Directing 97–99% of Fees Toward HYPE Buybacks Creates a Strongly Deflationary Token Model

Hyperliquid has been directing 97% of its fees toward HYPE token buybacks through its Assistance Fund, a new upgrade specifically increasing this to 99%.

Hyperliquid’s current buyback mechanism allocates a significant portion of trading fees to purchase HYPE tokens, reducing circulating supply and creating upward price pressure. For example, the Assistance Fund has amassed over $1.2 billion in buybacks, with daily buybacks averaging around $1 million and single-day peaks reaching $3.97 million.

The platform’s dominance in decentralized derivatives, capturing over 70% of on-chain volume, supports this strategy, with fees from trading activities fueling the buybacks. If a new upgrade were to increase the buyback allocation to 99%, it would likely amplify the deflationary effect on HYPE’s supply, potentially strengthening price momentum further, especially during periods of high trading volume or market volatility.

By allocating 97–99% of trading fees to buy back HYPE tokens, Hyperliquid reduces the circulating supply of tokens. This creates a deflationary pressure that can support or increase the token’s price, assuming demand remains stable or grows.

For instance, with over $1.2 billion in buybacks already executed, including daily averages of $1 million and peaks up to $3.97 million, the consistent demand for HYPE tokens via buybacks can act as a price floor, especially during volatile market conditions.

Hyperliquid’s dominance in decentralized derivatives (over 70% of on-chain volume) generates substantial trading fees, which fuel the buyback program. This high allocation signals to users and investors that the platform prioritizes token value appreciation, potentially attracting more traders and liquidity providers seeking exposure to a deflationary asset.

Increased platform activity could further amplify fee generation, creating a virtuous cycle of buybacks and price support. Directing 97–99% of fees to buybacks leaves only 1–3% for other purposes, such as platform development, marketing, or user rewards.

While this strengthens the deflationary model, it could limit investments in ecosystem growth, new features, or community incentives, potentially impacting long-term competitiveness against other decentralized exchanges (DEXs). A buyback program of this scale signals strong confidence in HYPE’s long-term value, which could attract speculative interest from investors.

Depending on how buybacks are executed (e.g., tokens burned or held by the Assistance Fund), there’s a risk of centralizing token ownership. If bought-back tokens are held rather than burned, the fund could accumulate significant control over the supply, raising concerns about governance or manipulation.

Deflationary Effects

Buybacks directly reduce the number of HYPE tokens in circulation. For example, if Hyperliquid generates $1 million in daily fees and allocates 99% ($990,000) to buybacks, this consistent removal of tokens shrinks the available supply over time. With a fixed or slowly growing total supply, this creates scarcity, which can drive price appreciation if demand persists.

Hyperliquid’s high trading volume (e.g., $1.5 billion in daily perpetual futures volume during peak periods) generates substantial fees. Allocating 99% of these fees to buybacks amplifies the deflationary impact during bullish or volatile markets, as more tokens are removed when trading activity spikes. This could lead to exponential price effects during market upswings.

Over time, sustained buybacks could significantly reduce HYPE’s circulating supply, making the token increasingly scarce. If Hyperliquid maintains its market share in decentralized derivatives, this scarcity could position HYPE as a premium asset in the DeFi space, similar to how BNB’s burn mechanism has supported its value.

While buybacks reduce supply and support price stability, they can also exacerbate volatility. If market sentiment shifts or trading volume drops, the reduced circulating supply could amplify price swings, as fewer tokens are available to absorb sell pressure. Conversely, during bullish phases, the scarcity could lead to sharp price spikes.

The deflationary impact depends on whether bought-back tokens are burned (permanently removed) or redistributed (e.g., to stakers or liquidity providers). If burned, the effect is purely deflationary, permanently reducing supply. If redistributed, the deflationary impact is diluted, as tokens re-enter circulation.

Allocating 97–99% of fees to buybacks may strain Hyperliquid’s ability to fund operations or innovation. If trading volume declines the reduced fee pool could limit buyback impact, potentially weakening price support. Large-scale buybacks could attract regulatory scrutiny, especially if perceived as market manipulation. However, as a decentralized protocol, Hyperliquid may face fewer risks than centralized exchanges.

Compared to other DEXs, Hyperliquid’s aggressive buyback strategy differentiates it by prioritizing token value over immediate platform reinvestment. This could appeal to investors but may cede ground to competitors focusing on user rewards or ecosystem expansion.