Author: 798.eth

The alt token on alt.fun is not a HYPE 5 times leverage. It is a layer of AMM leverage stacked on top of the HYPE 5 times leverage.

You can’t see this intuitively. You need to look at the mechanism once to understand. Here is the current data for reference.

HYPE spot price is 42.84 USDC.

HYPE5L (the HYPE 5 times long leverage token LT issued by BounceTech) currently has a NAV of 0.870 USDC, which is a 13% decrease from the issue price of 1 USDC.

In the HyperSwap V2 pool of the flagship token ALT on the alt.fun platform, there are 18.58 million ALT and 129,400 HYPE5L. 1 ALT is equal to 0.00697 HYPE5L. Converted to USDC price is 0.00606. The price of ALT in USDC is the product of these two things.

Note: After graduation, there is no USDC in the pool; the paired asset is HYPE5L LT. This is the starting point for all understanding.

The USDC price of ALT = the exchange rate of ALT to HYPE5L in the pool multiplied by the current NAV of HYPE5L.

The first factor is called AMM pricing. The fewer ALT in the pool and the more HYPE5L, the higher the pricing, meaning ALT is more expensive. Conversely, it is cheaper. This factor is determined by the buying and selling power, unrelated to the price of HYPE.

The second factor is called LT net value. When HYPE rises by 1%, the net value of HYPE5L rises by about 5%, and vice versa. This factor is determined by BounceTech’s actual perpetual positions on Hyperliquid, unrelated to trading activities on alt.fun.

The two factors are independent. Their product is the final USDC price of ALT.

Why does this constitute a double leverage.

HYPE rises by 1%.

The second layer (LT) amplifies to 5%. The net value of HYPE5L rises by 5%.

The first layer (AMM) will also amplify. When HYPE5L rises, those holding HYPE5L find they are making money, and some will go to alt.fun to buy more alt tokens (leveraged exposure plus exposure to the alt story). This buy increases HYPE5L while decreasing ALT in the pool, raising the AMM pricing. The same 1% rise in HYPE is amplified once more at the AMM layer.

Ultimately, the price increase of ALT in USDC is likely between 8% and 15%, related to the depth of the AMM pool and the strength of buying pressure. But it is always greater than 5%.

The same reasoning applies when it falls, with the direction reversed. HYPE falls by 1%, HYPE5L falls by 5%, and ALT holders find their losses amplified, causing some to start selling ALT for HYPE5L to redeem. The selling pressure pushes down the AMM pricing, and the likelihood of ALT's drop in USDC is between 8% and 15%.

When it drops, there is also an asymmetric effect. The alt.fun docs warn that large sell orders may revert due to non-atomic paths (the link of ALT first exchanging for HYPE5L and then redeeming for USDC becomes unmanageable for BounceTech if the order is too large). This means that when the pool is thin, retail investors cannot stop losses. The first wave of runners sells at high prices, later runners sell at low prices, and those who come later get stuck in contracts.

ALT, HBULL, HYPE Life, BALD, and HLC are the five alt tokens backed by HYPE5L that have now graduated. Every transaction of them on HyperSwap V2 is impacting the AMM pricing. At the same time, the price of HYPE is affecting the net value of HYPE5L. The two layers are overlapping.

HYPE5L is the LT issued by BounceTech. Theoretically a 5 times exposure, but due to frequent rebalancing triggering volatility decay. In a volatile market, the actual exposure is less than 5 times, while in a trending market, it is more than 5 times.

So when you open the alt.fun UI and see a token labeled "HYPE 5x Long," the USDC price shown on the UI is the result of the HYPE price amplified by BounceTech's 5 times leverage, further amplified by the HyperSwap V2 AMM. You think you are buying a 5 times exposure to HYPE, but you are actually purchasing a floating exposure of 8 to 15 times.

When it rises, this floating exposure allows you to earn more than 5 times; when it falls, it causes you to lose more than 5 times. This is the full meaning of double leverage.

You can see it more clearly in contrast to pump.fun.

On pump.fun, the paired asset for token pairs is SOL. SOL is a 1 times exposure spot asset. When SOL falls by 10%, the USDC price of pump.fun tokens falls by 10% plus the AMM selling pressure, about 15% to 25%. The AMM is an amplifier, but the underlying does not carry leverage.

On alt.fun, the paired asset for token pairs is HYPE5L. HYPE5L is already a derivative with 5 times exposure. When HYPE falls by 10%, HYPE5L falls by 50%, and the USDC price of the alt token falls by 50% plus the AMM selling pressure, about 60% to 80%. The AMM is an amplifier, and the underlying already has 5 times leverage.

Even though it is the same launchpad and the same AMM pairing, alt.fun’s overall risk curve is stretched to a completely different magnitude because of the switch in quote asset. There is no conspicuous indication of this on alt.fun's UI.

A final note for retail investors.

When you open alt.fun and see a token labeled "HYPE 5x Long," you might intuitively think this is a 5 times leverage exposure to HYPE. This intuition is wrong.

The underlying leverage is 5 times. The AMM layer will add an additional 1 to 2 times of floating exposure. In a trending market, you can outperform the 5 times by a lot. In a volatile market, the volatility decay eats into your profits. In a crash, large orders cannot sell, and those who run first sell at high prices, while those who run later get stuck in contracts.

This is not HYPE 5 times long. It is a second-tier product that has HYPE 5 times long layered with AMM leverage.

This is not investment advice, just an attempt to clarify things.

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