Original text: Flo
Translated by: Yuliya, PANews.
Hyperliquid is a perpetual contract trading protocol built on its own L1 public chain, aiming to provide a trading experience comparable to centralized exchanges while offering a fully on-chain order book and decentralized trading features. This protocol supports trading in spots, derivatives, and pre-issue markets.
This article will not delve into the specific operational mechanisms of Hyperliquid or its differences from other perpetual contract DEXs. It will focus on the market opportunities for Hyperliquid and the fundamental investment logic of the $HYPE token.
As of the writing, the trading price of $HYPE has surpassed $20, with a market cap of $7.5 billion and a fully diluted valuation (FDV) exceeding $20 billion, placing it among the top 30 cryptocurrencies by market cap. So, what factors have driven such strong market performance?
This article will conduct an in-depth analysis from the following four aspects:
Exchange development opportunities.
EVM ecosystem opportunities.
Revenue composition, valuation, and comparison with peers.
Potential risks.
Exchange development opportunities.
Hyperliquid dominates the perpetual contract DEX market, with recent trading volume accounting for over 50%.
Currently, according to data from Coinalyze and CVI.Finance, its open interest (OI) is about 10% of Binance's. As the bull market deepens and market volatility increases (the cryptocurrency volatility index is only 64), it is expected that open interest, trading volume, funding rates, and liquidation volumes will continue to rise.
The market share of DEX in the perpetual contract market is expected to gradually increase like the spot market, a trend similar to the previous process where AMMs and Uniswap pushed DEX's share in spot trading.
With lower fees than CEX and more attractive incentive mechanisms, Hyperliquid is expected to attract more users and capital from CEX. Its token generation event (TGE) and the rapid rise in the price of $HYPE have been regarded as the best marketing campaign.
Although the specific incentive structure has not yet been announced, it is foreseeable that perpetual contracts and spot trading volumes will be incentivized, as over 40% of the token supply is reserved as community rewards.
The situation of the initial airdrop is as follows:
Now assume that 10% of the reserved supply for the first year is allocated for incentives, the situation would be as follows:
Based on the current price, nearly $1 billion in incentives will be issued in the first year, exceeding the allocation scale of $2 opening price during the initial airdrop.
This will lead to an inflation rate of about 11.65% (including staking rewards). However, as an increase in users brings more trading volume, income, token burns, and buybacks, the actual dilution cost may be lower than this level. The team may also adopt a higher inflation rate and incentives to attract users, which is precisely why the fully diluted valuation (FDV) of $HYPE has unique dynamics.
In terms of spot trading, Hyperliquid is expected to become one of the top three spot DEXs in the short term. Yesterday's trading volume was about $500 million, ranking fifth across all chains. As the EVM ecosystem develops, the addition of more utility tokens and native assets will bring richer trading pairs.
Trading tools based on Hyperliquid's open infrastructure and builder code are emerging continuously, with projects like Insilico Terminal, Katoshi AI, and pvp.trade showing good prospects. This will further improve user experience and attract more capital inflow.
Exchanges and stablecoins are the most profitable businesses in the cryptocurrency space. Hyperliquid's direct competition with mainstream exchanges like Binance, Coinbase, Bybit, and OKX itself is a bullish factor.
The most optimistic scenario is:
Other exchanges use Hyperliquid as a decentralized backend.
Exchanges hedge risks by increasing holdings of $HYPE.
Although these situations may be unlikely in the short term, in the cryptocurrency market, anything is possible.
EVM ecosystem opportunities
HyperEVM is an important part of the Hyperliquid ecosystem, sharing a unified state and consensus mechanism with Hyperliquid L1, but running as an independent execution environment. Among them:
L1 is a permissioned chain responsible for running core components such as perpetual contracts and spot order books, achieving programmability through APIs.
EVM is a general-purpose Ethereum-compatible chain that supports standard Ethereum development tools, and smart contracts can directly access the on-chain liquidity of the L1 layer.
HyperEVM plans to launch in the coming months, and many teams have already begun active preparations. Why is this development bullish? It is mainly reflected in the following aspects:
New DeFi ecosystem.
Many DeFi projects are preparing for the launch of HyperEVM. Mainstream DeFi protocol types, including automated market makers (AMM), lending platforms, liquidity staking, and CDPs (collateralized debt positions), will all go live simultaneously with the launch of EVM.
In addition to traditional DeFi protocols, the characteristics of on-chain order book liquidity are likely to give rise to a batch of innovative applications. This provides fertile ground for the birth of new DeFi native protocols, and Hyperliquid is expected to become the preferred platform for these innovative protocols.
Taking Ethena Labs as an example, the project plans to reduce reliance on CEX by integrating Hyperliquid. This not only enhances system resilience but also may lower and diversify counterparty risks through decentralized hedging processes. This strategy has been detailed in its governance proposal.
Market demand for practical projects.
Recent market trends clearly indicate that investors are keenly interested in projects with practical application value. This trend is fully reflected in the AI craze on Base and Solana, the excellent performance of Hyena, and the strong demand for $HFUN and $FARM on the Hyperliquid platform.
As the DeFi ecosystem is about to expand, Hyperliquid is likely to become a major battleground for practical investment in the medium to short term. It is worth noting that the AI infrastructure development currently driven by projects like AI16Z and Zerebro on Solana is likely to extend to the Hyperliquid platform.
Hyperliquid's native vault functionality is particularly noteworthy. Strategies operating in these vaults can enjoy the same advanced features as DEX, including a liquidation mechanism for over-leveraged accounts and high-throughput market-making strategies. The inclusiveness of this mechanism is reflected in that any entity—whether a DAO organization, protocol, institution, or individual—can share in the profits by depositing funds. In return, vault owners can earn 10% of the total revenue.
Other positive factors for the launch of HyperEVM.
Fee growth potential: The operation of HyperEVM will generate more fee income, which can be used for staking rewards, token burns, and other purposes. Taking Base as an example, it generated $15 million in fees in the last 30 days. It is expected that the activity of HyperEVM will reach a level comparable to that of Base in the coming months.
$HYPE token utility improvement: The launch of EVM will significantly expand the application scenarios of $HYPE in the ecosystem. Users will need $HYPE to pay gas fees, while they can also engage in lending, staking, and locking up for yield. These new applications will bring stronger buying pressure. Referring to the meme coin craze on Solana in 2024 and the DeFi and NFT waves on Ethereum in 2020-2021, the impact of on-chain activities on the demand for native tokens should not be overlooked.
Revenue growth avenues: The influx of high-market-cap utility projects, along with the emergence of more native asset bridging options (such as native USDC, spot BTC, SOL, ETH, etc.), will bring more spot trading volume, thereby increasing platform revenue. At the same time, as more projects go live on EVM, the auction prices for token codes will also rise, bringing additional income to the platform.
Ecosystem awareness enhancement: The launch of EVM will help Hyperliquid establish its position as a "legitimate" L1 public chain in the market, increasing the exposure of its ecosystem. This may activate capital that is currently still on the sidelines.
According to the latest ecosystem market map (although many new projects have joined since last week's release), Hyperliquid is forming a comprehensive blockchain ecosystem. This complete ecological layout will bring sustained growth momentum to the platform.
The cumulative effect of these positive factors is expected to bring significant value enhancement and ecological prosperity to Hyperliquid.
Revenue composition, valuation, and comparison with peers.
Hyperliquid primarily generates revenue through platform fees and token auctions.
(The flow of fees on-chain.)
Currently, the aid fund holds about 10.76 million $HYPE (more than 3% of circulating supply) and 3.14 million USDC, while the insurance fund has accumulated about 7.07 million USDC to be transferred to the aid fund. A total of over $10 million in USDC may be used to buy back $HYPE in the market.
Recent performance.
In the past 30 days, Hyperliquid generated approximately $26.5 million in USDC income, among which:
Token auction revenue of $2 million.
Platform fee income of $24.5 million.
An additional burn of approximately 79,600 $HYPE (worth $1.75 million).
Annual income exceeds $336 million, only behind Ethereum, Solana, and Tron among all public chains, but with a market cap significantly lower than these public chains. In terms of yield (annual income/circulating market cap), Hyperliquid far exceeds other L1 and L2.
Revenue growth potential.
Platform fees: December trading volume has reached November levels, expected to grow by 100% month-on-month.
Auction revenue: The latest auction price is close to $500,000, and as the available slots (282 per year) become more competitive, prices may continue to rise.
EVM revenue: Referring to Base's monthly fee income of $15 million, considering that Hyperliquid has exceeded Base's TVL, it is expected to achieve similar or higher economic activity after EVM goes live.
Valuation scenario analysis.
Benchmark scenario:
Trading volume has increased by 1/3 compared to the last 30 days.
Auction revenue remains stable.
EVM activity is on par with Base.
Optimistic scenario:
Trading volume has doubled compared to the last 30 days.
Auction prices have doubled (each time $1 million).
EVM activity is twice that of Base.
In the benchmark scenario, the 30-day revenue could reach $59 million; in the optimistic scenario, it could reach $102 million. The valuation is calculated using the price-to-earnings ratio of mainstream L1 public chains, combined with annual income.
Considering the current circulation and an inflation rate of 11.6% (for incentives and rewards), the price range of $HYPE is:
Lower limit in the benchmark scenario: $41.93 (minimum multiple)
Upper limit in the optimistic scenario: $651.48 (maximum multiple)
Rational valuation analysis.
Compared to Solana and Ethereum, the valuation multiple of HYPE should be lower for the following reasons:
The project is relatively immature.
There are many risk factors.
Revenue mainly comes from DEX, which is different from Solana and Ethereum.
"Rational" valuation reference:
Using a price-to-earnings ratio of 40.
Annual revenue of $1 billion (between benchmark and optimistic scenarios).
Arriving at a market cap of $40 billion (fully diluted $100 billion).
$HYPE price is around $100.
Historical cycle comparison.
Although a market cap of $40 billion and a fully diluted valuation (FDV) of $100 billion seem high, the bull market may be even crazier.
In the 2021 bull market:
BNB: $5 billion to $100 billion (20x).
ADA: $5 billion to $95 billion (19x).
SOL: $86 million to $77 billion (900x).
AVAX: $282 million to $30 billion (100x).
MATIC: $85 million to $20 billion (235x).
The FDV of FIL reaches $373 billion, which is 16 times that of today's $HYPE.
Potential for capital inflow.
Currently, there are about 60,000 $HYPE holders, which is relatively small:
$KMNO: 55,000 holders
$WIF: 211,000 holders
$BONK: 861,000 holders
Based on Messari's research on the capital inflow multiplier effect (10x), if it can attract 5% of SOL's market cap and 1% of ETH's market cap (about $10 billion), it will have a significant impact on price.
Potential risks.
Although this article makes a relatively optimistic prediction about the future prospects of Hyperliquid, it is not without risks.
Validator concentration risk.
Currently, the validator nodes of Hyperliquid's mainnet remain highly centralized, with only four validator nodes operated by the team in Tokyo. Although there are over 60 decentralized validators in the testnet (including well-known institutions like Chorus One, ValiDAO, B Harvest, Nansen), the transition to a decentralized architecture still faces challenges. If validator performance declines, it could affect user experience and trust.
EVM ecosystem risks.
The quality of the ecosystem will directly affect the development of HyperEVM:
High-quality projects are needed to maintain ecosystem vitality.
Low-quality projects or simple copies of other on-chain projects will reduce capital inflow and activity.
It is crucial to attract real builders rather than speculators.
DeFi innovation risks.
With the launch of EVM, the capital efficiency of $HYPE will be improved through liquidity staking, lending, and other means. New DeFi innovations may bring unprecedented risks:
The interaction between innovative financial products and the L1 layer may pose unknown risks.
New DeFi protocols may affect the value of the $HYPE token.
Exchange operations may also be affected.
Regulatory risks.
Despite regulatory risks, geographic restrictions and the attitude of the Trump administration have somewhat mitigated this risk. However, as an exchange platform, it still needs to closely monitor changes in the regulatory environment.
Market correlation risks.
As an exchange token, the performance of $HYPE is highly correlated with the overall cryptocurrency market.
The team needs to complete key milestones before the end of the market cycle.
Market sentiment fluctuations may significantly impact token prices.
There is a need to seize development opportunities during the bull market cycle.
Investment reminders.
Cryptocurrency investment carries high risks, and any token, including $HYPE, carries the risk of going to zero. Investors should:
Conduct thorough independent research.
Rationally assess risk tolerance.
Do not take this as investment advice.
Be cautious of market volatility.