This episode unpacks the critical battle for stablecoin dominance on Hyperliquid, revealing how new money market infrastructure and permissionless markets are setting the stage for the ecosystem's next explosive growth phase.
Introduction to Felix and its Core Infrastructure
- Charlie from Felix introduces the project as a money market infrastructure provider on Hyperliquid that recently surpassed $1 billion in deposits.
- Felix operates two main protocols:
- Felix CDP: Built on Liquity V2, this protocol allows users to deposit collateral assets like HYPE, K-HYPE, and wBTC to mint Felix's native stablecoin, FUSD. A CDP (Collateralized Debt Position) is a system where users lock up collateral to generate a stablecoin loan against it.
- Felix Vanilla: A larger protocol built on a Morpho deployment, serving as a traditional money market for lending and borrowing, similar to the relationship between MakerDAO and Spark Protocol.
- Charlie, drawing from his experience building Felix, notes the scalability challenges of the CDP model. He states, "everything basically on the CDP side comes down to secondary liquidity for that CDP stablecoin FUSD."
The Stablecoin Liquidity Challenge on Hyperliquid
- The conversation highlights a persistent shortage of stablecoin liquidity on the HyperEVM, Hyperliquid's integrated EVM-compatible execution environment. This scarcity has been a major hurdle since the platform's launch.
- Charlie explains that Felix developed its own fiat-backed stablecoin, USDHL, as an internal solution to this problem before other options like USDT from LayerZero became available.
- The value proposition for USDHL was to take the yield from its treasury backing, use it to buy HYPE tokens, and distribute them to users. However, scaling this model proved difficult.
- Strategic Insight: The lack of a dominant, native, yield-bearing stablecoin on Hyperliquid creates a significant opportunity for new entrants but also a major bottleneck for ecosystem growth that protocols like Felix are actively trying to solve.
Analyzing the USDH Proposals and T-Bill Yield
- The discussion shifts to the recent proposals for the USDH ticker, a new stablecoin for Hyperliquid. The core idea behind many proposals is to use yield from T-bills backing the stablecoin to buy back HYPE tokens.
- Charlie points out a critical flaw in this model: it's a "chicken and egg" problem. A stablecoin needs massive supply to generate enough yield to make HYPE buybacks impactful compared to the existing Assistance Fund.
- Even at full scale (capturing all $5.8 billion of USDC on Hyperliquid), the buybacks would be significant but still dwarfed by the Assistance Fund's activity. At lower adoption rates, the impact becomes negligible.
- Investor Takeaway: Investors should be skeptical of narratives promising massive HYPE buybacks from USDH yield alone. The real value will come from the stablecoin that can build the deepest liquidity and utility within the Hyperliquid ecosystem, particularly in new HIP-3 markets.
The Future of Hyperliquid: HIP-3 and Permissionless Markets
- The conversation identifies HIP-3—a proposal for permissionless perpetual markets—as the next major growth driver for Hyperliquid.
- Charlie explains that while Felix initially focused on trade financing (e.g., borrowing against HYPE to trade on Hyperliquid), the team is now actively testing and developing for HIP-3, including experimental markets like a Tesla (TSLA) perpetual contract.
- He envisions a future where HyperEVM protocols like Felix become foundational infrastructure pieces for new exchanges built using HIP-3 and builder codes.
- Charlie states, "hyperEVM protocols will eventually just become these sort of infra pieces for exchanges launching through HIP-3."
- Actionable Insight: Researchers and investors should monitor which teams are building on HIP-3. The ability to launch new, unique perpetual markets will be a key differentiator and a major source of new volume and fees for the entire ecosystem.
Looping Strategies, Interest Rate Volatility, and LSTs
- Shon outlines a popular strategy: looping K-HYPE (Kinetic's liquid staked HYPE) on Felix to gain leveraged exposure to both Felix and Kinetic points.
- Charlie confirms this is a relatively conservative strategy, with the main risks being smart contract failure and de-pegging. However, he highlights the high volatility of borrowing interest rates on HyperEVM.
- This rate volatility is caused by a shortage of HYPE liquidity on the EVM side, as many holders prefer to keep their HYPE staked natively on Hyperliquid to receive trading fee discounts.
- Strategic Consideration: A key unlock for the ecosystem would be enabling fee discounts for LSTs (Liquid Staking Tokens) like K-HYPE. This would incentivize more HYPE to move onto the HyperEVM, deepening liquidity, stabilizing borrow rates, and fueling further growth in DeFi protocols.
Felix's Roadmap and Future Integrations
- When asked about the future, Charlie hints at a "Felix Chapter 2," focusing more on the "trade side" of their "trade and trade financing" vision. This includes new products unique to Hyperliquid.
- The potential for a Pendle integration is discussed. Pendle allows users to trade the future yield of assets, and its integration with Kinetic has already driven significant TVL.
- Charlie confirms Felix is in discussions with the Pendle team, suggesting a future market for Felix points or yield-bearing assets is a strong possibility.
- Investor Watchlist: The potential integration with Pendle could dramatically increase TVL and user engagement for Felix. This is a critical development to watch for anyone farming points or investing in the Hyperliquid DeFi ecosystem.
Conclusion
Hyperliquid's future growth hinges on solving its stablecoin liquidity problem. The upcoming launch of USDH and the expansion of permissionless markets via HIP-3 will create a new competitive landscape where money markets like Felix are positioned to become essential infrastructure for the entire ecosystem.
