When 10 billion sell-off pressure meets the 45% burn proposal, the Hyperliquid valuation battle escalates

Original Title: "Burn Half of $HYPE? A Radical Proposal Sparks a Major Debate on Hyperliquid Valuation"

Original Author: David, Deep Tide TechFlow

Recently, amidst the Perp DEX boom, a slew of new projects have sprung up like mushrooms after rain, constantly challenging Hyperliquid’s top-dog status.

Everyone’s attention is focused on the innovations of new players, to the point that the price movement of $HYPE, the leading token, seems to be overlooked. The factor most directly related to token price changes is the supply of $HYPE.

There are two things that affect supply: one is continuous buybacks, which is like constantly buying in the existing market to reduce circulation, lowering the water level in the pool; the other is an overall adjustment to the supply mechanism, which is like turning off the faucet.

Looking closely at the current supply design of $HYPE, there are actually some issues:

The circulating supply is about 339 million tokens, with a market cap of around $15.4 billions; but the total supply is close to 1 billion tokens, and the FDV is as high as $46 billions.

The nearly threefold gap between MC and FDV mainly comes from two parts. One part is 421 million tokens allocated to "Future Emissions and Community Rewards" (FECR), and another 31.26 million tokens held in the Aid Fund (AF).

The Aid Fund is an account Hyperliquid uses to buy back HYPE with protocol revenue. It buys daily but does not burn, only holds. The problem is, investors see the $46 billions FDV and often feel the valuation is too high, even though only a third is actually circulating.

Against this backdrop, investment manager Jon Charbonneau (DBA Asset Management, holding a large HYPE position) and independent researcher Hasu published an unofficial proposal about $HYPE on September 22, which is quite radical; the TL;DR is:

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

This proposal quickly ignited community discussion, and as of press time, the post has 410,000 views.

Why such a big reaction? If the proposal is adopted, burning 45% of the HYPE supply means the value represented by each HYPE token would nearly double. A lower FDV could also attract previously hesitant investors.

We’ve also quickly summarized the original content of this proposal as follows.

Reduce FDV to Make HYPE Look Less Expensive

Jon and Hasu’s proposal seems simple—burn 45% of the supply—but it’s actually more complicated in practice.

To understand the proposal, you first need to look at HYPE’s current supply structure. According to Jon’s data sheet, at a price of $49 (the price when they proposed), out of the total 1 billion HYPE tokens, only 337 million are actually circulating, corresponding to a $16.5 billions market cap.

But where did the remaining 660 million tokens go?

The two biggest portions are: 421 million tokens allocated to "Future Emissions and Community Rewards" (FECR), which is like a huge reserve pool but no one knows when or how it will be used; another 31.26 million tokens are held by the Aid Fund (AF), which buys HYPE daily but never sells, just accumulates.

So how to burn? The proposal includes three core actions:

First, revoke the authorization of 421 million FECR (Future Emissions and Community Rewards) tokens. These tokens were originally planned for future staking rewards and community incentives, but there’s never been a clear issuance schedule. Jon believes that instead of letting these tokens hang over the market like the Sword of Damocles, it’s better to revoke the authorization directly. When needed, issuance can be re-approved through governance voting.

Second, burn the 31.26 million HYPE held by the Aid Fund (AF), and directly burn all HYPE bought by AF in the future as well. Currently, AF uses protocol revenue (mainly 99% of trading fees) to buy back HYPE daily, with an average daily purchase of about $1 million. According to Jon’s plan, these bought tokens would no longer be held but immediately burned.

Third, remove the 1 billion supply cap. This sounds counterintuitive—if you want to reduce supply, why remove the cap?

Jon explains that a fixed cap is a legacy of bitcoin’s 21 million model and has no real meaning for most projects. After removing the cap, if new tokens need to be issued in the future (such as for staking rewards), the specific amount can be decided through governance, rather than being allocated from a reserved pool.

The comparison table below clearly shows the changes before and after the proposal: the left is the current situation, the right is after the proposal.

Why be so radical? Jon and Hasu’s core reason is: HYPE’s token supply design is an accounting issue, not an economic one.

The problem lies in the calculation methods of major data platforms like CoinmarketCap.

Burned tokens, FECR reserves, and AF holdings are all treated differently by each platform when calculating FDV, total supply, and circulating supply. For example, CoinMarketCap always uses the 1 billion max supply to calculate FDV, even if tokens are burned, it doesn’t adjust.

The result is, no matter how much HYPE is bought back or burned, the displayed FDV never goes down.

As you can see, the biggest change in the proposal is that the 421 million FECR tokens and 31 million AF tokens would disappear, and the 1 billion hard cap would be removed, switching to governance-based issuance as needed.

Jon wrote in the proposal: "Many investors, including some of the largest and most mature funds, only look at the surface FDV number." A $46 billions FDV makes HYPE look even more expensive than Ethereum—who would dare to buy?

However, most proposals are influenced by self-interest. Jon clearly states that the DBA fund he manages holds a "material position" in HYPE, and he personally holds it as well. If there’s a vote, they’ll both vote in favor.

The proposal emphasizes that these changes will not affect the relative share of existing holders, will not affect Hyperliquid’s ability to fund projects, and will not change the decision-making mechanism. In Jon’s words,

"This just makes the ledger more honest."

When "Allocated to the Community" Becomes an Unspoken Rule

But will the community buy into this proposal? The original post’s comment section has already exploded.

Among them, Dragonfly Capital partner Haseeb Qureshi’s comment put this proposal into a broader industry context:

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

He’s referring to an unspoken rule across the crypto industry: after a project generates tokens, it always reserves so-called 40-50% of the token share for the "community." This sounds very decentralized and Web3, but in reality, it’s a form of performance art.

Back in 2021, at the peak of the bull market, every project was competing to be the most "decentralized." So tokenomics would state 50%, 60%, or even 70% for community allocation—the bigger the number, the more politically correct.

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

From a more cynical perspective, for some project teams, the reality of the community allocation is that they use it whenever and however they want, under the pretense of "for the community."

The problem is, the market isn’t stupid.

Haseeb also revealed an open secret: professional investors automatically discount these "community reserves" by half when evaluating projects.

A project with a $50 billions FDV but 50% "community allocation" is actually valued at only $25 billions in their eyes. Unless there’s a clear ROI, these tokens are just pie in the sky.

This is exactly the problem HYPE faces. Of HYPE’s $49 billions FDV, over 40% is reserved for "Future Emissions and Community Rewards." Investors see this number and shy away.

It’s not that HYPE is bad, but the numbers on paper are too inflated. Haseeb believes Jon’s proposal is a catalyst, turning what couldn’t be discussed openly into an increasingly mainstream view; we need to question the crypto industry’s practice of allocating tokens to "community reserves."

To summarize, supporters’ views are simple:

If you want to use tokens, go through governance, explain why, how many, and what the expected return is. Be transparent and accountable, not a black box.

At the same time, because this post is so radical, there are also some dissenting voices in the comments. We’ve summarized them into three main points:

First, some HYPE must be kept as a risk reserve.

From a risk management perspective, some believe that the 31 million HYPE in the Aid Fund AF is not just inventory, but emergency funds. What if there’s a regulatory fine or a hack that needs compensation? Burning all reserves means losing a buffer in times of crisis.

Second, HYPE already has a complete burn mechanism technically.

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

These mechanisms automatically adjust supply based on platform usage, so why intervene manually? Usage-based burning is healthier than one-off burning.

Third, large-scale burning is bad for incentives.

Future emissions are Hyperliquid’s most important growth tool, used to incentivize users and reward contributors. Burning them is like cutting off your own arm. And large stakers would be locked in. Without new token rewards, who would want to stake?

Who Do Tokens Serve?

On the surface, this is a technical discussion about whether to burn tokens. But if you analyze the positions of each side, you’ll find the disagreement is really about self-interest.

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

These funds manage billions of dollars, and their buying can truly drive prices. But the problem is, when they see a $49 billions FDV, they don’t dare to enter. So the number needs to be fixed to make HYPE more attractive to institutions.

The community sees things completely differently. In their eyes, the retail traders opening and closing positions on the platform every day are the foundation. Hyperliquid’s success is not due to VC money, but the support of 94,000 airdrop users. Changing the economic model to cater to institutions is putting the cart before the horse.

This disagreement is not new.

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

The core issue is always the same: is an on-chain project meant to serve big money, or grassroots crypto natives?

This proposal seems to serve the former: "Many of the largest and most mature funds only look at FDV." The implication is clear—if you want big money to come in, you have to play by their rules.

Proposer Jon himself is an institutional investor; his DBA fund holds a large amount of HYPE. If the proposal passes, the biggest beneficiaries are exactly whales like him. With reduced supply, the token price may rise, and the value of their holdings will soar.

Combined with the fact that just a few days ago Arthur Hayes sold $800,000 worth of HYPE jokingly to buy a Ferrari, you can sense a subtle timing. The earliest supporters are cashing out, and now someone proposes burning tokens to push the price higher—who is really being set up here?

As of press time, Hyperliquid officials have yet to comment. But regardless of the final decision, this debate has already torn open a truth everyone is reluctant to face:

When it comes to profit, maybe we never really cared that much about decentralization—we’re just pretending.