Borrow against your HYPE at 0% interest.

01Overview

Covalence is a borrowing protocol on HyperEVM. You deposit HYPE or kHYPE, mint CUSD (our dollar stablecoin) against it, and keep full directional exposure to HYPE the whole time. When you want your collateral back, repay the CUSD. Or don't. It's interest free, so it doesn't compound against you.

There's no interest on the default loan. You pay a one-time fee when you borrow, and if you hold the position for three weeks or three years, that's still the only fee you pay.

We built it on Liquity V1, which has been running on Ethereum since 2021. We adapted it for HyperEVM and built it around HYPE and its LSTs.

02Borrowing

How much you can borrow depends on your collateral ratio, which is your collateral's value divided by your debt.

• HYPE: 125% minimum collateral ratio, so you can borrow up to 80% of what you deposit.
• kHYPE: 128.2% minimum collateral ratio, or up to 78%.

kHYPE gets a slightly stricter minimum because it relies on Kinetiq's staking contract reporting the right exchange rate. That's a bit more risk surface compared to holding HYPE directly, but it compensates you with the staking yield.

The borrowing fee is 0.5% on the first $50,000, 0.25% from $50,000 to $500,000, and 0.1% on anything above that. It comes out of your collateral, so you get the full amount of CUSD you asked to borrow.

If you borrow against kHYPE, your collateral keeps earning staking rewards (around 2% a year right now) while your debt stays flat.

A few practical details:

• The minimum loan is 2,000 CUSD.
• Opening a vault sets aside 50 CUSD as a liquidation reserve. If your vault ever gets liquidated, that pays the person who does it. If you close normally, you get it paid back.
• You can add collateral, repay, or close at any time. Those are never paused and never cost a fee.

03Risks to understand before you borrow

Liquidation. If your ratio drops below the minimum, anyone can liquidate your vault. Your debt is wiped, and your collateral goes to the stability pool. Like any leverage, keep a buffer, and top up early if HYPE is falling (not financial advice).

Redemption. This is the peg defense mechanism. Anyone holding CUSD can trade it in for $1 worth of collateral, taken from open vaults (minimum 500 CUSD). If your vault gets redeemed against, your debt and collateral both go down by the same dollar amount. On paper it's a net-zero exchange, but part of your position has been sold at the current price. You can simply borrow and swap to restore your desired HYPE exposure while just paying the small mint fee.

With respect to redemption ordering, vaults are in two tiers. Every Tier 1 vault gets redeemed before any Tier 2 vault, so a Tier 1 vault at 400% goes before a Tier 2 vault at 130%. Within Tier 1, the vaults closest to liquidation go first. Within Tier 2, the lowest interest rate goes first and then collateral ratio.

If you want to stay out of the way of redemptions, opting into Tier 2 will help guard your position. You pick an annual rate, starting at 0.25%. Most people will be fine staying in Tier 1, which is the default and costs nothing ongoing.

Shared bad debt. If a liquidation is too big for the stability pool to cover, the leftover debt and collateral get split across the other open vaults of the same collateral type. You'd end up with a bit more debt and a bit more collateral. This is a last resort, and it's the reason CUSD holders never get written down.

04Earning with the stability pool

Users can deposit CUSD into the stability pool, which is what absorbs liquidations. When a vault is liquidated, the pool burns CUSD to cover the debt and takes the collateral, which is worth more than the debt. At the HYPE minimum, the pool gets that collateral at up to roughly a 20% discount. That's where the pool's yield mainly comes from. Depositors also get 10% of the protocol's borrowing and redemption fees. The protocol will increase that share over time.

Deposits are held as spD, a token holders can transfer or use elsewhere while it keeps earning.

Withdrawals from the stability pool aren't always immediate. They're blocked while a vault is waiting to be liquidated, while a price is unavailable, or during an emergency liquidation pause. The first one is usually over in seconds, since anyone can trigger the liquidation.

05How the peg works

Every vault has to keep at least $1.25 of HYPE (or $1.282 of kHYPE) for each CUSD it borrows.

The peg comes from redemption. If CUSD drops below $1, people can buy it cheap and redeem it for $1 of collateral. That buying pressure brings the price back up. Once the core contracts renounce their ability to be upgraded, nobody will be able to switch redemptions off.

The redemption fee starts at 0.35%, which means arbitrage kicks in around $0.9965 rather than at exactly $1. The fee also rises as redemption volume increases. In practice CUSD should trade in a narrow range around a dollar, with a hard floor below it. Redemptions open 14 days after launch.

For prices, we use HyperCore's validator oracle, which is a median of HYPE spot prices across major exchanges, read straight from the chain. Every read gets checked against Chainlink, Pyth, and RedStone. If they disagree too much, borrowing and redemptions pause until they line up again. Liquidations keep running for a while on the last agreed price and then switch to the backup feeds, since stopping liquidations during an outage is how bad debt builds up.

06Security

The base is Liquity V1, which held over $300M at its peak without a core exploit. We changed about 30% of it to add the two-tier system, interest, and multiple collateral types, and we built some new pieces, including the oracle. None of that new code has run in production yet, so it's going through independent audits before mainnet.

The core logic contracts launch upgradeable. We did that so we can fix any bugs that turn up without asking everyone to migrate. Any upgrade has to sit publicly on-chain for seven days before it can go through, and each contract will permanently give up upgradeability once it's been stable in production. The contracts that actually hold collateral, the CUSD token, and the price adapters can't be upgraded at all, from day one. The seven-day delay is there so anyone who disagrees with an upgrade has time to see it and get out.

Day to day, a 3-of-5 multisig manages settings within hard limits in the contracts, and every change waits 48 hours. It can't pull collateral out, and adding any new way to mint CUSD takes seven days' public notice.

There's also a separate guardian with its own signers for emergencies. It can pause new borrowing, redemptions, or liquidations, but it can't move funds, and it can never stop you from repaying or closing. Its pauses expire on their own, and governance can remove the guardian.

07What's next

CUSD is meant to be the first of several stablecoins, one for each asset family. CUSD covers HYPE and its LSTs. Future stablecoins would cover unrelated assets, each with its own pool and its own risk settings.

We're deliberately not doing one stablecoin backed by a basket of everything. In a basket, every holder carries the risk of the weakest asset, and redeeming gets you a mix of tokens you'd then have to sell. Keeping each family separate means trouble in one doesn't spill into the others. We're segmenting and isolating risks at the protocol, asset, and user levels.

Longer term, if you hold positions across several of these, we want you to be able to choose which ones are at risk first. Most margin systems treat your whole account as one position, but we'd rather let you decide. Our tailored risk engine will be a core feature of the protocol. More on this later.

08Where we are

The full app is live on HyperEVM testnet, including vaults, the stability pool, redemptions, and the keeper bots. Mainnet comes after the audits. We'll publish the full technical whitepaper alongside the audit reports.