How Does Felix Vaults Work?
Felix Vaults is a modular leverage protocol built natively on Hyperliquid, offering two core products: a CDP system that mints feUSD stablecoin against crypto collateral, and Morpho-powered lending markets including Frontier Vaults for exotic collateral types. Felix gives Hyperliquid users access to leveraged yield strategies and stablecoin borrowing. However, it inherits all risks of the Hyperliquid ecosystem and introduces novel risks through its exotic collateral types and multi-hop oracle pricing, which have been flagged by security auditors.
TVL
$87M
Sector
Yield
Risk Grade
C+
Value Grade
D
Core Mechanisms
Stablecoin/CDP/Overcollateralized Stablecoin
NovelfeUSD stablecoin minted via overcollateralized CDPs using ETH, BTC, HYPE, and other approved collateral on Hyperliquid, following Liquity V2 architecture
Liquity V2-style CDP on a new L1 is a novel combination. feUSD stability depends on Hyperliquid's emerging DeFi ecosystem providing sufficient redemption liquidity and arbitrage incentives.
Lending/Morpho-Powered Markets
NovelMorpho-powered vanilla lending markets alongside Frontier Vaults that offer exotic collateral markets for UETH, hwHLP, and WHLP
Frontier Vaults push the boundary of acceptable collateral types. hwHLP and WHLP are Hyperliquid vault tokens — using vault tokens as lending collateral creates recursive risk loops.
Oracle/Composed Oracle
Multi-hop oracle pricing for exotic collateral requiring conversion through intermediate price feeds (e.g., UETH → ETH → USD) with deviation band economics
Three Sigma audit identified key risks in composed oracle arithmetic and deviation band economics. Multi-hop conversions amplify oracle error and can fail under correlated stress.
Risk-Management/Liquidation Engine
Automated liquidation system for CDP and lending positions with collateral-specific liquidation parameters tuned by protocol governance
Liquidation efficiency depends on Hyperliquid DEX liquidity. During chain-wide stress, liquidation bots may face congestion competing for limited block space.
Value Capture/Fee Models/Percentage-based Fee
Revenue from CDP borrowing fees, lending market interest spreads, and vault performance fees collected by curators
Curator-collected yields align incentives with vault performance. Fee structure is competitive within the Hyperliquid ecosystem but sustainability depends on continued DeFi growth on the chain.
Cross-System/Chain-Native Integration
Built natively on Hyperliquid HyperEVM, deeply integrated with the Hyperliquid perpetual DEX and vault infrastructure
Native Hyperliquid integration provides composability advantages but creates total dependency on a single chain. If Hyperliquid experiences downtime or exploits, Felix has no fallback.
How the Pieces Interact
Exotic collateral types (hwHLP, WHLP) require multi-hop oracle conversions. If any intermediate price feed fails or reports stale data, liquidation thresholds become inaccurate. Users could be liquidated unfairly or, worse, bad debt could accumulate from under-liquidated positions.
feUSD peg stability requires sufficient redemption and arbitrage activity on Hyperliquid. As a relatively new ecosystem, Hyperliquid's DeFi liquidity is concentrated and fragile. A HYPE price crash could simultaneously impair CDP collateral and dry up the liquidity needed for feUSD stabilization.
Using Hyperliquid vault tokens (hwHLP, WHLP) as collateral in lending markets creates recursive exposure. A decline in vault performance reduces collateral value, triggering liquidations that sell vault tokens, further reducing vault performance in a self-reinforcing loop.
100% dependency on Hyperliquid means any chain-level issue (consensus failure, validator downtime, EVM bug) halts all Felix operations. No cross-chain failover or L1 fallback exists.
Three Sigma audit identified USDC peg dependency in feUSD pricing. If USDC depegs (as in March 2023), feUSD valuation and liquidation calculations could become incorrect, leading to bad debt or unnecessary liquidations.
What Could Go Wrong
- Built natively on Hyperliquid — inherits all risks of a relatively new L1 with limited battle-testing and concentrated validator set
- Frontier Vaults expose users to exotic collateral types (UETH, hwHLP, WHLP) with complex multi-hop oracle pricing that can fail under stress
- Liquity V2-style CDP system minting feUSD introduces novel redemption and liquidation dynamics that are untested at scale
Hyperliquid Ecosystem Liquidity Crisis
ModerateTrigger: HYPE token drops 50%+ in 72 hours, simultaneously impairing Felix CDP collateral, draining feUSD liquidity, and reducing vault token values
- 1.HYPE price crash triggers liquidations across HYPE-collateralized CDPs minting feUSD — Mass HYPE selling from liquidations amplifies price decline; liquidation bots compete for limited block space
- 2.Vault tokens (hwHLP, WHLP) decline as underlying Hyperliquid vaults suffer losses from perp market chaos — Frontier Vault positions using vault tokens as collateral hit liquidation thresholds, creating second wave of forced selling
- 3.feUSD liquidity pools on Hyperliquid drain as users flee to stablecoins on other chains — feUSD depegs to $0.90-0.95 with no arbitrage mechanism functioning under chain-wide stress
- 4.Multi-hop oracle pricing fails as intermediate price feeds become stale or unreliable — Liquidation engine makes incorrect decisions; bad debt accumulates in lending markets
Risk Profile at a Glance
Overall: C+ (36/100)
Lower score = safer