Reducing HYPE Supply? + App Revenue

A proposal by DBA aims to reduce Hyperliquid's token supply by 45% through accounting cleanups, enhancing financial transparency and aligning its valuation metrics with traditional finance standards.

• DBA proposes to cut Hyperliquid's HYPE token supply by 45% through accounting adjustments, not operational changes.

• The plan involves burning assistance fund tokens and revoking authorization for future emissions, removing the max supply cap.

• The goal is to align HYPE's valuation metrics with TradFi standards, making its financial status more transparent and legible to investors.

DBA's proposal to reduce Hyperliquid's HYPE token supply by 45% seeks to address the disparity between how crypto and traditional finance (TradFi) protocols are valued. The proposal aims to clarify Hyperliquid's accounting by burning tokens in the assistance fund and revoking authorization for future emissions, without changing the protocol's functionality. This move is intended to make HYPE's valuation more legible and appealing to investors by aligning its Full Diluted Valuation (FDV) with a more realistic adjusted market cap, which currently presents a significant gap.

Addressing Valuation Discrepancies

• 00:03:08 DBA's proposal targets a broad industry problem where crypto token valuation metrics, such as market cap and FDV, differ significantly from TradFi equity measurements. For Hyperliquid's HYPE token, the gap between its circulating market cap (around $15-20 billion) and its FDV (around $50 billion) is substantial, leading to an overstatement of its perceived value. The proposal seeks to rectify this by aligning reported metrics with a more relevant valuation, which for HYPE is estimated at $30 billion.

Proposed Supply Reduction Mechanisms

• 00:06:45 The proposal focuses on two large buckets of HYPE tokens: the assistance fund and the Future Emissions and Community Rewards (FECR). For tokens in the assistance fund, which continuously accumulates HYPE from protocol revenues but has no designated purpose, the proposal suggests burning all current and future holdings. For FECR tokens, which are authorized but not yet minted, the proposal recommends removing their explicit authorization and concurrently removing the total max supply cap. This reclassification means future expenditures would involve minting new HYPE, effectively a bookkeeping tweak that improves financial clarity without altering operational controls.

Rethinking Max Supply Caps

• 00:11:00 The proposal advocates for removing Hyperliquid's max supply cap, arguing that such caps are often 'not a real number' for most crypto projects beyond Bitcoin. While Bitcoin's 21 million cap reflects a strong social contract, many projects copy this model without a genuine long-term commitment, leading to future token migrations or tokenomics adjustments. By removing the cap, Hyperliquid can issue new HYPE as needed for value-accretive purposes, similar to a company issuing new shares, ensuring the protocol can continue funding operations and incentives transparently.

Team Token Ownership & Valuation

• 00:21:44 Regarding concerns about team token ownership, the proposal asserts that team-owned tokens, along with foundation supply and other insider allocations, should be factored into an adjusted market cap for fundamental valuation. This differs from circulating market cap metrics, which often exclude these tokens until they are fully liquid, providing an incomplete picture. The argument is that if a team has disclosed its holdings and unlock schedules, these tokens represent known future supply and should be accounted for when assessing the protocol's true fundamental value.

Future Governance and Market Feedback

• 00:39:06 The path forward for the proposal's implementation is open, with potential methods including validator or token holder voting. An innovative suggestion for deciding on the proposal is using 'futurearchy,' a prediction market that would allow the market to signal its perception of how HYPE's price would react if the proposal passes or fails. This approach could provide valuable, real-time market feedback on the financial accounting changes, aiding decision-making without immediately committing to implementation.