Dive into Hyperliquid Ecosystem dApp #2: loopedHYPE
Hyperliquid, HyperEVM, loopedHYPE
Special thanks to Adam(@web3strategist) from @StakingRewards for his valuable contribution to this article.
Introduction
With the launch of HyperEVM, $HYPE holders are looking forward to new utilities beyond trading and staking on the L1 Spot DEX.
However, given that the ecosystem is still in its early stages, concerns about risks such as rug pulls persist.
Additionally, delays in native transfers between L1 and EVM, as well as the implementation of precompiles, have resulted in relatively low participation of $HYPE holders in HyperEVM dApps.
As of March 26, 2025, almost 4,000,000 $HYPE tokens have been bridged to HyperEVM, representing a mere 1.2% of the total circulating supply.
This situation creates a high entry barrier for holders attempting to determine which projects are safe and efficient for yield generation with $HYPE.
To address this, there has been an increasing demand for solutions that can automate $HYPE operations in collaboration with highly reliable projects.
loopedHYPE is a project that allows users to deposit
$HYPE, which is then staked to acquire LSTs (Liquid Staking Tokens) like stHYPE/kHYPE.
These LSTs are then used in automated looping strategies across DeFi platforms such as Felix, HyperLend, and HyperSwap, aiming for an annual yield of 10%.
loopedHYPE was developed by founding members of Nucleus and Staking Rewards, who have established a stable yield generation structure through verified partnerships.
Key partners include:
Risk Management:@nucleusearn, (Planned: @gauntlet_xyz, @anthiasxyz)
DeFi:@hyperlendx, @felixprotocol, @HyperSwapX, @sentimentxyz
Liquid Staking Protocols: @stakedhype, (Planned: @kinetiq_xyz)
Validators:@nansen_ai x @hypurr_co, @asxn_r, @validaoxyz, @imperator_co, @B__Harvest, Meria
What is loopedHYPE?
loopedHYPE is a project launched by founding members of Nucleus and Staking Rewards.
Nucleus: A native yield provider that raised $7 million in funding led by gumi Cryptos in August 2024. Currently, it manages approximately $100 million in TVL across nine networks. Nucleus provides loopedHYPE with its smart contract vault technology to manage deposits and execute looping strategies.
Staking Rewards: An institutional staking platform and data aggregator, offering. users access to staking strategies for all major staking assets. Staking Rewards' API is actively used by leading institutions such as Coinbase, Kraken, 21shares and Grayscale. It secured $4 million in funding from DCG, Galaxy Digital, and Coinshares in March 2023 and serves as the validator infrastructure provider for loopedHYPE.
With this background, loopedHYPE aims to deliver an annual yield of 10% by leveraging automated looping strategies using HYPE LSTs within the HyperEVM ecosystem. This significantly surpasses the approximate 2% staking yield currently available for HYPE.
As of March 26, 2025, loopedHYPE has received $10 million worth of HYPE deposits and holds 20.17% of the total stHYPE supply, making it the second-largest stHYPE holder in the stakedHYPE ecosystem after HypurrFi. Given that only 1.2% of the total circulating supply of HYPE has been bridged to HyperEVM, the project has substantial growth potential as more users transition to HyperEVM.
Basic Mechanism of loopedHYPE
The automated looping strategy of loopedHYPE, known as AutoLoop, operates as follows:
User Deposits: Initially, only HYPE deposits are accepted (Phase 1). Future phases will allow deposits of stHYPE, kHYPE, and stablecoins.
LHYPE Token Issuance: Depositors receive LHYPE, an ERC-20 token (Liquid Looping Token), as proof of deposit.
Staking and LST Acquisition: Deposited HYPE is staked in liquid staking projects such as stakedHYPE, generating stHYPE. In the future, additional verified projects like Kinetiq will be integrated.
Collateralized Borrowing: The acquired stHYPE is used as collateral on DeFi platforms like HypurrFi, HyperLend, and Felix to take out loans.
Leveraged Looping Strategy: The borrowed assets are used to purchase additional HYPE, which is then re-staked, repeating steps 3 and 4.
The automated looping strategy dynamically adjusts leverage between 3x and 15x. When the staking APY exceeds borrowing interest rates, additional HYPE is borrowed and staked. Conversely, if borrowing costs rise, debt is repaid or staked assets are unstaked to optimize yield.
Key Differentiators of loopedHYPE
Abstracting Complexity
loopedHYPE is a structured product that simplifies complex DeFi processes, making it accessible to all HYPE holders. Users only need to deposit HYPE, and the platform automates staking APY analysis, collateralized borrowing optimization, platform selection, and risk management. This is particularly beneficial for non-experts or those who cannot actively monitor market conditions.
Enhanced Yield
loopedHYPE targets a 10% annual yield, far surpassing the 2.2% yield from simple staking. This return includes network rewards, MEV gains, and airdrops. However, MEV strategies can only be implemented once HyperEVM’s client becomes open-source. Until then, the APY might fall short of the target. In the coming weeks, loopedHYPE will release a dashboard to let users track the amount of HYPE that is earning yield in their automated looping strategy.
Additionally, LoopDrops, an airdrop distribution mechanism, ensures that staking-related airdrops are fairly allocated to LHYPE holders based on deposit amount and duration. For example, if Felix provides $FELIX token rewards for dApp usage, these rewards are proportionally distributed to users and recorded on-chain.
Project Selection for Security
Security risks, such as rug pulls, deter many HYPE holders from migrating to HyperEVM. Projects like Karu and HPS Protocol have raised concerns, making it difficult for users to identify trustworthy dApps.
loopedHYPE addresses this by exclusively partnering with thoroughly vetted projects, prioritizing asset safety while ensuring sustainable yield generation.
Key Considerations
Security and Risk Management
Unlike direct staking with validators on Hyperliquid, loopedHYPE interacts with various smart contracts, DeFi dApps, and liquid staking protocols, exposing it to potential risks. To mitigate this, loopedHYPE imposes strict partner selection criteria.
loopedHYPE relies on Nucleus Boring Vault Infrastructure, which has been audited by Macro Security, Pashov, and Spearbit. Additionally, funds are controlled via smart contracts with multi-signature security to prevent unauthorized access.
Since the looping strategy involves collateralized borrowing, a sharp decline in $HYPE’s price could trigger cascade liquidations. To counter this, AutoLoop continuously monitors key indicators (staking APY, borrowing rates, LST prices) and rebalances assets and leverage daily. Nucleus also serves as the risk curator for AutoLoop, ensuring stable operation even under extreme market conditions.
Early Adopter Program
loopedHYPE plans to distribute 90% of its governance/utility token supply to ecosystem participants, gradually transitioning Vault ownership to the community.
The Phase 1 early adopter program successfully raised $5 million HYPE, with 4% of the total token supply allocated to participants. To receive rewards, users must hold LHYPE for at least 8 weeks, during which withdrawals are restricted.
Users can withdraw their LHYPE position via the Staking Rewards Terminal. By doing so the user receives stHYPE in their wallet, in exchange for their LHYPE. The withdrawal takes between 1-3 days. By doing users can avoid any slippage costs for swapping out of position on a DEX.
Phase 2 is set to launch soon, and the details are as follows:
Allocation: 3% of total token supply
Initial Cap: 2,000,000 HYPE
Deposit min: No Minimum
Deposit max: 69,000 HYPE
Eligible positions: Native LHYPE
LHYPE in AMM Pools (Kittenswap, Hyperswap, Laminar)
LHYPE in Lending Protocols (Timeswap, Felix)
All wallets that hold native LHYPE and/or any eligible LHYPE DeFi positions at the time of reaching Phase-2 cap, will earn a pro-rata share of the token supply.
Validator Staking Airdrops
Users staking directly with validators receive airdrops such as Nansen Points, $ANIME, $TIME, and $NEKO. loopedHYPE ensures that HYPE deposited in its system maintains eligibility for these airdrops.
Users can either:
Select a specific validator, ensuring rewards from that validator.
Choose ‘No Preference’, distributing stakes across all validators in stHYPE.
For instance, selecting Nansen x HypurrCollective ensures users still receive ANIME airdrops. However, staking through HyperSwap automatically delegates to Imperator, which should be considered.
This mechanism is facilitated via stakedHYPE Community Codes, allowing for transparent validator delegation.
Conclusion
loopedHYPE offers a secure, automated solution for maximizing HYPE staking yields within HyperEVM. By simplifying complex DeFi strategies and implementing robust risk management, it significantly enhances the yield potential for HYPE holders, supporting broader ecosystem adoption.
References
Disclaimer
This document has been prepared for informational purposes only and should not be interpreted as investment advice or financial recommendations. Cryptocurrency investments carry high risks, and investors may lose some or all of their assets. Before participating in loopedHYPE or any projects mentioned in this document, please seek independent financial and legal advice.
The content of this document is based on information as of the time of writing (March 6, 2025), and may change due to changes in market conditions or project policies after that. Automated looping strategies and the use of leverage involve additional risks and may expose you to greater market volatility.
This document is not an official document of loopedHYPE or related projects and is based on the author's personal analysis and understanding. While efforts have been made to provide accurate information, the completeness and accuracy of all information are not guaranteed. Investment decisions should be made based on official documents and your own research.