Felix
Felix Protocol is the second largest protocol on Hyperliquid with over $150M TVL (as of May 21, 2025), trailing only behind Hyperlend. The protocol's approach aligns with Hyperliquid's philosophy, focusing on ecosystem growth and improvement while prioritizing security, economic stability, and transparency.
Led by founders @0xBroze and @emaverick90, Felix maintains an educational approach through detailed articles and transparent communications about their development process.
What is Felix Protocol?
Felix offers a suite of on-chain borrowing and lending products on Hyperliquid L1, designed to provide liquidity and yield opportunities with minimal friction.
The protocol consists of two core primitives:
CDP Market (feUSD)
Mint feUSD stablecoins against collateral
Traders seeking high LTV and cost-effective leverage
Vanilla Markets
Variable-rate lending pools for native assets
Users preferring direct asset exposure with dynamic rates
Felix CDP Market: Core Mechanics
The CDP Market enables users to deposit collateral (like HYPE or UBTC) and mint feUSD stablecoins against it. This system brings together:
Borrowers/Minters who deposit collateral and set their own interest rates
Stability Pool Depositors who provide feUSD liquidity and earn interest, fees, and liquidation gains
Two Key Mechanisms Maintain the feUSD $1 Peg:
Liquidations
Occurs when a position's health falls below the threshold
Example: User deposits $10,000 in HYPE and borrows $5,000 feUSD. If HYPE value falls to $9,000, the LTV rises to ~55%, triggering liquidation
The system burns feUSD from the Stability Pool and transfers the borrower's collateral (plus a small penalty) to SP depositors
Redemptions
Activates when feUSD trades below $0.995
Prioritizes positions with the lowest interest rates first
Anyone can swap 1 feUSD for $1 of collateral from these positions
Unlike liquidations, redemptions can be partial rather than full
To avoid redemptions: ensure your interest rate is competitive compared to the median rate
For borrowers: Maintain adequate position health (1.25-1.50 recommended) and set competitive interest rates to avoid being first in line for redemptions.
For lenders: Earn from multiple revenue streams:
Borrower interest (75% routed to Stability Pools)
Protocol fees from position openings and rate changes
Liquidation incentives (acquiring discounted collateral)
Vanilla Markets
Felix's Vanilla Markets operate on Morpho's lending stack, providing a traditional lending model similar to Hyperlend:
Deposit collateral (HYPE, UBTC, ETH) to borrow assets like USDhl or USDC
Supply idle assets to earn yield through a floating APY determined by utilization
No redemption mechanics - positions are immune to feUSD peg fluctuations
The primary risk is liquidation when a position's health factor falls below 1.0.
USDhl: Recycling Value Back to Hyperliquid
USDhl is a fiat-backed stablecoin native to Hyperliquid, designed specifically to benefit the Hyperliquid ecosystem.
Why USDhl matters:
Currently, $2.5B of bridged USDC on HyperCore generates ~$107.5M in annual interest revenue flowing to Circle
As Hyperliquid grows 10x, 100x, or 1000x, this opportunity cost only increases
How USDhl works:
A significant portion of interest revenue is used to purchase HYPE in the open market
Similar to the Assistance Fund's automated HYPE buy-backs, but at the stablecoin layer
Purchased HYPE is strategically redeployed to fuel ecosystem growth
USDhl's impact on Builder Codes:
Helps bootstrap "Hyperliquid hybrids" by subsidizing builder code fees
Allows interfaces to charge higher rates at no cost to users
Example: If Interface XYZ receives 100 USDhl in rebate budget, it could process $100,000 worth of futures volume before users bear any cost
Interface operators can reinvest builder code revenues into user acquisition and retention
USDhl and feUSD synergy:
USDhl provides deep liquidity for feUSD pairs on Curve StableSwap, improving peg stability
Serves as a lending asset on Felix's Vanilla Markets
Potential future integration as collateral for minting feUSD (similar to USDC's role in DAI's PSM)
Together, they form a complementary stablecoin pair rather than competing alternatives
USDhl created as a public good initiative by HyperActive and Felix in collaboration with the @m0foundation.
Resources
Getting Started
Felix Vanilla vs Felix CDP: Which is Right For You? - Comparison to help choose the right product
Educational Content
Understanding Felix Stability Pools - Explains yield mechanics, risk dynamics, and market impact
Understanding Redemptions and Liquidations - Guide to optimizing capital efficiency
What does it mean to be a Hyperliquid-aligned fiat stable? - Explains USDhl's role in the ecosystem
The Role of USDhl in the Felix Ecosystem - How USDhl and feUSD work together
Official Documentation
Last updated