Felix Protocol is a decentralized borrowing and lending protocol built on the Hyperliquid Layer 1 blockchain. As a fork of the Liquity V2 protocol, it allows users to mint a native stablecoin, feUSD, against deposited crypto assets and engage in variable-rate lending through its distinct money market products. ^{[1] [2]}

Overview

Felix Protocol is designed to function as a core financial layer within the Hyperliquid ecosystem, providing users with tools to unlock liquidity, generate yield, and execute advanced trading strategies. The platform's architecture is centered around two primary products: Felix CDP (Collateralized Debt Position) and Felix Vanilla. The CDP market is tailored for active traders seeking high-leverage opportunities by minting the feUSD stablecoin, while the Vanilla market offers a more traditional, variable-rate borrowing and lending experience for a range of assets. ^[3]

The protocol was developed with a stated emphasis on security and risk management, incorporating several enhancements over its predecessor, Liquity V2. These improvements include the implementation of mint caps, administrative controls for parameter adjustments, and an emergency pause function. The founding team's background includes experience from Anthias.xyz, a decentralized finance risk management firm, which has influenced the protocol's risk-first design philosophy. Felix Protocol collaborates with Anthias Labs for ongoing risk monitoring and has undergone smart contract audits to ensure its security. ^{[1] [4]}

Growth of the protocol has been attributed to several factors, including the expansion of the underlying HyperEVM ecosystem, an incentive system that rewards user activity with "Felix points," and widespread speculation regarding a potential airdrop from the Hyperliquid chain. A contributor to the protocol, known as Charlie.hl, stated, "Users have optionality on Felix, both on the supply side and borrow side, which is a bit unprecedented in an ecosystem as early as HyperEVM.” ^[5]

History

The development of Felix Protocol was first detailed in March 2025, when it was introduced as a decentralized borrowing protocol on testnet, undergoing audits from firms Dedaub and Coinspect. ^[1] Following a staged mainnet rollout with limited access, the protocol officially launched its public mainnet between April 8 and April 9, 2025. The launch was acknowledged by the original Liquity Protocol team, which described Felix as a "flavor of Liquity V2" deploying on Hyperliquid. ^{[6] [2]}

The protocol experienced rapid growth following its launch. By April 15, 2025, just a week after going public, it had added Bitcoin (BTC) as an accepted collateral type, raised the minting cap for positions collateralized by Hyperliquid's native token (HYPE), and reached $100 million in Total Value Locked (TVL). On April 18, 2025, the protocol began distributing "Felix points" as part of a user incentive program. ^[6]

The platform's product offerings expanded with the launch of Felix Vanilla markets on May 14, 2025, complementing the existing Felix CDP product. By this date, the CDP protocol had already secured over $180 million in collateral deposits. ^[7] Continued growth led to the protocol surpassing $100 million in total outstanding loans and reaching a TVL of $265 million by June 5, 2025. By September 9, 2025, Felix Protocol announced it had exceeded $1 billion in total deposits across its products. ^{[5] [6]}

Technology

Felix Protocol operates on the Hyperliquid Layer 1 blockchain, utilizing its HyperEVM environment. Its core technology is derived from a fork of the Liquity V2 protocol, which it has modified to include additional risk management features. Future developments aim for deeper integration with Hyperliquid's core infrastructure through a feature known as CoreWriter (formerly "write precompiles"), which is expected to enhance capabilities for trader optimization. ^[5]

Core Products

The protocol is structured around two distinct money market products designed for different user profiles and objectives. ^[7]

Felix CDP (Collateralized Debt Position)

The Felix CDP market is the mechanism through which the protocol's native stablecoin, feUSD, is minted. It is primarily designed for active traders seeking leverage.

• Functionality: Users deposit approved collateral assets, such as HYPE, Wrapped Bitcoin (WBTC), Ethereum (ETH), and liquid staking derivatives like stETH and rETH, into a vault (or "Trove"). They can then mint feUSD against this collateral. ^{[4] [3]}
• Interest Rates: A notable feature is the ability for borrowers to set their own interest rates, allowing for active management to secure more favorable borrowing costs.
• Leverage: The amount a user can borrow is primarily limited by the overall mint cap for each collateral asset rather than available liquidity from lenders, enabling the potential for high leverage.
• Risks: This product carries a risk of redemption, where other users can pay off an undercollateralized position. This requires borrowers to actively manage their positions to maintain a healthy collateralization ratio. The protocol also charges fees for opening a CDP. ^[7]

Felix Vanilla

Launched after the CDP market, Felix Vanilla provides a traditional variable-rate borrowing and lending experience. It caters to both passive users seeking yield and traders who prefer a more conventional leverage model.

• Functionality: Users can supply assets like USDe and USDT0 to earn a yield from borrowing demand. Other users can deposit collateral (such as HYPE or UBTC) to borrow these stablecoins directly.
• Interest Rates: Borrowing costs are determined by market dynamics, fluctuating based on the supply and demand for each asset in the pools.
• Risk Model: The primary risk for borrowers is liquidation if their collateral value falls below a certain threshold. Unlike the CDP market, there is no redemption risk, which simplifies position management. Lenders are exposed to the risk of the underlying collateral assets in the borrowing pools.
• Fees: The Vanilla market does not charge fees for opening a position, which can make it more cost-effective for short-term borrowing compared to the CDP product. ^[7]

Security and Risk Management

Felix Protocol was designed with a "risk-first" approach, implementing several security layers and partnerships.

• Architectural Enhancements: As a fork of Liquity V2, the protocol's developers implemented specific improvements to enhance safety. These include system-wide mint caps to prevent over-leveraging, admin controls for safe parameter adjustments, an emergency pause mechanism, and safeguards for the Stability Pool that address a vulnerability present in the original Liquity V2 protocol. ^[1]
• Audits: The protocol's smart contracts have undergone independent audits by security firms Dedaub and Coinspect. ^[1]
• Monitoring Partners: Felix integrates third-party services for continuous monitoring.
  • Hypernative: Provides real-time security monitoring by analyzing mempool transactions and smart contracts to proactively identify potential exploits.
  • Anthias Labs: Monitors key on-chain and market metrics, such as the health of the feUSD price peg and its liquidity on decentralized exchanges, to ensure protocol stability. ^[4]

feUSD Stablecoin

feUSD is the native, crypto-backed stablecoin of the Felix Protocol, designed to maintain a value pegged to the U.S. dollar. It is a central component of the Hyperliquid DeFi ecosystem, serving as a medium of exchange, a tool for leverage, and a yield-bearing asset. ^[3]

Overview and Utility

feUSD is minted exclusively through the Felix CDP market when users deposit collateral and borrow against it. The stablecoin is over-collateralized, meaning the value of the locked assets is greater than the value of the feUSD in circulation. As of October 2025, its circulating supply was approximately 75 million, with a market capitalization of around $75 million. The token has experienced price volatility, with an all-time high of $1.07 and an all-time low of $0.7059, often influenced by market-wide sell pressure from users seeking leverage. ^{[8] [7]}

The primary use cases for feUSD include:

• Acquiring Leverage: Traders mint feUSD and swap it for other assets to fund long or short positions.
• Yield Generation: Holders can deposit feUSD into the protocol's Stability Pool to earn rewards from borrower interest payments and liquidations.
• Liquidity Provision: feUSD is used as a base or quote asset in various liquidity pools on decentralized exchanges within the Hyperliquid ecosystem, such as HYPE/feUSD and USDe/feUSD. ^[3]

Stability Mechanisms

The protocol employs several mechanisms to maintain the feUSD peg and ensure solvency.

• Over-collateralization: All feUSD is backed by a surplus of crypto assets, creating a buffer against collateral price volatility. The protocol's testnet operated with a conservative 40% Loan-to-Value (LTV) ratio to prioritize stability. ^[1]
• Redemption: The protocol allows feUSD holders to redeem their tokens for the underlying collateral at face value (1 feUSD for $1 worth of collateral). This mechanism creates a price floor for feUSD, as it incentivizes arbitrageurs to buy the token on the open market if it trades below $1 and redeem it for a profit. While this supports the peg, it also poses a risk to CDP owners with the lowest collateralization ratios, as their positions are the first to be redeemed against. ^[7]
• Stability Pool: This pool is the primary backstop for liquidations. Users deposit their feUSD into the pool to help repay the debt of liquidated positions. In return for providing this liquidity, depositors receive the liquidated collateral (e.g., HYPE) from the closed position, often at a discount to its market value. They also earn a share of protocol fees. This creates a symbiotic relationship where the protocol gains stability, and users can earn yield, though it carries the risk that the received collateral could depreciate in value. ^[7]

Use Cases

Felix Protocol's dual-market structure enables a variety of DeFi strategies on the Hyperliquid network.

• Leveraged Trading: Users can mint feUSD from the CDP market or borrow assets from the Vanilla market to create leveraged long or short positions. The protocol also supports "leverage looping," where a user repeatedly supplies collateral and borrows against it to amplify their exposure.
• Carry Trades: The protocol facilitates carry trades, where users can profit from interest rate differentials. For example, a user might mint feUSD at a low interest rate and deposit it into the Stability Pool to earn a higher yield, capturing the spread.
• Yield Generation: Passive users can earn yield by supplying stablecoins like USDC or HUSD to the Vanilla markets or by depositing feUSD into the Stability Pool.
• DEX Liquidity Provision: feUSD is a key asset for providing liquidity on Hyperliquid's decentralized exchanges, both in volatile pairs like HYPE/feUSD and in stable-swap pools. ^[3]

Market Adoption and Growth

Since its launch in April 2025, Felix Protocol has become one of the largest protocols on Hyperliquid's EVM.

• Total Value Locked (TVL): The protocol's TVL grew from zero to $100 million by April 15, 2025, and reached $265 million by June 5, 2025, representing an 813% increase in under two months. At that time, it accounted for approximately 17% of all DeFi liquidity on the HyperEVM. ^[5]
• Deposits and Loans: By June 5, 2025, the protocol had surpassed $100 million in total outstanding loans, with $61 million borrowed from the CDP market and $43 million from the Vanilla lending market. By September 9, 2025, total deposits across both products had exceeded $1 billion. ^{[5] [6]}
• feUSD Market: Within a week of its public launch, feUSD recorded a 24-hour trading volume of $7 million. As of October 2025, the stablecoin had a market capitalization of approximately $75 million and was ranked among the top 600 crypto assets by CoinGecko. ^{[6] [8]}