CDP "stablecoins" on HyperEVM, such as feUSD and USDXL, are unable to maintain their $1 peg due to the lack of a robust arbitrage mechanism, weak demand in Hyperliquid, and low borrowing costs. As a result, their prices have fallen below $1. Hyperliquid natively offers leveraged trading, eliminating the need for CDP stablecoins. With the depletion of airdrops and points rewards, CDP tokens will lose value and ultimately fail to sustain themselves.

In Short: CDP stablecoins, such as feUSD and USDXL, are neither truly stable nor capital-efficient. They lack a robust arbitrage mechanism, have limited use cases, and are primarily used for leveraged trading, for which Hyperliquid already provides a better user experience and liquidity. Consequently, these tokens trade below their $1 peg and are likely to gradually disappear without incentives like airdrops.

CDP Design Overview

Let's start with the basics: CDP "stablecoins" are not actually stablecoins or "dollar" tokens. This is why DAI is called "DAI" instead of USDD or other names. Naming CDP stablecoins with a "USD" prefix is misleading and may confuse DeFi newcomers. They lack an arbitrage mechanism and direct collateralization. Each CDP token is minted out of thin air and may be worth far less than $1.

To mint a CDP token, users must lock in collateral worth more than 100% of the value to borrow the token. This reduces capital efficiency and limits growth. To mint one token, you need to lock in more than $1 worth of value. Depending on the loan-to-value ratio, this percentage may be even higher.

Without heavy-handed mechanisms like Felix's redemption (where arbitrageurs can seize someone's collateral if the borrowing rate is too low) or Dai's PSM module, CDP tokens simply cannot maintain a 1:1 peg with the dollar, especially when their primary use case is leveraged trading.

In DeFi, CDPs are just another form of borrowing. Borrowers mint CDP stablecoins and exchange them for other assets or yield strategies that they believe will exceed the protocol's borrowing rate.

What Happened?

Everyone is exchanging their CDP stablecoins for other assets, usually more stable centralized assets like USDC or USDT, or for more volatile assets (e.g., HYPE) to engage in leveraged trading. There is no point in holding these tokens, especially when you have to pay borrowing interest: feUSD has a borrowing rate of 7% APY on Felix, and USDXL has a borrowing rate of 10.5% APY on HypurrFi.

Take USDXL as an example: it has no native use case, and users have no reason to hold it. This is why its price can fluctuate at $0.80, $1.20, etc.—the price is not anchored by any real arbitrage mechanism. Its price merely reflects users' demand for borrowing HYPE. When USDXL trades above $1, borrowers can borrow more USD; below $1, they borrow less—it's that simple.

feUSD is slightly better. Felix offers users a stability pool where they can earn 75% of the borrowing fees and liquidation bonuses, currently with an APY of around 8%. This helps reduce price volatility, but like USDXL, there is still no strong arbitrage mechanism to firmly keep feUSD at $1. Its price will still fluctuate based on borrowing demand.

The Pseudo-Decentralization Trap: Dissecting the Three Structural Flaws of CDP Stablecoins on HyperEVM

The core issue is that users who buy feUSD and put it into the stability pool are essentially lending their USDC or HYPE (through Felix) to those who mint feUSD. These CDP tokens have no intrinsic value. They only have value when paired with valuable tokens like HYPE or USDC in liquidity pools.

This introduces third-party risk. Without airdrops or other incentives, DeFi users have little reason to borrow illiquid, unpegged tokens like feUSD or USDXL, or to buy them as exit liquidity for borrowers. Since you can directly borrow stablecoins like USDT or USDe, why bother? Anyway, the stablecoins you borrow will eventually be converted into other tokens, so you don't need to care about the decentralization of the borrowing asset.

The Pseudo-Decentralization Trap: Dissecting the Three Structural Flaws of CDP Stablecoins on HyperEVM

Traditional lending through the flywheel mechanism of money markets, such as Hyperlend, is much simpler and produces the same economic effect for end-users.

Another reason CDPs have not succeeded on HyperEVM is that leveraged trading is already a native feature of the Hyperliquid ecosystem. On other chains, CDPs offer decentralized leveraged trading. On Hyperliquid, users can simply use the platform itself, with leveraged perps and an excellent user experience, without needing to rely on CDP stablecoins.

The Pseudo-Decentralization Trap: Dissecting the Three Structural Flaws of CDP Stablecoins on HyperEVM

With Hyperliquid in place, there is simply no need for leveraged trading through a third-party protocol. The only use case I see for CDPs is for leveraged farming and HLP circular operations.

To sum up, here are the reasons why CDP "stablecoins" on HyperEVM are underperforming:

• Lack of a robust arbitrage mechanism

• Weak demand for CDP products in Hyperliquid

• Low borrowing costs and no reason to hold CDP tokens

The Pseudo-Decentralization Trap: Dissecting the Three Structural Flaws of CDP Stablecoins on HyperEVM

As a result, CDP "stablecoins" like feUSD and USDXL are trading below the $1 soft peg: feUSD at $0.985 (-1.5%) and USDXL at $0.93 (-7%).

Conclusion: I don't believe CDP stablecoins have any potential in the Hyperliquid ecosystem. Users don't need them—Hyperliquid already offers a better user experience and deeper liquidity, with native support for leveraged trading. Once airdrops and points reward programs are exhausted, CDP tokens will lose their remaining utility.

Hypurrliquid, don't do exit liquidity.

CDP "stablecoins" on HyperEVM, such as feUSD and USDXL, are unable to maintain their $1 peg due to the lack of a robust arbitrage mechanism, weak demand in Hyperliquid, and low borrowing costs. As a result, their prices have fallen below $1. Hyperliquid natively offers leveraged trading, eliminating the need for CDP stablecoins. With the depletion of airdrops and points rewards, CDP tokens will lose value and ultimately fail to sustain themselves.

In Short: CDP stablecoins, such as feUSD and USDXL, are neither truly stable nor capital-efficient. They lack a robust arbitrage mechanism, have limited use cases, and are primarily used for leveraged trading, for which Hyperliquid already provides a better user experience and liquidity. Consequently, these tokens trade below their $1 peg and are likely to gradually disappear without incentives like airdrops.

CDP Design Overview

Let's start with the basics: CDP "stablecoins" are not actually stablecoins or "dollar" tokens. This is why DAI is called "DAI" instead of USDD or other names. Naming CDP stablecoins with a "USD" prefix is misleading and may confuse DeFi newcomers. They lack an arbitrage mechanism and direct collateralization. Each CDP token is minted out of thin air and may be worth far less than $1.

To mint a CDP token, users must lock in collateral worth more than 100% of the value to borrow the token. This reduces capital efficiency and limits growth. To mint one token, you need to lock in more than $1 worth of value. Depending on the loan-to-value ratio, this percentage may be even higher.

Without heavy-handed mechanisms like Felix's redemption (where arbitrageurs can seize someone's collateral if the borrowing rate is too low) or Dai's PSM module, CDP tokens simply cannot maintain a 1:1 peg with the dollar, especially when their primary use case is leveraged trading.

In DeFi, CDPs are just another form of borrowing. Borrowers mint CDP stablecoins and exchange them for other assets or yield strategies that they believe will exceed the protocol's borrowing rate.

What Happened?

Everyone is exchanging their CDP stablecoins for other assets, usually more stable centralized assets like USDC or USDT, or for more volatile assets (e.g., HYPE) to engage in leveraged trading. There is no point in holding these tokens, especially when you have to pay borrowing interest: feUSD has a borrowing rate of 7% APY on Felix, and USDXL has a borrowing rate of 10.5% APY on HypurrFi.

Take USDXL as an example: it has no native use case, and users have no reason to hold it. This is why its price can fluctuate at $0.80, $1.20, etc.—the price is not anchored by any real arbitrage mechanism. Its price merely reflects users' demand for borrowing HYPE. When USDXL trades above $1, borrowers can borrow more USD; below $1, they borrow less—it's that simple.

feUSD is slightly better. Felix offers users a stability pool where they can earn 75% of the borrowing fees and liquidation bonuses, currently with an APY of around 8%. This helps reduce price volatility, but like USDXL, there is still no strong arbitrage mechanism to firmly keep feUSD at $1. Its price will still fluctuate based on borrowing demand.

The Pseudo-Decentralization Trap: Dissecting the Three Structural Flaws of CDP Stablecoins on HyperEVM

The core issue is that users who buy feUSD and put it into the stability pool are essentially lending their USDC or HYPE (through Felix) to those who mint feUSD. These CDP tokens have no intrinsic value. They only have value when paired with valuable tokens like HYPE or USDC in liquidity pools.

This introduces third-party risk. Without airdrops or other incentives, DeFi users have little reason to borrow illiquid, unpegged tokens like feUSD or USDXL, or to buy them as exit liquidity for borrowers. Since you can directly borrow stablecoins like USDT or USDe, why bother? Anyway, the stablecoins you borrow will eventually be converted into other tokens, so you don't need to care about the decentralization of the borrowing asset.

The Pseudo-Decentralization Trap: Dissecting the Three Structural Flaws of CDP Stablecoins on HyperEVM

Traditional lending through the flywheel mechanism of money markets, such as Hyperlend, is much simpler and produces the same economic effect for end-users.

Another reason CDPs have not succeeded on HyperEVM is that leveraged trading is already a native feature of the Hyperliquid ecosystem. On other chains, CDPs offer decentralized leveraged trading. On Hyperliquid, users can simply use the platform itself, with leveraged perps and an excellent user experience, without needing to rely on CDP stablecoins.

The Pseudo-Decentralization Trap: Dissecting the Three Structural Flaws of CDP Stablecoins on HyperEVM

With Hyperliquid in place, there is simply no need for leveraged trading through a third-party protocol. The only use case I see for CDPs is for leveraged farming and HLP circular operations.

To sum up, here are the reasons why CDP "stablecoins" on HyperEVM are underperforming:

• Lack of a robust arbitrage mechanism

• Weak demand for CDP products in Hyperliquid

• Low borrowing costs and no reason to hold CDP tokens

The Pseudo-Decentralization Trap: Dissecting the Three Structural Flaws of CDP Stablecoins on HyperEVM

As a result, CDP "stablecoins" like feUSD and USDXL are trading below the $1 soft peg: feUSD at $0.985 (-1.5%) and USDXL at $0.93 (-7%).

Conclusion: I don't believe CDP stablecoins have any potential in the Hyperliquid ecosystem. Users don't need them—Hyperliquid already offers a better user experience and deeper liquidity, with native support for leveraged trading. Once airdrops and points reward programs are exhausted, CDP tokens will lose their remaining utility.

Hypurrliquid, don't do exit liquidity.