% in an attempt to make the tokenomics of HYPE more attractive to investors. The proposed changes could potentially alter the future of HYPE’s market valuation and appeal to stakers.
Proposed Changes to HYPE’s Tokenomics
DBA Asset Management, which holds a significant position in HYPE, presented a proposal to make adjustments to Hyperliquid’s economic model. The primary components of the proposal include revoking authorization for unminted HYPE tokens intended for future emissions and community rewards (FECR), burning the HYPE tokens currently in Hyperliquid’s Assistance Fund (AF), and removing the token’s 1 billion supply cap.
Jon Charbonneau, an investment manager at DBA, explained that these changes aim to address the issue of HYPE’s market misvaluation. According to Charbonneau, the market’s current valuation of HYPE is influenced by the fully diluted valuation metric, which includes unissued tokens. This, he argues, results in a distorted view of HYPE’s true value. Charbonneau emphasized that the proposed changes would help attract more investors while still allowing the protocol to fund new initiatives through token issuance.
The proposed reduction would cut 421 million HYPE tokens from future emissions and community rewards, and 21 million tokens from the Assistance Fund. This reduction comes as Hyperliquid has seen a surge in investor interest, particularly after the launch of its new US dollar stablecoin, USDH.
Institutional Support for the Proposal
Several institutional investors have expressed support for the proposed changes to HYPE’s tokenomics. Dragonfly’s managing partner, Haseeb Qureshi, agreed with Charbonneau’s assessment of the current token distribution.
He pointed out that the allocation of nearly 50% of the token supply to future emissions and community rewards creates uncertainty about how the tokens will be used. Qureshi stated, “It is fine to use tokens for growth incentives as long as it’s done transparently, but allocating nearly half of the total supply to an ambiguous purpose is not ideal.”
These comments reflect a broader sentiment among institutional investors that the existing structure may be detrimental to HYPE’s long-term value. By reducing the future supply, the proposal aims to make HYPE’s market dynamics clearer and more predictable.
Criticism of the Proposal
Despite the support from some quarters, the proposal has faced significant criticism. Crypto analyst Mister Todd strongly disagreed with the changes, calling the idea “absolutely foolish.” Todd argued that future emissions of tokens are essential for Hyperliquid’s growth strategy, as they can be used for development, incentives, and future governance.
Others have raised concerns about the potential risks of removing the future emissions and rewards. Some believe that HYPE should maintain a reserve of tokens for contingencies, such as regulatory issues or unexpected market conditions.
Charbonneau, however, countered this argument by clarifying that the proposal does not reduce the overall number of HYPE tokens available for such scenarios, but instead changes how they are accounted for.
Market Response to HYPE’s Volatility
HYPE’s price has shown significant volatility in recent weeks. The token reached an all-time high of $59.30, but soon after, it experienced a decline of over 22%, dropping to $46.08. This price drop occurred as broader market sentiment cooled and some investors, including Maelstrom Fund, chose to liquidate their holdings.
The decision by Maelstrom Fund to sell off its HYPE tokens came amid concerns over the upcoming unlocks, which could release nearly $12 billion worth of tokens into the market in the next two years.
As Hyperliquid continues to grow and launch new products like USDH, the proposed changes to HYPE’s tokenomics could play a crucial role in shaping the token’s future. Whether the proposal will pass through Hyperliquid’s governance structure remains to be seen, as it will require approval from the community and key stakeholders within the ecosystem.
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