Original Article Title: "Burning Half of $HYPE? A Radical Proposal Sparks Hyperliquid Valuation Debate"

Original Article Author: David, Deep Tide TechFlow

Recently, amidst the Perp DEX craze, new projects have been popping up like mushrooms, constantly challenging Hyperliquid's dominant position.

All eyes are on the innovation of these new players, to the point where it seems like the potential price movement of the $HYPE flagship token has been overlooked. And the most directly related factor to token price movement is $HYPE's supply.

Factors affecting the token supply include ongoing buybacks, essentially continuously buying on the secondary market to reduce circulation, draining the liquidity pool; and another is the adjustment of the overall supply mechanism, essentially turning off the faucet.

A closer look at $HYPE's current supply design reveals an issue:

The circulating supply is approximately 3.39 billion tokens, with a market cap of around $15.4 billion; however, the total supply is close to 10 billion tokens, with a fully diluted valuation (FDV) reaching $46 billion.

The nearly threefold gap between MC and FDV mainly comes from two parts. One part is the 4.21 billion tokens allocated to "Future Emissions and Community Rewards" (FECR), and the other is the 31.26 million tokens held in the Aid Fund (AF).

The Aid Fund is an account where Hyperliquid buys back HYPE with protocol revenue, buying daily but not burning, instead holding. The issue is that investors often perceive the $46 billion FDV as overvalued, even though only one-third is actually circulating.

Against this backdrop, fund manager Jon Charbonneau (DBA Asset Management, holding a significant HYPE position) and independent researcher Hasu released an unofficial proposal on September 22 regarding $HYPE, which was highly radical; the TL;DR version is:

Burn 45% of the current total supply of $HYPE to bring the FDV closer to the actual circulating value.

This proposal quickly ignited a community discussion, with the post having received 410,000 views at the time of writing.

Why Such a Big Reaction? If the proposal is indeed adopted, burning 45% of the HYPE supply would mean that each HYPE token would nearly double in value. A lower Fully Diluted Valuation (FDV) could also attract previously hesitant investors to enter the scene.

We quickly summarized the original post of this proposal and organized it as follows.

Reducing FDV to Make HYPE Look Less Expensive

Jon and Hasu's proposal may seem simple at first glance—burning 45% of the supply. However, the actual implementation is quite complex.

To understand this proposal, one must first grasp HYPE's current supply structure. According to the data table provided by Jon, at a price of $49 (the price of HYPE at the time of their proposal), out of the total 1 billion HYPE tokens in existence, only 337 million are actually circulating, corresponding to a $16.5 billion market cap.

But where did the remaining 660 million go?

The two largest chunks are as follows: 421 million allocated to the Future Emission and Community Rewards (FECR), acting as a massive reserve pool, but with no set schedule or plan for allocation; additionally, 31.26 million is in the Aid Fund (AF)'s hands, a fund that buys HYPE daily but does not sell, merely hoarding.

Let's first discuss the burning process. The proposal includes three core actions:

First, revoke the authorization of the 4.21 billion FECR (Future Emission and Community Rewards) tokens. These tokens were originally intended for future staking rewards and community incentives but have never had a clear issuance schedule. Jon believes that instead of leaving these tokens hanging over the market like the sword of Damocles, it would be better to revoke the authorization directly. When needed, they can be reauthorized for issuance through a governance vote.

Second, destroy the 31.26 million HYPE held by the Aid Fund (AF), and all future HYPE purchases by the AF will also be directly burned. Currently, the AF buys back HYPE daily using protocol revenue (mainly 99% of transaction fees), with a daily average purchase volume of around $1 million. According to Jon's proposal, these purchased tokens will no longer be held but will be immediately burned.

Third, remove the 1 billion token supply cap. This may sound counterintuitive—if the goal is to reduce supply, why eliminate the cap?

Jon explained that the fixed supply cap is a legacy of the Bitcoin 21 million coin model and does not have practical significance for most projects. By removing the cap, if there is a need for future coin issuance (e.g., for staking rewards), the specific amount can be determined through governance decisions rather than distributed from a reserved pool.

The following comparative table clearly shows the changes before and after the proposal: the left side represents the current state, and the right side represents the situation after the proposal.

Why such a radical change? Jon and Hasu provided the core reason: HYPE's token supply design is an accounting issue, not an economic one.

The issue lies in the calculation methods used by major data platforms like CoinMarketCap.

Regarding burned tokens, FECR reserves, and AF holdings, these platforms handle the calculations for FDV, total supply, and circulating supply completely differently. For example, CoinMarketCap always calculates FDV based on a 10 billion maximum supply, even if tokens are burned without adjustment.

The result is that, no matter how HYPE buys back or burns tokens, the displayed FDV does not decrease.

It can be seen that the most significant change in the proposal is that both the 4.21 billion FECR and the 31 million AF will disappear, and the 10 billion hard cap will also be removed, to be issued as needed through governance.

In the proposal, Jon wrote: "Many investors, including some of the largest, most mature funds, only look at the surface-level FDV number." A $460 billion FDV makes HYPE seem more expensive than Ethereum—so who would dare to buy in?

However, most proposals are like letting the tail wag the dog. Jon explicitly stated that the DBA fund he manages has a "material position" in HYPE, and he personally holds it too, so if there is a vote, they will all vote in favor.

The proposal strongly emphasizes that these changes will not affect the relative holdings of existing holders, the ability of the Hyperliquid funded projects, or the decision-making mechanism. In Jon's words,

"This is just to make the ledger more honest."

When "Community Allocation" Becomes a De Facto Rule

But will the proposal be accepted by the community? The original post's comment section has already blown up.

Among them, Dragonfly Capital Partner Haseeb Qureshi's comment placed this proposal within a larger industry-wide phenomenon:

"There are some 'sacred cows' in the crypto industry that just won't die and it's time to slaughter them."

He is referring to an unwritten rule in the entire crypto industry: after token generation, project teams always have to reserve a so-called 40-50% token allocation for the "community." This may sound very decentralized and Web3, but in reality, it's more of a performance art.

In 2021, during the peak of the bull market, every project was competing to be more "decentralized." Therefore, in the tokenomics, it became common to write about allocating 50%, 60%, or even 70% to the community, with bigger numbers being more politically correct.

But how are these tokens actually used? No one can clearly explain.

From a broader malicious perspective, for some project teams, the more realistic situation regarding the allocation of tokens to the community is that they use them whenever and however they want, under the guise of "for the community."

The issue is, the market is not foolish.

Haseeb also revealed a public secret that professional investors automatically discount these "community reserves" by 50% when evaluating projects.

For a project with a $500 billion FDV but with a 50% "community allocation," in their eyes, the actual valuation is only $250 billion. Unless there is a clear ROI, these tokens are just a pie in the sky.

This is also the problem that HYPE faces. Within HYPE's $490 billion FDV, over 40% is reserved for "future emissions and community rewards." Investors see this number and hesitate.

Not because HYPE is bad, but because the numbers on paper are too abstract. Haseeb believes that Jon's proposal is influential in gradually transforming originally unmentionable radical ideas into acceptable mainstream viewpoints; we need to question the industry norm of allocating tokens to the "community reserve."

In summary, supporters' views are straightforward:

If you want to use tokens, follow governance, clearly explain why you are issuing them, how many will be issued, and what the expected return is. Be transparent, accountable, and not a black box.

At the same time, because this post is considered too radical, there are also some opposing voices in the comment section. We have summarized them into three main points:

First, some HYPE must be held as a reserve for risk.

From a risk management perspective, some people believe that the 31 million HYPE in the Aid Fund AF is not just inventory, but also emergency funds. What if there is a regulatory fine or a need for compensation due to a hacker attack? Burning all reserves is equivalent to losing the buffer in times of crisis.

Second, HYPE already has a comprehensive destruction mechanism in place.

Hyperliquid already has three natural destruction mechanisms: spot trading fee destruction, HyperEVM gas fee destruction, and token auction fee destruction.

These mechanisms automatically adjust the supply based on platform usage, so why interfere artificially? Destruction based on usage is healthier than one-time destruction.

Third, large-scale destruction is not conducive to incentives.

Future emissions are Hyperliquid's most important growth tool, used to incentivize users and reward contributors. Burning them is equivalent to shooting oneself in the foot. Moreover, large stakers will be locked up. If there are no new token rewards, who would be willing to stake?

Who Does the Token Serve?

At first glance, this is a technical discussion about whether to burn tokens or not. But if you carefully analyze the positions of each party, you will find that the disagreement is actually a matter of perspective.

Jon and Haseeb's viewpoint is clear: institutional investors are the main source of incremental capital.

These funds manage billions of dollars, and their buy-ins can truly drive prices. However, the issue is that they are afraid to enter a project with a $490 billion FDV. Therefore, this number needs to be adjusted to make HYPE more attractive to institutions.

The community's view is entirely different. In their eyes, retail traders who open and close positions on the platform every day are the foundation. Hyperliquid is where it is today not because of VC money, but because of the support of 94,000 airdrop users. Changing the economic model to cater to institutions would be turning things upside down.

This disagreement is not new.

Looking back at DeFi history, almost every successful project has gone through a similar crossroads. When Uniswap launched its token, the community and investors argued fiercely over treasury control.

At the core of each instance is the same question: is an on-chain project meant to serve big money or grassroots crypto natives?

This proposal seems to be in favor of the former, as "many of the largest, most mature funds only look at FDV." The implication is clear that in order to attract these big players, you have to play by their rules.

The proposer, Jon, is himself an institutional investor, and his DBA fund holds a large amount of HYPE. If the proposal is accepted, the biggest beneficiary would be precisely such a whale. With a reduction in supply, the coin price may rise, and the value of the holdings will skyrocket.

Combining this with the fact that just a few days ago Arthur Hayes sold $800,000 worth of HYPE, joking about buying a Ferrari, one can sense a delicate timing. The earliest supporters are cashing out, and now someone is proposing a coin burn to boost the price. Who exactly is being carried on a sedan chair here?

As of the time of writing, Hyperliquid's official stance has not yet been communicated. But regardless of the final decision, this debate has already exposed the harsh truth that nobody wants to confront:

With profits at the forefront, we may have never cared that much about decentralization, just pretended to do so.

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