Title: What's wrong with CDP stablecoins on HyperEVM?
Author: @stablealt
Translated by: zhouzhou, BlockBeats
Editor's Note: CDP "stablecoins" on HyperEVM, such as feUSD and USDXL, have failed to maintain their 1 USD peg due to a lack of robust arbitrage mechanisms, weak demand on Hyperliquid, and low borrowing costs. Hyperliquid natively provides leveraged trading, eliminating the need for CDP stablecoins. As airdrops and point rewards are exhausted, CDP tokens will lose value and ultimately become unsustainable.
Following is the translated content:
Disclaimer: This article is not intended to FUD or attack the CDP protocols on HyperEVM.
In short: CDP stablecoins like feUSD and USDXL are not actually stable or capital-efficient. They lack strong arbitrage mechanisms, have limited use cases, and are primarily used for leveraged trading, while Hyperliquid already provides a better user experience and liquidity. Therefore, these tokens trade below their 1 USD peg, and without incentives like airdrops, they are likely to gradually disappear.
Collateralized Debt Position (CDP) stablecoins promise a decentralized alternative to USD-backed stablecoins (like USDT) or centralized synthetic dollars (like USDe), but reality often falls short of expectations. feUSD, USDXL, and KEI are recent examples attempting to emulate Liquity, but they all face serious issues with peg stability, scalability, or flawed incentive design.
This article will analyze these problems, what paid KOLs haven't told you, and why these are not just growing pains—they are structural issues.
CDP Design Overview
First, let's understand the basic concept: CDP "stablecoins" are not actually true stablecoins or "USD" tokens. That's why DAI is called "DAI" and not USDD or something else. Naming CDP stablecoins with a "USD" prefix is misleading and can confuse DeFi newcomers. They lack arbitrage mechanisms and direct collateralization. Each CDP token is minted out of thin air and may be far below 1 USD in value.
To mint a CDP token, users must lock collateral worth over 100% to borrow tokens. This reduces capital efficiency and limits growth. To mint 1 token, you need to lock more than 1 USD in value. Depending on the loan-to-value ratio, this could be even higher.
Without aggressive mechanisms like Felix's redemption (where arbitrageurs can seize someone's collateral if borrowing rates are too low) or Dai's PSM module, CDP tokens cannot maintain a 1:1 peg with USD, especially when their primary use case is leveraged trading.
In DeFi, CDP is just another form of lending. Borrowers mint CDP stablecoins and exchange them for other assets or yield strategies they believe will outperform the protocol's borrowing rates.
What's happening?
Everyone exchanges their CDP stablecoins for other assets, typically more stable centralized assets like USDC or USDT, or volatile assets like HYPE for leveraged trading. Holding these tokens makes no sense, especially when you need to pay borrowing rates: feUSD has a 7% APY borrowing rate on Felix, USDXL has a 10.5% APY borrowing rate on HypurrFi.
Take USDXL as an example: It has no native use case, and users have no reason to hold it. That's why it can fluctuate between $0.80 and $1.20—its price is not anchored by any real arbitrage mechanism. Its price merely reflects the 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 provides users with a stability pool where they can earn 75% of borrowing fees and liquidation bonuses, currently around 8% APY. This helps reduce price volatility, but like USDXL, it still lacks a strong arbitrage mechanism to firmly maintain feUSD at $1. Its price still fluctuates based on borrowing demand.
The core issue is: Users buying feUSD and putting it in the stability pool are essentially lending their USDC or HYPE (via Felix) to those minting 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 no real reason to borrow illiquid, un-pegged tokens like feUSD or USDXL, or buy them as exit liquidity for borrowers. Why would you do this when you can directly borrow stablecoins like USDT or USDe? Ultimately, you'll convert the borrowed stablecoins to other tokens, so you don't care about the decentralization of the borrowed asset.
Another reason CDP isn't successful on HyperEVM is that leveraged trading is already a native feature of the Hyperliquid ecosystem. On other chains, CDP provides decentralized leveraged trading. But on Hyperliquid, users can simply use the platform's native leveraged perpetual contracts (perps) with an excellent user experience, eliminating the need for CDP stablecoins.
To summarize, here are the reasons CDP "stablecoins" perform poorly on HyperEVM:
· Lack of strong arbitrage mechanisms
· Weak demand for CDP products on Hyperliquid
· Low borrowing costs with no reason to hold CDP tokens
Therefore, CDP "stablecoins" like feUSD and USDXL are trading below their 1 USD soft peg: feUSD at $0.985 (-1.5%), 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 provides a better user experience and deeper liquidity, natively supporting leveraged trading. Once airdrops and point reward programs are exhausted, CDP tokens will lose their remaining utility.
Hypurrliquid, don't be exit liquidity.
