Hyperliquid's HYPE token sees $269 million in borrowing as collateral on day one.

Written by Xiao Bing

Hyperliquid launched native lending on September 18, allowing users to borrow USDC and USDT using HYPE or BTC as collateral.

First-day borrowing volume: $269 million, confirmed by co-founder Jeff Yan on X.

On the same day, HYPE reached a new all-time high of $92.56, up approximately 8% from the previous day. The probability of the HYPE contract reaching $100 by year-end on Polymarket rose to 64.5%.

A DeFi product generated $269 million in borrowing volume on its launch day, representing one of the top cold-start performances in on-chain lending history. Aave v3’s first-day borrowing volume on Arbitrum was only in the tens of millions of dollars.

But behind the numbers lies a structure that needs to be examined in detail.

The core parameters of the lending feature are as follows:

The loan-to-value (LTV) ratio for HYPE is 65%, meaning $1,000 worth of HYPE can be used to borrow $650 in stablecoins. The liquidation threshold is 82.5%; if the value of the collateral drops and the loan-to-value ratio exceeds 82.5%, a forced liquidation is triggered.

The LTV for BTC is 50%, which is more conservative than HYPE—$1,000 worth of BTC can only be borrowed as $500.

This parameter setting itself is a signal. By assigning a higher LTV to its native token than to BTC, Hyperliquid demonstrates, at least on a parameter level, greater confidence in HYPE’s liquidity and price stability than in BTC’s.

The global supply cap for USDC is $1 billion, with a borrowing cap of $500 million. The supply cap for USDT is $50 million, with a borrowing cap of $10 million. Interest rates adjust dynamically based on utilization, starting at approximately 5% and rising rapidly once utilization exceeds 80%.

The protocol retains 10% of the borrowing interest as a liquidation buffer fund. This amount is not distributed to HYPE holders nor burned; it serves as a safety cushion to cover losses from insufficient liquidations during extreme market conditions.

Where did the $269 million in borrowing on the first day go?

There is no officially disclosed breakdown of data, but several primary uses can be inferred from Hyperliquid’s own product structure:

Circular leverage. Deposit HYPE → borrow USDC → buy more HYPE → deposit again. This is the most classic and also the most dangerous use of DeFi lending. A 65% LTV means that, theoretically, $1 of HYPE can be amplified to approximately 2.86 times the exposure through multiple cycles.

Contract margin top-up. Hyperliquid is the world’s largest perpetuals DEX, with an average daily trading volume of approximately $5.5 billion. Traders can collateralize HYPE to borrow USDC and directly deposit it into their contract margin account without selling their HYPE. This represents a critical improvement in capital efficiency for large holders, enabling them to trade with borrowed funds while retaining their HYPE positions.

Arbitrage and market making. Market makers can lend stablecoins using their HYPE and BTC positions to deploy liquidity on other platforms or trading pairs.

Of the three uses, the first two increase the total leverage within the Hyperliquid ecosystem, while the third directs funds outside the ecosystem. From the perspective of protocol health, the first is the riskiest, as it creates a self-reinforcing reflexive cycle.

When HYPE is used as collateral, its price movement is no longer just a market variable, but a function of the leverage level in the entire lending system.

Upward spiral: HYPE price increases → collateral value rises → users can borrow more USDC → use borrowed USDC to buy more HYPE → HYPE price rises further. This positive feedback loop can push the price far above fundamental levels in a short time.

Downward spiral: HYPE price declines → collateral value shrinks → some positions trigger liquidation threshold (82.5%) → liquidation bots sell HYPE to repay debts in USDC → HYPE price falls further → more positions are liquidated.

This pattern has occurred repeatedly throughout DeFi history.

In 2022, the collapse of LUNA/UST was an extreme example of a collateral reflexivity crisis. A more recent case occurred in 2024 with cascading liquidations of ETH across multiple lending protocols.

Hyperliquid has implemented multiple layers of defense: an 82.5% liquidation threshold that triggers earlier than many protocols (providing greater buffer space), a 10% interest reserve fund that can cover part of liquidation losses, and a $500 million USDC borrowing limit that constrains the total leverage of the system.

However, the effectiveness of these safeguards depends on HYPE’s liquidity depth. If a sharp price drop triggers a large number of simultaneous HYPE liquidations, but buy-side demand is insufficient to absorb the selling pressure, the price may breach the liquidation threshold, resulting in bad debt. Hyperliquid itself experienced a similar situation during the JELLY event in March 2025, when a manipulator created a large JELLY short position and exploited insufficient liquidity, causing Hyperliquid’s treasury (HLP) to incur approximately $4 million in losses.

Viewed within the broader narrative of HYPE, this lending feature represents a pivotal upgrade to HYPE's identity.

Before the lending feature launches, HYPE's value is supported by three aspects:

Buyback and burn of trading fees (Hyperliquid's Assistance Fund repurchases HYPE monthly using protocol revenue), expected growth in market share of perpetual contracts DEX, and development of the HyperEVM ecosystem.

The lending feature has added a fourth pillar: collateral usage.

When HYPE can be used to borrow USD, it transforms from "a token representing the value of the Hyperliquid platform" into "an on-chain asset that generates USD liquidity." This is similar to the role of ETH in DeFi lending protocols, where holding ETH is not just owning "equity" in the Ethereum network, but also holding an "on-chain collateral" that can be instantly converted into USD liquidity.

This transition has a direct impact on HYPE's valuation framework.

Traditional "exchange tokens" are priced based on a price-to-earnings ratio derived from fee revenue. However, a native L1 token that also serves as collateral can be valued at a higher multiple, because holders can access liquidity without selling it, thereby reducing the opportunity cost of holding the token.

Borrow utilization. On the first day, $269 million (approximately 54%) of the $500 million USDC borrowing limit was utilized. If utilization continues to rise above 80%, interest rates will increase rapidly, potentially dampening borrowing demand. If utilization stabilizes between 50% and 70%, it indicates a healthy balance between demand and supply.

HYPE collateral ratio. Of the $269 million in loans, how much is collateralized by HYPE versus BTC? The higher the HYPE collateral ratio, the more sensitive the system is to HYPE price fluctuations.

Liquidation event. The manner and outcome of the first large-scale liquidation event will be a critical test of system health. If liquidations proceed smoothly (with no bad debts and no price breaches), market confidence will be strengthened; if an incident similar to JELLY occurs, HYPE could rapidly retrace its recent gains.