Why Hyperliquid Should Cut Its Total Token Supply Nearly in Half
🎯 Summary
Crypto Focus Area: The episode primarily delves into tokenomics within the crypto space, focusing on the proposed reduction of Hyperliquid’s token supply. It explores the discrepancies between crypto valuation metrics and traditional financial metrics, emphasizing the need for clearer accounting practices in the crypto industry.
Key Technical Insights:
- Token Supply Dynamics: The discussion highlights the complexities of token supply metrics, particularly the differences between Fully Diluted Valuation (FDV) and circulating market cap. The proposal suggests aligning these metrics more closely with traditional financial standards by adjusting token supply accounting.
- Accounting Adjustments: The proposal involves burning tokens held in the assistance fund and removing the authorization for future emissions and community rewards tokens, effectively changing how these are accounted for without altering the protocol’s operational dynamics.
Market/Investment Angle:
- Valuation Metrics: The episode critiques the reliance on FDV as a valuation metric, arguing it often overstates a protocol’s value. The proposal aims to provide a more accurate reflection of market cap by excluding non-circulating tokens from valuation calculations.
- Investor Perception: By adjusting token supply metrics, the proposal seeks to make Hyperliquid more attractive to investors who might be deterred by inflated FDV figures.
Notable Crypto Projects/People:
- John Chabinau: Co-founder and general partner of DBA, who advocates for the proposed changes to Hyperliquid’s token supply.
- Haseeb Qureshi: Mentioned for his commentary on token allocations, emphasizing transparency and governance in token distribution.
Regulatory/Policy Discussion: The episode touches on how token distribution practices have been influenced by regulatory considerations, such as the desire to appear decentralized by allocating large portions of tokens to the community. The proposal challenges these practices, suggesting they may not be suitable for all projects.
Future Implications: The conversation suggests a shift towards more transparent and realistic tokenomics in the crypto industry. By aligning crypto valuation metrics with traditional finance, projects can improve investor confidence and market stability.
Target Audience: This episode is particularly valuable for crypto investors, traders, and project developers interested in tokenomics and valuation metrics. It provides insights into how token supply adjustments can impact market perception and investment decisions.
Main Narrative Arc and Key Discussion Points: The episode centers around a proposal to reduce Hyperliquid’s token supply by nearly half, addressing discrepancies in how crypto projects are valued compared to traditional finance. It critiques the use of FDV as a primary valuation metric and proposes accounting changes to provide a clearer picture of a project’s market cap.
Technical Concepts, Methodologies, or Frameworks Discussed: The discussion focuses on token supply dynamics, specifically the differences between FDV and circulating market cap. It proposes changes to how tokens are accounted for, such as burning tokens held in reserve and removing authorization for future emissions.
Business Implications and Strategic Insights: The proposal aims to make Hyperliquid more attractive to investors by providing a more accurate valuation metric. This could lead to increased investment and market stability as investors gain a clearer understanding of a project’s true value.
Key Personalities, Experts, or Thought Leaders Mentioned: John Chabinau and Haseeb Qureshi are highlighted for their roles in advocating for more transparent and realistic tokenomics.
Predictions, Trends, or Future-Looking Statements: The episode suggests a trend towards more transparent and realistic tokenomics in the crypto industry, with a focus on aligning valuation metrics with traditional finance.
Practical Applications and Real-World Examples: The proposed changes to Hyperliquid’s token supply serve as a real-world example of how projects can adjust their tokenomics to improve investor confidence and market perception.
Controversies, Challenges, or Problems Highlighted: The episode addresses the challenge of inflated FDV figures and the need for more accurate valuation metrics. It also discusses the potential regulatory implications of token distribution practices.
Solutions, Recommendations, or Actionable Advice Provided: The proposal recommends accounting changes to align token supply metrics with traditional finance, providing a clearer picture of a project’s market cap and improving investor confidence.
Context About Why This Conversation Matters to the Industry: As the crypto industry matures, aligning valuation metrics with traditional finance can improve investor confidence and market stability. The proposal serves as a case study for how projects can adjust their tokenomics to better reflect their true value.
🏢 Companies Mentioned
đź’¬ Key Insights
"237.8 million hyper-liquid is going to begin unlocking linearly over 24 months... at $50 a token, that's about $12 billion in team unlocks, so $500 million hitting the market every month."
"I view all token holders as equivalent parts of the community; they are all portions of that. Removing this supply or even revoking the authorization of this supply does not change any of the existing proportional ownership of the network by any token holders."
"If you're building something that looks more like a traditional business, that's not the case. The founders of big tech companies should not be giving away most of their shares right at the beginning."
"If you're using it in a negative situation, such as a backstop, it's probably the time when it's actually going to be worth the least."
"We've already started to see this with some protocols actively migrating their tokens as a result of this. They hit their max supply cap and then realized, 'This doesn't make sense; we need to issue new shares to keep funding the protocol'"
"The problem is that many projects in crypto have a baseline of just copying and pasting the things before them. There ends up being a lot of copying over this idea of a max supply cap when it made sense for Bitcoin but doesn't make sense for pretty much anyone else"