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A cryptocurrency asset management firm holding HYPE, the native token of decentralized derivatives exchange Hyperliquid, has unveiled a proposal to reduce its total supply by 45%. The initiative aims to enhance the token’s appeal to investors by refining its tokenomics.

In a post on X, DBA Asset Management’s investment manager, Jon Charbonneau, detailed three key modifications to Hyperliquid’s economic model: revoking authorization for all unminted HYPE tokens meant for future emissions and community rewards (FECR), burning all HYPE held within the Assistance Fund (AF), and eliminating the project’s existing supply cap of 1 billion tokens. His proposal was authored jointly with pseudonymous crypto researcher Hasu.

Charbonneau argued that the market’s current valuation of HYPE is distorted by what he described as a fully diluted valuation metric that includes tokens not yet issued. “This misrepresents the true supply and can lead to unfair penalizations in protocol valuation, influencing future funding and growth decisions,” he explained. The proposed reduction would make HYPE more attractive to potential investors and stakers, while still allowing the protocol to fund new initiatives through future token releases.

The changes would see approximately 421 million tokens from the FECR and 21 million from the AF burned, reflecting a significant supply correction. The proposal comes at a moment of renewed interest in Hyperliquid, especially following the recent launch of USDH, the platform’s new US dollar-pegged stablecoin. A community vote was initiated to select the issuer, with finalists including Paxos, Frax, Sky, Agora, and Native Markets, the ultimate winner.

Hyperliquid demonstrated its efficiency recently by processing $330 billion in trading volume during July, using a team of just 11 employees—marking it as one of the most productive platforms in the industry. Charbonneau highlighted that USDH’s deployment is expected to boost the protocol’s revenue streams significantly.

Support for the proposal from institutional investors

Haseeb Qureshi, Managing Partner at Dragonfly, echoed similar sentiments, criticizing nearly 50% of HYPE’s supply allocated for community governance as a “slush fund” where funds could potentially be misused. He underscored the importance of transparent token allocations and cautioned against holding such a large proportion of tokens with ambiguous future use cases.

Criticism and counterarguments

However, the proposal has faced pushback. Crypto analyst Mister Todd described it as “foolish and detrimental,” emphasizing that future token emissions are one of Hyperliquid’s most compelling growth tools. Critics also cautioned that the protocol should maintain a reserve of tokens to cover potential fines or regulatory sanctions, although Charbonneau countered that the proposal does not diminish the actual available tokens, merely their accounting classification.

Recent market movements

HYPE reached a new all-time high of $59.30 last Thursday amidst ongoing volatility in the crypto markets. Since then, it has depreciated over 22%, currently trading around $46, as investors reassess holdings amid broader market sentiment shifts. Notably, hedge fund Maelstrom, led by Arthur Hayes, offloaded their entire HYPE position, citing anticipated pressure from upcoming token unlocks worth nearly $12 billion over the next two years.