Hyperliquid burns $1 billion worth of tokens! Wall Street revalues cash flow significance

Hyperliquid is experiencing a critical moment. The Hyper Foundation has proposed effectively destroying approximately $1 billion worth of HYPE tokens from a fee-funded treasury, aiming to make scarcity as evident as price charts. At the same time, Cantor Fitzgerald has released a 62-page initiation report, rebranding Hyperliquid from a DeFi token to a cash-flow-generating exchange.

The Visual Revolution of the $1 Billion Burn Proposal

(Source: ASXN)

The Hyper Foundation has accumulated HYPE tokens, and the protocol will use these tokens to pay fees for buybacks. According to Cantor, by mid-December, the foundation held about 37 million HYPE tokens, mainly funded by approximately $874 million in fees generated since 2025. These tokens are stored in a special system address that has never had a private key, so restoring them would require a hard fork.

The new proposal asks validators to formalize a de facto fact. By voting, they will treat the aid fund address as an invalid wallet and pledge never to approve any upgrades involving that address, turning technical details into a clear social consensus. On paper, this will remove about $1 billion from the fully diluted supply and erase nearly 13% of the circulating tokens.

These mechanisms do not alter the economic realities revealed by the economic models built by serious analysts. Most fundamental investors believe that the aid fund tokens have effectively exited circulation, as without a clear protocol-level breakthrough, no one can use these tokens. But in the crypto space, visual impact is crucial. Data aggregators and retail dashboards will still include these tokens in the official fully diluted valuation (FDV).

Reclassifying them as burned tokens will force these pages to align with Cantor’s “adjusted” data, immediately reducing the token’s unit dilution. Is this just superficial? Partly. The voting results will neither create new demand nor reverse the stagnant trading volume. But it does reinforce the commitment of future managers not to use these funds during economic downturns. In a market obsessed with tracking circulating supply and consumption velocity, even if fundamentals cannot be changed, tightening the denominator can influence public opinion in the short term.

Cantor’s Cash Flow Valuation Logic and the $125 Billion Vision

(Source: Cantor Fitzgerald)

Cantor’s report aims to complete its remaining work, as banks rely on cash flow calculations when prices and sales are weak. All of this begins with Hyperliquid’s fee engine. So far this year, the protocol has processed nearly $3 trillion in trading volume and generated about $874 million in fees, most of which have been returned through buybacks to HYPE. Bank analysts view this cycle as an on-chain version of stock buybacks, believing that in the long run, almost all economic value will ultimately belong to token holders.

Cantor’s model assumes: if Hyperliquid can grow its perpetual and spot businesses at about 15% annually over the next ten years, then annual trading volume could reach approximately $12 trillion. Based on current fee rates, this would translate to over $5 billion in protocol revenue annually. Using a 25x valuation multiple (which Cantor considers comparable to high-growth exchanges or fintech companies), the potential market cap could reach $125 billion, compared to the current fully diluted market cap of about $16 billion.

Three Pillars of Cantor’s Valuation Model

15% Annual Growth in Trading Volume: Assuming Hyperliquid can regain market share after the token incentive campaign, reaching $12 trillion in annual trading volume in ten years

Spot Business Contribution: New spot trading venues will push DEX market share into double digits, significantly increasing fee revenue

Ongoing Buybacks and Supply Reduction: The aid fund will buy back about 291 million tokens over ten years, reducing total supply to about 666 million tokens

Cantor estimates that, based on its assumptions, HYPE’s price could be driven above $200 within ten years. However, this argument relies on Hyperliquid maintaining cost growth, which is rare in the crypto space. The crypto market seldom rewards discounted cash flow logic during downturns; it mainly depends on capital flows, market narratives, and funding conditions.

The Debate Between Token Tourists and Actual Trading Volume

Hyperliquid’s immediate challenge is market performance. Over the past year, the exchange has been arguably the dominant perpetual futures DEX. However, this advantage has diminished since late 2025. Platforms like Aster, Lighter, and edgeX have launched token incentive programs and airdrops, attracting what Cantor calls “token tourists.” These traders seek trading volume for rewards, not to express their views.

As a result, the combined monthly trading volume of Aster, Lighter, and edgeX surged from about $103 billion in June to $638 billion in November. Meanwhile, Hyperliquid’s volume barely changed, increasing slightly from about $216 billion to $221 billion. In markets where liquidity typically follows the strongest incentives, this steady trend appears to be a loss of market share.

However, Cantor believes this view is misleading. The firm states that competitors’ platforms inflate trading activity through cyclical wash trading, while Hyperliquid has “natural” trading, reflected in open interest rather than just nominal volume. By comparing trading volume with open interest, the bank aims to show that Hyperliquid’s users are employing real leverage, not just manipulating data.

This logic is not unprecedented. In previous cycles, NFT platforms like Blur and several Solana-based DEXs achieved explosive trading volume through reward mechanisms, but these often proved unsustainable as incentives were phased out. The magnitude of this shift is significant. Even if rewards reset and some sales from Aster or Lighter disappear, they may still retain some new sales.

It’s worth noting that Hyperliquid also used a token incentive system before its token issuance event, which weakens its claim of being entirely different from incentive gaming. Currently, traders are voting with their keyboards. The protocol may have higher-quality trading flows, but visible revenue growth is coming from other sources.

The Regulatory Ceiling for Synthetic Stocks

Cantor envisions a future where Hyperliquid lists tokenized stock indices, private company exposures, and commodities, reducing costs (by over 90% compared to current levels) to weaken traditional brokers. Spot trading fees are already higher than perpetual trading, and the bank believes that if Hyperliquid captures 20% of DEX spot trading volume and a small portion of synthetic stock trading, just the spot trading alone could generate $1 billion in fee revenue.

However, historical experience warns us to proceed with caution. Attempts like Mirror Protocol to bring US stocks on-chain faced securities law resistance before their systemic impact was fully realized. Tokenized RWA often encounter issues related to licensing, disclosure, custody, and investor protection. Therefore, even if Hyperliquid insists on using synthetic exposure rather than custody tokens, its scaling success will almost certainly attract regulatory scrutiny.

This is the core disconnect in current market pricing. Bulls see a huge potential market and a protocol willing to lower fees to capture it. Skeptics believe there is a regulatory ceiling that may not appear in spreadsheets but will impact any attempt to bring Apple or Nvidia onto permissionless chains.

Tensions remain high. The foundation is trying to reinforce scarcity, while Cantor offers a model viewing HYPE as a cash-flow-rich trading business. Meanwhile, charts show the token still faces pressure. For Cantor’s approach to succeed, more investors need to start viewing HYPE as an equity substitute rather than just another memecoin with buyback stories. Until Hyperliquid can demonstrate growth again, investors may see this decline and bullish statements as a way to hold the bottom rather than a catalyst for new highs.