HYPE's 45% Supply Slash: Boosting Value or Undermining Growth?

Hyperliquid’s governance community is poised to consider a proposal that could reduce the circulating supply of its native HYPE token by approximately 45%, a move aimed at refining tokenomics and enhancing investor confidence. The plan, co-authored by DBA Asset Management’s Jon Charbonneau and researcher Hasu, seeks to burn 442 million HYPE tokens currently allocated for future emissions and community rewards, while also eliminating the token’s 1 billion supply cap. This adjustment would allow governance to approve future token issuance only when value-accretive, aligning the protocol’s economic model with market realities^[1].

The proposal targets tokens held in Hyperliquid’s Assistance Fund, a reserve containing 31 million HYPE, which would be permanently burned. Any future buybacks directed to this fund would also be destroyed. Charbonneau and Hasu argue that pre-allocated but unused tokens distort valuation metrics and deter capital inflows. By removing these tokens from the supply, the authors aim to create a clearer picture of the protocol’s economic health for investors^[2]. The team also noted that eliminating the supply cap mirrors the approach of major crypto assets like Ethereum (ETH) and Solana (SOL), which operate without fixed issuance limits^[3].

Supporters of the proposal emphasize that the supply reduction would not dilute existing holders’ ownership shares. Instead, it would reflect a more accurate representation of the token’s value by removing tokens that may never enter circulation. Charbonneau stated that the change could improve price discovery over time, as a leaner supply might support better pricing dynamics and attract new participants^[1]. The proposal also aligns with Hyperliquid’s recent governance vote to launch its USDH stablecoin, which has drawn significant community debate and institutional interest^[2].

Critics, however, argue that the move could limit the platform’s flexibility in using future emissions as a growth tool. Some community members and commentators, including crypto analyst Mister Todd, warned that reducing reserves could leave the protocol unprepared for potential legal or regulatory challenges^[2]. Additionally, concerns were raised about the long-term implications of removing the supply cap, as it could lead to increased token distribution in incentive programs if the price rises^[3]. Despite these objections, proponents like Dragonfly Managing Partner Haseeb Qureshi praised the proposal, calling the current 50% community allocation an “amorphous slush fund” that lacks clear governance oversight^[2].

The debate coincides with heightened market activity for HYPE, which reached an all-time high of $59.30 before retreating to $46.08 amid broader crypto market volatility. The token’s recent performance has drawn attention from institutional players, including Arthur Hayes’ Maelstrom Fund, which offloaded its entire HYPE holdings citing concerns over $12 billion in token unlocks expected over the next two years^[2]. Meanwhile, analysts like CryptoFrog have projected HYPE could hit $100 by late 2025 if the supply reduction passes and adoption accelerates^[4].

Hyperliquid’s governance process will determine whether the proposal progresses. The platform, which processed $330 billion in trading volume in July with a team of 11, has demonstrated efficiency in executing governance decisions, as seen in its recent selection of Native Markets as the issuer for its USDH stablecoin^[2]. The outcome of the vote will likely influence not only HYPE’s trajectory but also broader perceptions of tokenomics strategies in decentralized finance (DeFi).