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:

Primitive
Purpose
Target Users

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:

  1. 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

  2. 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 HUSD 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.

HUSD: Recycling Value Back to Hyperliquid

HUSD is a fiat-backed stablecoin native to Hyperliquid, designed specifically to benefit the Hyperliquid ecosystem.

Why HUSD 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 HUSD 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

HUSD'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 HUSD 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

HUSD and feUSD synergy:

  • HUSD 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

HUSD created as a public good initiative by HyperActive and Felix in collaboration with the @m0foundation.

Resources

PreviousHyperEVMNextHyperCore

Last updated