Felix Protocol’s feUSD: The People’s Stablecoin Revolutionizing DeFi
The Felix Protocol introduced feUSD [1], a decentralized stablecoin pegged to the U.S. dollar, built on the Hyperliquid L1 blockchain. Dubbed "The People's Stablecoin," feUSD aims to provide secure, accessible, and efficient financial tools for users navigating the decentralized finance (DeFi) ecosystem. This article explores the reasons for creating feUSD, its benefits, risks, historical context, and primary use cases. Flex Vanilla cross the 550 million dollars threshold [6].
Borrowing and Depositing feUSD
Using feUSD is a straightforward process that begins with depositing HYPE, the native token of the Hyperliquid ecosystem, as collateral into the Felix Protocol. Once deposited, users can borrow feUSD, a stablecoin designed to stay valued at $1, by locking up their HYPE in a Collateralized Debt Position (CDP), where they can even choose their own interest rate—though lower rates might be redeemed first if the peg falters. After borrowing, users have the option to deposit their feUSD into the Stability Pool, which they can purchase on the open market, earning yields from borrower interest and liquidation profits, though they’ll need to watch out for the volatility of the collateral they might receive during liquidations. All of this happens seamlessly through smart contracts on Hyperliquid L1, making it a decentralized and user-friendly experience as detailed in SKYGG’s analysis.
History of Felix Protocol and feUSD
The Felix Protocol emerged in the mid-2020s as DeFi gained traction, with its stablecoin feUSD launched to address the need for a secure, decentralized stablecoin. Built on Hyperliquid L1, Felix draws from the expertise of its founders, who have backgrounds in DeFi risk management at firms like Anthias.xyz [2]. The broader stablecoin landscape, which includes fiat-backed stablecoins like USDC and crypto-backed ones like DAI, has shaped Felix’s development. The 2025 White House Executive Order on digital assets and bipartisan stablecoin legislation signaled strong regulatory support for stablecoins, encouraging projects like Felix to innovate within a clearer framework.
Main Use Cases for feUSD
feUSD is designed for a variety of DeFi applications, with the following primary use cases:
Lending and Borrowing: Users can mint feUSD by depositing blue-chip crypto assets as collateral, accessing liquidity without selling their holdings [3]. This is vanilla lending [4].
Yield Farming: Staking feUSD in Felix Vaults allows users to earn native yield, appealing to those seeking passive income.
DeFi Integration: feUSD can be used across Hyperliquid’s DeFi ecosystem for trading, lending, or other protocols, enhancing its utility [5].
Cross-Border Payments: While not the primary focus, feUSD’s stability makes it a potential candidate for low-cost, fast transactions, similar to other stablecoins like USDC used in remittance platforms.
The Role of the CDP Market in Felix Protocol
The feUSD Collateralized Debt Position (CDP) Market is a cornerstone of the Felix Protocol, functioning as a money market that connects feUSD borrowers (minters) with Stability Pool (SP) depositors. Built on the Liquity v2 architecture, the CDP market facilitates the creation of feUSD by allowing users to deposit collateral (e.g., HYPE, UBTC, or Liquid Staking Tokens) to mint feUSD while maintaining a stable peg to the U.S. dollar. The market balances two key actors: borrowers, who deposit collateral and set their own interest rates, and SP depositors, who provide liquidity to absorb liquidations in exchange for interest, fees, and potential liquidation gains.
Key Features of the CDP Market
Flexible Interest Rates: Borrowers can set their own interest rates, enabling real-time discovery of the cheapest cost of capital.
High Capital Efficiency: The Stability Pool design allows for a higher Loan-to-Value (LTV) ratio compared to traditional money markets, as liquidations are absorbed internally rather than on secondary markets. For example, HYPE collateral has an LTV of ~59%, while UBTC is set at 50%.
Stability Pool Incentives: Depositors who buy feUSD on secondary markets and deposit it into the Stability Pool earn streaming interest, a share of borrowers’ upfront fees, and potential liquidation gains in the form of discounted collateral.
Supported Collaterals: The CDP market accepts assets like HYPE and UBTC, with values determined by Redstone oracles to ensure accurate pricing.
Risks in the CDP Market
For Borrowers: Positions exceeding the LTV ratio risk liquidation into the Stability Pool. Additionally, if feUSD trades below $1, arbitrageurs may redeem feUSD for $1 of collateral, targeting low-interest-rate positions first.
For SP Depositors: During liquidations, deposited feUSD is burned, and depositors receive collateral (e.g., HYPE or UBTC), exposing them to the price volatility of these assets.
The CDP market’s innovative design enhances liquidity and efficiency, making it a vital component of Felix’s mission to provide accessible and secure DeFi solutions.
Benefits of feUSD
The Felix Protocol’s feUSD offers several advantages for users:
Over-Collateralized Safety: Felix uses a conservative 40% Loan-to-Value (LTV) ratio on its testnet, lower than competitors like Aave or MakerDAO, reducing liquidation risks. Users can add collateral to strengthen loan health or withdraw unused collateral while maintaining safety margins.
Native Yield: By staking feUSD in Felix Vaults, users can earn yield, making it an attractive option for those seeking passive income in DeFi.
Decentralized and Non-Custodial: The protocol operates via smart contracts on Hyperliquid L1, eliminating reliance on centralized entities and enhancing user control.
Versatility: feUSD can be used across DeFi applications for lending, borrowing, and yield farming, providing flexibility for users.
Conclusion
Felix Protocol’s feUSD represents a significant step forward in DeFi, offering a secure, decentralized stablecoin that empowers users to unlock liquidity and earn yield. Its conservative risk management, over-collateralized design, and integration with Hyperliquid L1 make it a compelling option for DeFi enthusiasts. However, users must remain aware of risks like market volatility, regulatory changes, and smart contract vulnerabilities. As the stablecoin landscape evolves with increasing regulatory clarity, Felix Protocol is well-positioned to play a key role in shaping the future of decentralized finance.