Hyperliquid Slashes HYPE Supply by 45% as $12 Billion Unlock Sparks Market Panic

Hyperliquid pulls emergency lever with massive token supply cut amid unlock frenzy.

The Deflation Gambit

Hyperliquid executes a 45% supply reduction on HYPE tokens—a defensive maneuver against impending token unlock turbulence. The protocol burns nearly half its circulating supply while facing down a $12 billion unlock event that's rattling investor confidence across decentralized finance.

Market Mechanics in Overdrive

This isn't typical tokenomics tweaking—it's quantitative tightening on blockchain steroids. The supply shock treatment aims to counterbalance potential sell pressure from the unlock, creating artificial scarcity while real panic sets in. Traders are watching whether math can overpower market psychology.

Protocol vs. Panic

Hyperliquid's aggressive cut contrasts sharply with traditional finance's gradual approaches. While Wall Street would form a committee, Web3 deploys code. The move signals how decentralized protocols can pivot faster than legacy institutions—though whether it's genius or desperation remains unclear.

Because nothing says 'healthy market' like emergency supply cuts during billion-dollar unlock events—just another day in crypto's perpetual stress test.

Burning excess HYPE’s supply

At the heart of the proposal is a recommendation to revoke and burn more than 450 million tokens originally earmarked for the Future Emissions and Community Rewards (FECR) fund and the Assistance Fund (AF).

According to Charbonneau and Hasu, this excess authorized supply, including the 421 million HYPE for the reward program and 31 million for the assistance fund, has led the market to penalize the token unfairly.

They argue that these large reserves create downward pressure by skewing expectations of future distribution.

According to them:

“Hyperliquid currently has a large amount of authorized non-outstanding supply…This is problematic because the market penalizes this excess supply in valuing the protocol.”

By eliminating these allocations, the authors contend that Hyperliquid can clean its balance sheet and allow capital to FLOW more efficiently without the overhang of unused tokens.

Removing the supply cap

The proposal also made a controversial call to scrap Hyperliquid’s fixed cap of one billion HYPE tokens.

According to the authors, HYPE’s hard cap is a cultural holdover from Bitcoin’s 21 million coin limit, which rests on a unique and Immutable social contract.

They argue that, unlike Bitcoin, many leading blockchains, such as ethereum and Solana, adjust their issuance policies without fixed caps, relying instead on community consensus. From this perspective, Hyperliquid’s supply ceiling may be more restrictive than beneficial.

The authors stated:

“If many years down the road the FECR had been exhausted, but there were value accretive opportunities requiring additional HYPE issuance, the community WOULD very likely all be in favor of this. There’s no religious tie to an arbitrary supply cap here.”