How Does Felix CDP Work?
Felix CDP is a Liquity V2 fork on Hyperliquid L1 that lets users mint feUSD stablecoins against HYPE and BTC collateral with user-chosen interest rates. With rapid growth to $1B+ in total deposits across Felix products and audits from Dedaub and Coinspect, its B- grade reflects solid fundamentals from the Liquity V2 design offset by concentration risk in Hyperliquid ecosystem assets and rapid growth that may outpace risk calibration.
TVL
$30M
Sector
CDP
Risk Grade
B-
Value Grade
D
Core Mechanisms
6.1.1
Liquity V2-style CDP for feUSD minting against HYPE and BTC collateral
Licensed Liquity V2 fork adapted for Hyperliquid L1; standard overcollateralized CDP with minimum 110% collateral ratio
6.3.2
Stability pool for liquidation absorption with liquidation bonus
Standard Liquity-style stability pool where feUSD depositors absorb liquidations in exchange for discounted collateral
6.2.3
NovelUser-set interest rates for borrowing feUSD
Liquity V2 innovation where borrowers set their own interest rate, with lower-rate positions redeemed first; novel market-driven interest rate mechanism
6.4.1
Oracle price feeds for HYPE and BTC collateral valuation
Standard oracle integration with post-audit adjustments to deviation thresholds for USDC depeg scenarios
6.1.4
Felix Vanilla isolated lending markets (complementary product)
Traditional borrow/lend markets complementing the CDP product; standard isolated market design
How the Pieces Interact
Heavy reliance on HYPE as collateral means a significant HYPE price decline triggers mass liquidations on Felix, which in turn increases HYPE selling pressure on Hyperliquid DEX, creating a reflexive downward spiral
Borrowers setting very low interest rates to minimize costs are redeemed first during feUSD peg pressure, creating adverse selection where the most cost-sensitive positions are the most vulnerable to forced closure
Total deposits grew from $0 to $1B in 5 months, but stability pool growth may lag, creating insufficient liquidation absorption capacity during market downturns
Post-audit fix to redemption pricing assumptions may have incomplete coverage; edge cases in oracle deviation thresholds could cause mispricing during stablecoin depeg events
What Could Go Wrong
- Felix is a Liquity V2 fork on Hyperliquid L1, inheriting Liquity's proven design but deploying on a relatively new blockchain where the validator set and sequencer infrastructure are less battle-tested.
- feUSD stablecoin depends on Hyperliquid's native HYPE token and BTC as primary collateral, creating concentration risk in a single ecosystem's assets.
- Rapid growth from $0 to $1B+ total deposits across Felix products in 5 months signals strong adoption but also rapid expansion that may outpace risk parameter calibration.
- Redemption pricing was adjusted post-audit to fix a hidden peg assumption; similar latent design issues may exist in other modified Liquity V2 components.
HYPE Collateral Reflexivity Spiral
ModerateTrigger: HYPE token price drops >35% within 48 hours, triggering mass liquidations on Felix CDP that further depress HYPE price through forced selling
- 1.Sharp HYPE price decline triggers Felix CDP liquidations for positions near 110% collateral ratio — Stability pool absorbs liquidated HYPE collateral; liquidators sell HYPE on Hyperliquid DEX for profit
- 2.Liquidation-driven HYPE selling adds to market pressure, further depressing HYPE price — Additional positions breach liquidation threshold, creating a cascading liquidation spiral specific to HYPE collateral
- 3.Borrowers with user-set low interest rates are forcefully redeemed as feUSD seeks peg — Cost-conscious borrowers lose their positions involuntarily while feUSD peg pressure increases
- 4.Stability pool is depleted faster than it can be replenished — Remaining liquidations fall through to redistribution mechanism, socializing losses across remaining borrowers
- 5.feUSD confidence is shaken as backing quality deteriorates — feUSD trades below peg on secondary markets, causing DeFi integrations on Hyperliquid to face cascading collateral issues
Risk Profile at a Glance
Overall: B- (30/100)
Lower score = safer