When Tens of Billions in Selling 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, amid the hype surrounding Perp DEXs, a slew of new projects have emerged like mushrooms after the rain, constantly challenging Hyperliquid’s leading position.

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

There are two main factors affecting supply: one is ongoing buybacks, which means continuously buying up tokens in the existing market to reduce circulation—like lowering the water level in a pool; the other is adjusting the overall supply mechanism, which is akin to turning off the tap.

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 billion; but the total supply is close to 1 billion tokens, with an FDV as high as $46 billion.

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 every day but does not burn, only holds. The problem is, investors see the $46 billion 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 regarding $HYPE on September 22, which is quite radical; the TL;DR is:

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

This proposal quickly ignited community discussion. As of press time, the post had 410,000 views.

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

We have 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 the actual operation is more complex.

To understand this 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 at the time of the proposal), out of the total 1 billion HYPE tokens, 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 portions are: 421 million allocated to "Future Emissions and Community Rewards" (FECR), essentially a huge reserve pool with no clear timeline or usage; and another 31.26 million held in the Aid Fund (AF), which buys HYPE daily but does not sell, 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 has never been a clear issuance schedule. Jon believes that rather than letting these tokens hang over the market like the Sword of Damocles, it’s better to revoke the authorization directly. If needed, issuance can be re-approved through governance voting.

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

Third, remove the 1 billion supply cap. This sounds counterintuitive—if the goal is 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 practical meaning for most projects. After removing the cap, if new tokens need to be issued in the future (e.g., 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.

As a result, 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, replaced by governance-based issuance as needed.

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

However, most proposals are driven by self-interest. Jon made it clear that the DBA fund he manages holds a "material position" in HYPE, and he personally holds HYPE as well. If there is a vote, they will 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 "Community Allocation" 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 placed this proposal in a broader industry context:

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

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

In 2021, at the peak of the bull market, every project was competing to be more "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 for sure.

From a more cynical perspective, for some project teams, the reality is that community-allocated tokens can be used whenever and however they want, under the guise 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 billion FDV but 50% "community allocation" is only valued at $25 billion 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 billion 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 previously undiscussable radical ideas into mainstream views; we need to question the crypto industry’s practice of allocating tokens to "community reserves."

In summary, supporters’ views are simple:

If you want to use tokens, go through governance, explain why, how much, 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 opposing 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 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 burns, HyperEVM gas fee burns, and token auction fee burns.

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 not conducive to 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 limbs. Moreover, 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 debate about whether to burn tokens. But if you analyze the positions of each side, you’ll find the real divide is about interests.

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 really move prices. But the problem is, when they see a $49 billion FDV, they don’t dare to enter. So the number needs to be fixed to make HYPE more attractive to institutions.

The community sees it 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 divide 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 capital, or grassroots crypto natives?

This proposal seems to serve the former: "Many of the largest and most sophisticated 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 will be 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, joking that he was going to buy a Ferrari, you can sense a subtle timing. The earliest supporters are cashing out, and now someone is proposing to burn tokens to push up the price—who is really being set up here?

As of press time, Hyperliquid’s official team has not commented. But regardless of the final decision, this debate has already torn open a truth everyone is reluctant to face:

When profit comes first, maybe we never really cared about decentralization—we were just pretending.