A crypto asset management firm, DBA Asset Management, is proposing a significant change to the tokenomics of HYPE, the token behind the decentralized derivatives exchange Hyperliquid. The firm, which holds a material position in HYPE and actively stakes it, is advocating for a 45% reduction in the token's total supply.

The proposal, co-authored by pseudonymous crypto researcher Hasu, outlines three key changes to Hyperliquid's economic model:

1. Revoking authorization for unminted HYPE tokens: This involves canceling the authorization for all unminted HYPE tokens earmarked for future emissions and community rewards (FECR).
2. Burning HYPE in the Assistance Fund: The proposal suggests burning all HYPE tokens currently held within Hyperliquid's Assistance Fund (AF).
3. Removing the supply cap: The current 1 billion HYPE supply cap would be eliminated.

DBA Asset Management's investment manager, Jon Charbonneau, argues that the current market valuation of HYPE is being negatively impacted by the inclusion of unissued tokens in the fully diluted valuation metric. He believes that the market unfairly penalizes the token due to this excess supply, which can also bias future capital allocation decisions. By reducing the supply, the firm aims to make HYPE more attractive to investors and stakers. The proposed changes would involve slashing approximately 421 million HYPE from the FECR and 21 million from the AF.

This proposal surfaces amid growing investor interest in the Hyperliquid ecosystem. Recently, Hyperliquid introduced its new US dollar stablecoin, USDH, and initiated a vote to determine the issuer. Native Markets emerged as the winner among finalists like Paxos, Frax, and Sky. Hyperliquid has demonstrated its efficiency, processing $330 billion in trading volume in July with a team of only 11 people.

The proposal to slash the HYPE supply reflects a growing trend in the DeFi space towards deflationary tokenomics. Projects like Ethereum with EIP-1559 and Bitcoin with its halving events have employed similar strategies to enhance scarcity and potentially increase asset value. Hyperliquid's move can be seen as a strategic pivot towards these mechanics.

The success of the proposal hinges on its ability to balance supply-side optimization with the functional utility of the token, ensuring it remains integral to governance, staking, and transaction fees. The initiative will be subject to a governance vote within the Hyperliquid community.

Other crypto projects have also adopted deflationary strategies. For example, the Ronin Network executed a $4.6 million RON buyback, reducing the supply by 1.3%, which led to a 15% price surge. Similarly, BONK, a meme coin, utilizes buy-and-burn programs to reduce supply and enhance long-term value.