Felix Protocol vs HLP (Hyperliquidity Provider)

Felix Protocol

Felix Protocol is the primary stablecoin issuance and money market platform on Hyperliquid's HyperEVM, functioning as both a collateralized debt position (CDP) engine and a variable-rate lending marketplace. Built natively on HyperEVM, Felix has established itself as one of the largest DeFi protocols in the Hyperliquid ecosystem, having crossed $1 billion in total value locked in September 2025 before settling to approximately $440 million TVL by October 2025. The protocol's core thesis is that Hyperliquid's on-chain liquidity and composability create the ideal environment for a stablecoin primitive that earns real yield for its users rather than extracting value from them. WHAT IT IS Felix operates two distinct but complementary products: a CDP system that mints feUSD (a dollar-pegged synthetic stablecoin) against on-chain collateral, and Vanilla Markets, which are variable-rate lending pools for borrowing and earning yield against major assets. The protocol has also launched USDhl, a fiat-backed, T-bill-collateralized stablecoin powered by M0 (a wholesale dollar infrastructure), broadening Felix's stablecoin suite beyond purely algorithmic constructions. Together, these products position Felix as the stablecoin factory and lending backbone for the HyperEVM ecosystem. HOW IT WORKS The feUSD CDP system is built on a fork of Liquity v2's codebase, modified with additional risk controls suited to Hyperliquid's asset landscape. Users deposit accepted collateral — HYPE, wrapped BTC (UBTC), and liquid staking tokens like kHYPE — into Troves (individual CDP vaults) and mint feUSD against it at a conservative 40% loan-to-value ratio. This is notably lower than most DeFi lending platforms, a deliberate choice to limit systemic risk given the relative volatility of the collateral base. feUSD holders can redeem their tokens for $1 worth of underlying collateral at any time, and a Stability Pool absorbs liquidated positions, distributing collateral and earned interest to Stability Pool depositors. Interest rate selection is borrower-controlled, but positions with the lowest interest rates face first-redemption risk if feUSD depegs below $1 — a soft liquidation mechanism that enforces peg discipline. Vanilla Markets, the second pillar, are variable-rate lending pools built on Morpho's lending infrastructure. Lenders deposit stablecoins (USDhl, USDe, USDT0, USDH) and earn variable interest, while borrowers post collateral (HYPE, kHYPE, UBTC) to borrow. Interest rates adjust algorithmically with pool utilization, and liquidations execute automatically when a borrower's health factor falls below 1. All positions are over-collateralized. The July 2025 CoreWriter upgrade — which enables HyperEVM smart contracts to write data to HyperCore — means Felix can now route liquidations directly through HyperCore's orderbook rather than AMM pools, reducing slippage and creating tighter integration with Hyperliquid's core liquidity engine. USDhl, the third product, is a fiat-backed stablecoin issued via M0, a wholesale dollar infrastructure backed by T-bills with on-chain reserve attestations. Convertibility is enforced at 1:1 between M0 tokens and USD, and a maintained Uniswap v3 liquidity pool ensures low-friction arbitrage. The stablecoin distributes its 4%+ T-bill yield back to users as Hyperliquid incentives, split across HyperCore spot and HyperEVM liquidity pools and reweighted every two weeks. KEY FEATURES - Dual stablecoin architecture: feUSD (CDP, algorithmic peg via Liquity v2 mechanics) and USDhl (fiat-backed, M0-powered, yield-distributing) serve different user needs and risk profiles from a single platform. - Morpho-powered Vanilla Markets: Variable-rate lending pools with dynamic interest rates and automatic on-chain liquidations. Supports HYPE, kHYPE, UBTC as collateral against stablecoin borrowing. - CoreWriter liquidation integration: Since July 2025, Felix can programmatically send liquidation orders to HyperCore's orderbook, reducing slippage and execution risk during market stress. - Conservative risk parameters: 40% LTV cap on CDP positions, mint caps, admin-controlled pause mechanisms, and incremental collateral onboarding — reflecting a deliberate approach to risk management in a novel ecosystem. - Points and incentive program: An ongoing points program rewards users for minting feUSD, supplying to Vanilla Markets, and holding USDhl, creating strong growth incentives while the governance token remains unlaunched. TEAM AND BACKING Felix has operated without publicly naming its founding team, maintaining a degree of pseudonymity common in the Hyperliquid ecosystem. The project launched on HyperEVM shortly after the mainnet EVM became available in early 2025 and has not announced formal venture funding rounds as of the time of writing. The protocol operates under the usefelix.xyz domain and has an active development roadmap that includes "Chapter 2" — a planned expansion expected to unify incentive structures across HyperCore and HyperEVM and introduce new collateral types and evolved risk parameters. Community messaging has described Chapter 2 as a significant protocol upgrade aligned with full CoreWriter integration. Felix has maintained a partnership with Hyperion DeFi, a NASDAQ-listed company that has integrated with Felix's broader product suite. TRACTION AND METRICS Felix launched on HyperEVM in early 2025 and grew rapidly alongside the broader HyperEVM ecosystem. By June 2025, the protocol had crossed $100 million in outstanding loans — a milestone reported by The Defiant. September 2025 marked its all-time high with over $1 billion in TVL, as HyperEVM total TVL itself surged 350% in two months. As of October 2025, Felix held approximately $440 million in TVL, making it the second-largest native DeFi protocol on HyperEVM by this metric behind HyperLend. The protocol has accumulated significant volume through its Stability Pool mechanism and Vanilla Markets, with HYPE and UBTC serving as the primary collateral assets driving growth. An active points program has sustained user engagement and encouraged protocol experimentation. COMPETITIVE POSITION Within the HyperEVM ecosystem, Felix competes most directly with HyperLend for lending market share. Felix's differentiation lies in its CDP stablecoin product (feUSD), which HyperLend does not offer, and in the more conservative, risk-adjusted design of its collateral parameters. Versus Liquity on Ethereum, Felix inherits architectural inspiration but layers in pause mechanisms and admin controls that Liquity deliberately avoids — a trade-off between censorship resistance and pragmatic risk management. Against MakerDAO/Sky on Ethereum, Felix benefits from Hyperliquid's throughput and HyperCore composability. The USDhl product competes with Ethena's USDe and other yield-bearing stablecoins, but is differentiated by its M0 T-bill backing and distribution of real yield back to Hyperliquid participants rather than to protocol treasuries. HYPERLIQUID INTEGRATION Felix is architected exclusively for HyperEVM and deeply integrates with HyperCore at multiple levels. The feUSD CDP system accepts HYPE (HyperCore's native staking token) and kHYPE (Kinetiq's HyperCore-staked liquid staking token) as collateral — assets that are native to the Hyperliquid L1. The Vanilla Markets build on Morpho, which itself relies on HyperEVM's EVM execution. USDhl's yield distribution is routed through HyperCore spot market liquidity incentives. Critically, CoreWriter integration allows Felix to place liquidation orders directly on HyperCore's CLOB rather than routing through AMM pools — making Felix one of the first protocols to actively exploit the bidirectional HyperCore-HyperEVM bridge at a liquidation engine level. Felix's points program allocates rewards across both HyperCore spot and HyperEVM, incentivizing the dual-layer activity that is central to Hyperliquid's long-term design. RISKS AND CONSIDERATIONS The 40% LTV ratio provides a reasonable buffer against collateral volatility, but HYPE is the dominant collateral and is itself a relatively illiquid and volatile asset by traditional standards. A severe HYPE price shock could trigger cascading liquidations that test the Stability Pool's absorptive capacity and the CoreWriter liquidation pipeline. The feUSD peg mechanism's reliance on redemption pressure means that during market stress, borrowers with low interest rates face forced liquidation through redemption — a mechanism that is economically sound but can create adverse user experiences. The protocol's admin-controlled pause functionality and mint caps represent meaningful centralization versus Liquity's immutable design. Team pseudonymity creates limited accountability in the event of critical vulnerabilities or governance disputes. Governance token launch (not yet live as of the research period) introduces tokenomics uncertainty. Dependency on Morpho for Vanilla Markets means Felix inherits any bugs or risks from the Morpho lending infrastructure. Overall, Felix is well-designed for its environment but carries ecosystem concentration risk — its growth is tightly coupled to HYPE's price trajectory and HyperEVM's adoption curve.

HLP (Hyperliquidity Provider)

The Hyperliquidity Provider (HLP) is Hyperliquid's native protocol vault — a community-owned, fee-free market-making and liquidation fund that operates directly on HyperCore. Launched in May 2023 alongside the early Hyperliquid platform, HLP allows any user to deposit USDC and participate in the profits generated by Hyperliquid's core market-making, liquidation, and fee-accrual operations. It represents one of the clearest examples of a decentralized exchange opening its market-making infrastructure to retail participants, and has become one of the largest and most consistently performing USDC yield products in DeFi. HOW IT WORKS HLP runs inside HyperCore, Hyperliquid's fully on-chain central limit order book (CLOB) engine, which handles over 100,000 orders per second with sub-second finality. The vault deploys multiple market-making strategies simultaneously across all perpetual futures markets listed on Hyperliquid — currently over 130 trading pairs. At a high level, the strategy computes a fair reference price for each asset using tick data from Hyperliquid's own order book combined with price feeds from major centralized exchanges including Binance, OKX, and others. A decentralized oracle pulls spot prices from these sources every three seconds, using a weighted median computed by Hyperliquid validators to prevent manipulation. The vault then places bid and ask orders around this fair price — "making" the market — capturing the spread between buys and sells as profit. In addition to directional market-making, HLP performs liquidations. When a leveraged trader's account falls below the maintenance margin threshold, HLP absorbs the liquidated position at a discount to market price, earning liquidation fees. In extreme market conditions — such as the liquidation cascade in October 2025, when Hyperliquid processed approximately $10 billion in liquidations in a single event — HLP can generate extraordinary single-day returns. HLP also supplies USDC to Hyperliquid's Earn product, a protocol-managed lending facility, accruing lending interest on idle capital. All strategy execution runs off-chain but is fully auditable: every position, open order, trade, deposit, and withdrawal made by HLP is recorded on-chain in real time and viewable through Hyperliquid's blockchain explorer. Profits auto-compound continuously — depositors do not need to claim rewards manually. The deposit lock-up period is four days: a user who deposits cannot withdraw until four days after their most recent deposit. This is designed to prevent HLP from experiencing sudden capital flight during volatile periods when liquidity support is most needed. KEY FEATURES - Protocol-Owned, Fee-Free Structure: HLP is owned by the protocol itself and charges no management fee or performance fee. Unlike user-created Hyperliquid vaults (which take a 10% profit share for the vault leader), 100% of HLP profits flow directly to depositors proportionally based on their share of the vault - Multi-Strategy Execution: HLP simultaneously runs market-making on all 130+ perpetual markets, liquidation absorption, and Earn facility lending — three independent alpha sources within a single deposit position - Full On-Chain Transparency: Every trade and position is published to the blockchain in real time; any user can audit the strategy's current book without trusting the team's disclosure - Auto-Compounding: Profits accumulate automatically without gas costs or manual claim transactions, making HLP a truly passive yield instrument - No Tokenization: Unlike GLP on GMX or similar products, HLP deposits are not represented by a tradable token — deposits and withdrawals occur in USDC and returns are credited to each depositor's account balance TEAM AND BACKING HLP is not a third-party project — it is operated directly by Hyperliquid Labs, the core development team behind the Hyperliquid blockchain and exchange. The Hyperliquid team includes founders with quantitative trading and high-frequency market-making backgrounds, who designed HLP based on their own internal strategies. By placing their own market-making operations into a community vault, the founding team eliminated the information asymmetry that plagues most DeFi platforms, where insiders typically benefit from exchange market-making at users' expense. Hyperliquid raised no external venture capital for its development. The team is funded by protocol revenues, and HLP's success is structurally aligned with the platform's overall trading volume — more trading means more fees and liquidations, which benefit both the protocol treasury and HLP depositors simultaneously. TRACTION AND METRICS HLP launched in May 2023 as part of Hyperliquid's early closed alpha. It has operated continuously since, accumulating a multi-year track record that is rare among DeFi yield products. Historical annual percentage yield has averaged approximately 17%, with significant spikes during high-volatility periods. During the October 2025 market event — a major liquidation cascade that Hyperliquid processed without downtime — HLP generated approximately $41.5 million in a single day's fees and delivered roughly 10% returns to depositors within 48 hours. As of October 2025, HLP held approximately $300–400 million in total value locked (TVL), denominated in USDC. This positions it among the largest single DeFi yield vaults globally. The vault has historically maintained 100% uptime even during periods when competing platforms experienced technical failures or outages, reflecting the reliability of HyperCore's underlying architecture. Hyperliquid itself captured over 73% of decentralized perpetuals market share by mid-2025, with peak daily trading volume exceeding $59.5 billion — the throughput that directly feeds HLP's fee and liquidation income. COMPETITIVE POSITION HLP occupies a unique position in DeFi that has few direct comparisons. GLP on GMX is the closest structural analog: a protocol-managed vault that provides liquidity to a derivatives exchange and distributes fees to depositors. HLP improves on GLP's model in several key ways: it charges no vault fees, the strategy is fully transparent on-chain, and HLP is exposed to a CLOB rather than an AMM — meaning it can make active markets rather than passively absorbing counterparty flow. Against traditional stablecoin yield products — Aave, Compound, Pendle, Curve — HLP offers meaningfully higher historical returns (17% historical APY versus 5–10% in lending markets) with a different risk profile: exposure to market-making losses during directional markets rather than credit or smart contract risk in lending. HLP's primary risks relative to competitors are correlated with Hyperliquid platform risk — platform downtime, liquidity crises, or regulatory action would disproportionately impact HLP depositors. In contrast, assets in Aave are exposed to smart contract risk but not to a single exchange's operational performance. HYPERLIQUID INTEGRATION HLP is the most deeply integrated product in the Hyperliquid ecosystem by design — it is built into HyperCore at the protocol level and is not a third-party application. It uses Hyperliquid's native vault infrastructure, which allows deposits to be held and deployed within HyperCore without EVM bridging. Users deposit USDC through the main Hyperliquid interface at app.hyperliquid.xyz/vaults, and the vault operates entirely within HyperCore's order book environment. As Hyperliquid expands its market listing through HIP-3 — which enables permissionless deployment of new perpetual markets — HLP's addressable market of spreads and liquidations grows accordingly. Each new market added to Hyperliquid represents additional alpha for HLP's strategies, creating a compounding relationship between Hyperliquid platform growth and HLP returns. RISKS AND CONSIDERATIONS The primary risk of depositing in HLP is strategy risk: the vault's market-making and liquidation strategies can take losing positions. During periods of strong directional trends or correlated price dislocations, market-making strategies consistently lose money (buying into falling markets, selling into rising ones). HLP's 4-day lock-up means depositors cannot exit immediately when they observe strategy losses. While historical performance has been positive over multi-month periods, there is no guarantee of future profitability. The lack of tokenization, while simplifying accounting, also means HLP positions cannot be used as collateral in DeFi lending markets — the capital is locked in USDC and cannot generate secondary yield. This is a capital efficiency disadvantage relative to liquid staking or yield-bearing tokens. HLP's performance is structurally correlated with Hyperliquid platform volume. If trading volume on Hyperliquid declines substantially — whether due to competition, regulatory action, or market conditions — HLP's fee income falls proportionally. The vault does not generate revenue independent of platform activity. Finally, because HLP's strategy runs off-chain and is not open-sourced, depositors must trust Hyperliquid's team to accurately report strategy performance and run the execution without manipulation — a meaningful trust assumption for a multi-hundred-million-dollar vault.

Choose Felix Protocol if you...

• ✓Want a lending & borrowing solution on HyperEVM
• ✓Prefer a verified and vetted protocol
• ✓Need features like lending and CDP
• ✓Need: CDP lending protocol on HyperEVM — mint feUSD stablecoin

Choose HLP (Hyperliquidity Provider) if you...

• ✓Want a yield & vaults solution on HyperCore
• ✓Prefer a verified and vetted protocol
• ✓Need features like vault and liquidity
• ✓Need: Protocol-owned liquidity vault powering Hyperliquid's order book