How It Works

Overview

Buoy.Loan enables users to borrow stablecoins against their staked HYPE tokens — with no liquidation risk and automatic repayment powered by validator rewards. The system links staking, borrowing, and yield distribution into one cohesive process, allowing users to stay fully staked while unlocking liquidity.

The process revolves around three core operations: staking, minting buoyUSD, and automatic loan repayment through steady validator earnings.

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Step 1: Stake HYPE Tokens

Users begin by staking their HYPE tokens through Buoy.Loan. These tokens are delegated via Buoy Smart Contracts, which actively contributes to network security on HyperEVM. Once staked, tokens cannot be liquidated and user cannot withdraw until all his loans are repaid — ensuring safety and consistency for validator operations.

The protocol tracks the on-chain value of the staked HYPE to determine eligibility for borrowing. This staked position serves as the foundation of the user’s borrowing capacity.

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Step 2: Borrow up to 10% of Staked Value

After staking, users can mint buoyUSD, a protocol-native credit asset, equivalent to up to 10% of their staked HYPE value (10% LTV). This conservative ratio ensures that staking rewards will always exceed interest obligations, guaranteeing self-repayment over time.

From the user’s perspective:

• They can borrow directly in USDh or USDC.

• The protocol automatically converts buoyUSD into the selected stablecoin through Morpho Vaults, maintaining deep, decentralized liquidity.

• The entire conversion — from buoyUSD minting to USDC/USDh delivery — happens seamlessly within one on-chain transaction.

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Step 3: Liquidity Providers and Morpho Markets

Behind the scenes, Buoy.Loan depends on liquidity providers who supply capital to two key Morpho vault markets:

• buoyUSD / USDC, and

• buoyUSD / USDh.

These vaults ensure that users can instantly access stablecoins while LPs earn yield from the protocol’s validator reward distributions. LPs effectively finance buoyUSD redemptions while participating in a low-risk yield loop backed by the validator’s continuous income stream.

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Step 4: Automatic Self-Repayment

Once a loan is open, the borrower doesn’t need to take any further action. Staking rewards generated by the Validator are automatically redirected to repay the protocol’s liquidity providers. Over time, these rewards reduce both the principal and accrued interest of each loan until the balance reaches zero.

Borrowers can monitor repayment progress directly from the Buoy dashboard, where real-time validator income and loan status are shown transparently.

When the loan is fully repaid, the staked HYPE tokens are released and can be withdrawn or restaked freely.

NOTE: User can always repay his loan by returning borrowed assets and hence unlock his staked HYPE tokens

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Step 5: No Liquidation Risk

Buoy.Loan is uniquely structured to eliminate liquidation risk entirely for borrowers. The protocol’s conservative 10% Loan-to-Value (LTV) ratio ensures that, under normal conditions, validator staking rewards comfortably exceed the interest owed to liquidity providers.

However, even in rare cases where validator yields temporarily fall short of interest rates, the staker remains completely protected. The risk is absorbed by liquidity providers, not by the borrower.

By protocol design:

• There is no liquidation mechanism. Staked HYPE tokens cannot be seized or sold by the protocol under any circumstances.

• Borrowers always retain the right to repay. A user can fully repay their outstanding balance at any time and immediately unlock their staked HYPE tokens.

This design guarantees that users — even those staking large amounts — can participate in validator-backed lending with absolute assurance that their assets will never be at risk of forced liquidation or uncontrolled debt growth.

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Lifecycle Summary

1. Deposit HYPE to Buoy.Loan.

2. Stake tokens via the Buoy Smart Contract.

3. Mint up to 10% of buoyUSD.

4. Convert buoyUSD into USDC or USDh through Morpho vaults.

5. Earn and Repay automatically as validator rewards are distributed.

6. Regain full access to staked assets once the loan self-repays.