Original title: The Bull Case for Hyperliquid Hyperliquid Original author: fmoulin7, Crypto Kol Original translation: zhouzhou, BlockBeats
Editor's note: Hyperliquid attracts users through low fees and strong incentives. It is expected that the first-year incentives will be close to $1 billion, with an inflation rate of 11.65%. After the launch of EVM, it may become an important platform for new DeFi protocols to drive the growth of HYPE demand. The platform makes profits through transaction fees and token auctions, and the fee distribution is automatically executed, supporting staking rewards, platform operations and token destruction. Increased capital inflows, especially through Kucoin, will drive HYPE prices if more market funds can be attracted. However, centralization and EVM transition risks may affect user experience, and investors need to be cautious and do research.
The following is the original content (for readability, the original content has been slightly modified):
Hyperliquid is a perpetual trading protocol built on its own L1, designed to replicate the user experience of centralized trading platforms while providing a fully on-chain order book and decentralized trading, supporting spot, derivatives, and pre-launch market trading.
This article will focus more on Hyperliquid's market opportunities and the fundamental bullish logic for HYPE.
Currently, HYPE's trading price has surpassed $20, making it a top 30 asset with a market cap of $7.5 billion and a fully diluted valuation (FDV) exceeding $20 billion. So, where does Hyperliquid's popularity come from? What is the bullish logic?
Next, we will explore:
Trading platform opportunities
EVM ecosystem opportunities
Revenue breakdown, valuation, and comparative analysis
Risks
I. Trading Platform Opportunities Hyperliquid dominates the field of perpetual decentralized trading platforms, with over 50% of the trading volume in the past month.
As of now, Hyperliquid's open interest (OI) accounts for about 10% of Binance.
Here are a few points to note:
As the bull market deepens and market volatility increases (currently the crypto volatility index is only 64), open interest (OI), trading volume, funding rates, and liquidation volumes are expected to continue to grow.
The share of decentralized perpetual contract trading platforms compared to centralized trading platforms may increase, just as automated market makers (A and Uniswap facilitated the growth of DEX versus CEX in spot trading.
With lower fees than CEX competitors and stronger incentives, Hyperliquid has a great opportunity to attract more users and capital away from CEX. The token generation event (TGE) and the rapid rise in HYPE's price have undoubtedly become the strongest marketing campaign.
Regarding the incentive mechanism, although specific structures have not been disclosed yet, it is easy to speculate that perpetual contracts and spot trading volumes may be incentivized (or already incentivized), especially since over 40% of the token supply is reserved for community rewards. Here are the specifics of the initial airdrop:
Assuming that 10% of the reserved supply will be allocated for incentives in the first year, the situation will be as follows:
At the current price, nearly $1 billion in incentives will be distributed in the first year, far exceeding the amount distributed at the $2 opening price during the airdrop. The resulting incentive inflation rate is approximately 11.65% (including staking rewards, or requiring additional calculation).
More users will bring more trading volume, revenue, burning, and buybacks, so in this case, the actual dilution cost for token holders caused by incentives will be lower than 11.65%.
Teams can also choose higher inflation rates and incentive levels to attract more users. This is precisely where blknoiz06 mentioned the dynamic difference in HYPE's fully diluted valuation (FDV).
Brief summary of the perpetual contract sector:
Growing market (cyclical + gradual dominance of DEX over CEX)
Hyperliquid's market share is expected to grow (relying on incentives)
Additionally:
The spot market may also continue to grow, and in the short term, Hyperliquid is expected to become one of the top three spot DEXs. Yesterday's trading volume was approximately $500 million, enough to make Hyperliquid the fifth-ranked spot DEX across the entire chain.
With the addition of EVM, more interesting assets may enter the spot market for trading, such as new issuances of functional tokens and native assets (like native USDC and SOL / ETH / BTC spot trading pairs).
More trading tools are being developed based on Hyperliquid's open infrastructure and builder code. Teams such as InsilicoTrading, KatoshiAI, and pvp dot trade have already launched many cool applications, and more products will be released in the future to improve user experience and attract more traffic to the trading platform.
The above factors themselves carry significant bullish potential. Trading platforms and stablecoins are the most profitable and valuable businesses in the crypto space. Directly competing with mainstream players (Binance, Coinbase, Bybit, OKX) in perpetual and spot trading is bullish logic in itself.
The most optimistic scenario is:
1. Major trading platforms will use Hyperliquid as a decentralized backend;
2. Trading platforms hedge by incorporating HYPE into their balance sheets (refer to the ThinkingUSD proposal).
Although the likelihood of achieving these two points in the short term is still unclear, who would have thought Trump would buy $ENA? Anything is possible.
II. EVM ecosystem opportunities
What is HyperEVM?
Description from hyperdrivedefi: 'The Hyperliquid stack consists of two chains, namely Hyperliquid L1 and HyperEVM (EVM). These two chains exist as a unified state under the same consensus mechanism but operate in independent execution environments.
L1 is a permissioned chain that runs native components such as perpetual contracts and spot order books, aimed at meeting the high-performance demands required to run these native components. L1 provides API programmability, and operations submitted via this API need to be signed just like transactions submitted to EVM chains.
EVM is a general-purpose EVM-compatible chain that supports common tools used in Ethereum. EVM is permissionless, allowing anyone to deploy smart contracts, which can also directly access on-chain perpetual contracts and spot liquidity on L1.
HyperEVM is planned to launch in the coming months, and many teams are already preparing for it. Why is this bullish?
The new home for DeFi?
Many DeFi teams are preparing to launch alongside EVM. Most of the 'well-known' types of DeFi protocols (AMMs, lending, liquidity staking, CDPs) are expected to launch with EVM.
These projects will enhance overall capital efficiency by allowing HYPE holders to use HYPE as collateral in lending and money market protocols.
As existing protocols apply, whether bringing order book liquidity directly on-chain will unlock new DeFi primitives is worth looking forward to. I wouldn't be surprised if entirely new DeFi primitives emerge first on Hyperliquid.
For instance, ethena labs will reduce reliance on centralized trading platforms, enhancing its system's resilience, and potentially diversifying and lowering counterparty risk by partially integrating Hyperliquid into its hedging processes. [Reference link]
The market needs 'utility projects'
Whether it's the AI craze on Base and Solana, the performance of Hyena, or the trading volumes of $HFUN and $FARM on Hyperliquid, market participants are signaling their desire to see projects with real value.
With many upcoming DeFi projects, Hyperliquid is likely to become a platform for the rise of 'utility projects' in the near term. At the same time, it is highly probable that the AI infrastructure currently built on Solana by teams like AI16Z and Zerebro will expand to Hyperliquid.
Unique features of Hyperliquid
Hyperliquid natively supports the creation of vaults. These strategies running on vaults can utilize the same advanced functionalities as DEX, such as efficiently liquidating over-leveraged accounts and high-throughput market-making strategies. Anyone can deposit into the vault for profit sharing, including DAOs, protocols, institutions, or individuals. The vault owner can receive 10% of the total profits.
This primitive provides an ideal competitive scenario for AI agents to attract capital.
Why is the launch of EVM a bullish signal?
The launch of EVM will bring more fee revenue, which can be used for staking rewards, token destruction, and more. For example, Base generated about $15 million in fees over the past 30 days. I believe that HyperEVM's activity level may match Base in the coming months.
EVM also unlocks more use cases for HYPE tokens within the ecosystem. HYPE will become a necessary asset for paying gas fees while also being used for lending, staking, and locking up for yield. This will significantly increase buying demand.
We can refer to examples like SOL in 2024 (Meme) and ETH in 2020 and 2021 (DeFi and NFT) — on-chain activity directly drives demand for native assets.
Higher market cap utility projects + more native asset bridge options (such as native USDC, spot BTC, SOL, ETH, etc.) will drive an increase in spot trading volume, leading to more revenue.
As more teams launch EVM, the auction prices for token codes (tickers) will continue to rise, further increasing revenue.
Moreover, EVM will allow Hyperliquid to be seen as a 'formal' L1 network in more people's minds, attracting more attention to its ecosystem. This may release capital that is currently waiting on the sidelines into the market.
Revenue breakdown, valuation, and comparable companies
How does Hyperliquid make money?
Hyperliquid's revenue sources primarily include platform fees and token code (ticker) auctions.
Platform Fees:
Token code auctions:
Hyperliquid earns revenue through token code auctions. In these auctions, project parties bid to purchase specific token codes (tickers), which are key identifiers for them to showcase and trade on the platform. As more projects launch on EVM, competition for token code auctions will intensify, and prices will gradually rise, bringing more revenue to Hyperliquid.
Fees flow on-chain as follows:
As of the time of writing, the assistance fund holds 10,761,181.28 HYPE (over 3% of the circulating supply) and 3,143,786.73 USDC. The insurance fund has also accumulated 7,071,990.99 USDC, which has not yet been transferred to the assistance fund. Currently, there are over $10 million in USDC that has not been put into the market to purchase HYPE.
So, what is Hyperliquid's income? Over the past 30 days, Hyperliquid has generated approximately $26.5 million in USDC revenue. Revenue from auctioning tokens accounts for $2 million, while the rest comes from platform fees. This revenue is mainly redistributed to the insurance fund.
Furthermore, since HYPE's launch, approximately 79,600 HYPE tokens have been destroyed through trading fees, which are priced in HYPE. At today's price, this amounts to about $1.75 million in additional revenue. Therefore, Hyperliquid's total revenue over the past 30 days exceeds $28 million, equivalent to over $336 million annually.
Currently, only three L1 blockchains (L1) have revenue exceeding that of Hyperliquid: Ethereum, Solana, and Tron, which have much higher market caps. In fact, Hyperliquid's yield (annual revenue/circulating market cap) is far ahead, the highest among all L1 and L2 platforms.
Potential income growth
Where can it develop next? The main drivers of income include:
Platform fees
Auction
Future revenue mechanisms (EVM fees?)
Let's analyze these factors one by one.
Platform fees in December have already matched November's trading volume. If trading volume remains at a similar level for the second half of the month, this would indicate a month-over-month growth of 100%.
Auction prices have recently surged, showing a significant upward trend.
Auction
The latest round of auctions settled today at a price close to $500,000.
As more projects seek to secure their positions (only 282 positions available per year), auction prices may continue to rise.
EVM Fees Base generated approximately $15 million in fees over the past 30 days. According to DeFiLlama, Hyperliquid's TVL has already surpassed Base in the past 24 hours, and given the current trend, economic activity on EVM could be comparable to or even exceed that of Base when Hyperliquid launches.
Scenarios and Valuations Based on the above content, we can propose a base scenario and a bull market scenario. This article is about the bull market scenario, so there is no bear market scenario, but risks will be discussed in the final section.
Base scenario
Trading volume is one-third higher than the past 30 days
Auction prices remain stable
EVM activity is similar to Base
Bull market scenario
Trading volume is double that of the past 30 days
Auction prices doubled, then remained stable (each auction round $1 million)
EVM activity is twice that of Base
In the base scenario, the income for 30 days is $59 million, while in the bull market scenario, it is $102 million. To derive valuations, we can use different price-to-earnings (PE) multiples, which are based on observational data from major L1 chains and calculated in conjunction with annual revenue.
Next, we calculate the market capitalization in the base scenario and bull market scenario based on income and price-to-earnings (PE) multiples. To derive HYPE's price, we use the current circulating supply, plus an inflation rate of 11.6% (for incentives and rewards), which has already been calculated in the first part.
Under these conditions, we can see HYPE's price range from $41.93 (base scenario, minimum multiple) to $651.48 (bull market scenario, maximum multiple).
Considering HYPE's relative immaturity compared to Solana and Ethereum and the higher risks, it is reasonable for HYPE's price-to-earnings ratio to be on the lower end. Furthermore, HYPE's revenue mainly comes from decentralized trading platforms (DEX), while Solana and Ethereum have not captured this portion of revenue. Therefore, HYPE's price-to-earnings ratio is more aligned with DeFi protocols, which is also logical.
That said, considering the price-to-earnings ratios of other L1 and L2 chains, Hyperliquid's current price-to-earnings ratio may be undervalued. A 'reasonable' scenario might be:
· Price-to-earnings ratio is 40 times
· Between the base scenario and the bull market scenario: annual revenue of $1 billion
This would bring the valuation to $40 billion (fully diluted at $100 billion), and HYPE's price would be slightly above $100.
Although the comparative data from the last cycle shows that a $40 billion market cap and a $100 billion fully diluted valuation may seem high, bull markets tend to get crazier.
In 2021:
· BNB's market cap grew from $5 billion to $100 billion (a 20-fold increase)
· ADA's market cap grew from $5 billion to $95 billion (a 19-fold increase)
· SOL's market cap grew from $86 million to $77 billion (a 900-fold increase)
· AVAX's market cap grew from $282 million to $30 billion (a 100-fold increase)
· MATIC's market cap grew from $85 million to $2 billion (a 235-fold increase)
· FIL's fully diluted valuation reached $373 billion, which is 16 times today's HYPE valuation.
Capital inflow
We have seen a significant influx of capital into Hyperliquid.
Despite the increasing number of holders, the current number of HYPE holders remains relatively small, especially considering that HYPE is currently only listed on Kucoin.
Comparative data:
HYPE: 60,000 holders
KMNO: 55,000 holders
WIF: 211,000 holders
BONK: 861,000 holders
In an old Messari report, robustus calculated that for an asset, the 'capital inflow multiple' could be as high as 10 times, meaning that a net inflow of $1 billion could increase an asset's market cap by $10 billion. While it is impossible to calculate accurately, this point is particularly important considering HYPE's potential as the third most active L1. If HYPE can capture 5% of Solana's market cap and 1% of Ethereum's market cap as inflow, this would represent $10 billion in inflow and have a significant impact on price.
Since the TGE, we have already seen some of this inflow, but as Fiskantes said, there remains a significant amount of capital waiting on the sidelines until the release of HyperEVM and the transition to decentralized validators before it will be allocated to HYPE.
Risks
Although this article paints a fairly optimistic picture for Hyperliquid's future, it is not without risks.
A major risk is the validator set, currently fully centralized with four validators operated by a team in Tokyo. Although the testnet has now launched with a decentralized validator set (over 60 validators), including some experienced validators (such as Chorus One, ValiDAO, B Harvest, Nansen, etc.), the transition still poses risks. If performance declines, user experience and trust will be threatened.
Another risk is the unrealized nature of the EVM ecosystem. Quality projects need to launch on EVM for the ecosystem to thrive. If most projects are of low quality or merely copied from other chains, it will attract less capital and activity. Therefore, attracting high-quality developers rather than speculative developers will be key.
Regarding EVM, we may see HYPE's capital efficiency increase (such as liquidity staking, lending, etc.). Depending on the content built and its interaction with L1, we may see some new risks that do not appear in existing DeFi protocols, which could pose threats to HYPE or the entire trading platform.
Regulatory risks still exist, but as Fiskantes said (quoting again), geographical fencing and the Trump administration's policies can mitigate these risks.
Like all assets, particularly as a trading platform, HYPE's performance should be highly correlated with the overall market. The team needs to deliver results before the market turns soft.
The crypto market is uncertain, and everything could go to zero. I hold HYPE, and the above content is not financial advice; investors should do their own research (DYOR).
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