Hyperliquid is a perpetual contract trading protocol built on its own L1 public chain. Its goal is to provide users with a trading experience comparable to that of centralized exchanges while providing complete on-chain order books and decentralized trading functions. . The protocol supports transactions in spot, derivative financial products and pre-release markets.
This article will not delve into the specific operating mechanism of Hyperliquid or its differences with other perpetual contract DEXs. This article will focus on the market opportunity for Hyperliquid and the fundamental investment logic of the $HYPE token.
As of writing, $HYPE is trading above $20, with a market capitalization of $7.5 billion and a fully diluted valuation (FDV) of over $20 billion, placing it among the top 30 cryptocurrencies by market capitalization. So, what factors are driving such strong market performance?
This article will conduct an in-depth analysis from the following four aspects:
Exchange development opportunities
EVM Ecological Opportunities
Revenue composition, valuation and comparison with peers
Potential risks
Exchange development opportunities
Hyperliquid dominates the perpetual contract DEX market, accounting for more than 50% of recent trading volume.
Source: Dune
Currently, its open interest (OI) is around 10% of Binance’s, according to data from Coinalyze and CVI.Finance. As the bull market deepens and market volatility increases (the Crypto Volatility Index is at just 64), expect open interest, trading volume, funding rates, and liquidations to all continue to rise.
Image source: TradingView
Image source: TradingView
Image source: TradingView
Image source: TradingView
The market share of DEX over CEX in the perpetual contract market is expected to gradually increase like the spot market. This trend is similar to the previous process in which AMM and Uniswap promoted the increase in the market share of DEX in spot trading.
Source: PANews
With lower handling fees than CEX and a more attractive incentive mechanism, Hyperliquid is expected to attract more users and funds from CEX. Its Token Generation Event (TGE) and the rapid rise in $HYPE price are some of the best marketing ever.
While the specific incentive structure has not yet been announced, it can be expected that perpetual contracts and spot trading volume will receive incentives, as more than 40% of the token supply is reserved as community rewards.
The initial airdrop situation is as follows:
Source: PANews
Now assuming that 10% of the first year's reserved supply is allocated for incentives, the situation will look like this:
Source: PANews
At current prices, nearly $1 billion in incentives will be distributed in the first year, exceeding the allocation size at the $2 opening price of the first airdrop.
This would result in an inflation rate of approximately 11.65% (including staking rewards). However, the actual dilution cost may be lower than this level as the increase in users brings more trading volume, revenue, token burning and buyback. Teams may also employ higher inflation rates and incentives to attract users, which is why $HYPE’s fully diluted valuation (FDV) has unique dynamics.
In terms of spot trading, Hyperliquid is expected to become the top three spot DEX in the short term. Yesterday’s transaction volume was approximately $500 million, ranking fifth among 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 continue to emerge, with projects such as Insilico Terminal, Katoshi AI, and pvp.trade already showing promise. This will further improve user experience and attract more capital inflows.
Exchanges and stablecoins are the most profitable businesses in the cryptocurrency industry. Hyperliquid directly competing with major exchanges such as Binance, Coinbase, Bybit, OKX and others is a bullish factor in itself.
The most optimistic scenario is:
Other exchanges use Hyperliquid as decentralized backend
Exchange hedges risk by increasing holdings of $HYPE
While these scenarios are unlikely in the short term, anything is possible in the cryptocurrency market.
EVM Ecological Opportunities
HyperEVM is an important part of the Hyperliquid ecosystem, sharing unified state and consensus mechanisms with Hyperliquid L1 but running as an independent execution environment. in:
L1 is a permissioned chain, responsible for running core components such as perpetual contracts and spot order books, and achieving programmability through APIs
EVM is a universal Ethereum-compatible chain that supports standard Ethereum development tools, and smart contracts can directly access the on-chain liquidity of the L1 layer
HyperEVM is scheduled to launch in the next few months, and a large number of teams are already actively preparing. Why is this development bullish? Mainly reflected in the following aspects:
DeFi new ecosystem
Many DeFi projects are preparing for the launch of HyperEVM. Mainstream DeFi protocol types, including automated market makers (AMMs), lending platforms, liquidity pledges, and CDPs (collateralized debt positions), will all be launched simultaneously when EVM is launched.
These projects will significantly improve overall capital efficiency by allowing $HYPE holders to use $HYPE as collateral in lending and money market protocols.
Source: PANews
In addition to traditional DeFi protocols, the characteristics of on-chain order book liquidity are likely to spawn a number of innovative applications. This provides fertile ground for the birth of new DeFi native protocols, and Hyperliquid is expected to become the platform of choice for these innovative protocols.
Take Ethena Labs as an example. The project plans to reduce dependence on CEX by integrating Hyperliquid. Not only would this increase system resilience, it would also potentially reduce and spread counterparty risk by decentralizing the hedging process. This strategy has been discussed in detail in its governance proposals.
Market demand for practical projects
Recent market trends clearly indicate strong investor interest in projects with practical applications. This trend is evident in the AI craze on Base and Solana, the outperformance of Hyena, and the strong demand for $HFUN and $FARM on the Hyperliquid platform.
With the upcoming expansion of the DeFi ecosystem, Hyperliquid is likely to become the main battlefield for practical investment in the short to medium term in the future. It is worth noting that the AI infrastructure construction currently promoted by projects such as AI16Z and Zerebro on Solana is likely to extend to the Hyperliquid platform.
Hyperliquid’s native vault functionality is particularly eye-catching. Strategies running in these vaults are able to enjoy the same advanced features as DEXs, including liquidation mechanisms for over-leveraged accounts and high-throughput market-making strategies. The universality of this mechanism is reflected in the fact that any subject, whether it is a DAO organization, agreement, institution or individual, can share the benefits by depositing funds. As a reward, vault owners receive 10% of the total proceeds.
Other positive factors for HyperEVM launch
Fee growth potential: The operation of HyperEVM will generate more fee income, which can be used for staking rewards, token destruction, etc. Taking Base as an example, it generated $15 million in fees in the past 30 days. It is expected that in the next few months, HyperEVM's activity is expected to reach a level comparable to Base.
Increased utility of $HYPE tokens: The launch of EVM will significantly expand the application scenarios of $HYPE in the ecosystem. Users need $HYPE to pay gas fees, and at the same time, they can perform operations such as borrowing, pledging, and staking to earn income. These new applications will bring stronger buying pressure. With reference to Solana’s meme coin boom in 2024 and Ethereum’s DeFi and NFT wave in 2020-2021, the role of on-chain activity in driving demand for native tokens cannot be ignored.
Income growth path: The influx of high-market value utility projects, coupled with the emergence of more native asset cross-chain options (such as native USDC, spot Bitcoin, $SOL, Ethereum, etc.), will bring more spot trading volume. This will increase platform revenue. At the same time, as more projects are launched on EVM, the price of token code bidding will also increase, bringing additional revenue to the platform.
Improved awareness of the ecosystem: The launch of EVM will help Hyperliquid establish its status as an "orthodox" L1 public chain in the market and increase the exposure of its ecosystem. This may trigger the entry of funds that are 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 continuous growth momentum to the platform.
Source: PANews
The combined 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 mainly generates revenue through platform fees and token auctions.
Source: PANews
Source: PANews
Image source: PANews (how fees flow on the chain)
The assistance fund currently holds approximately 10.76 million $HYPE (more than 3% of the circulating supply) and 3.14 million USDC. The insurance fund has also accumulated approximately 7.07 million USDC to be transferred to the assistance fund. A total of over $10 million in USDC may be used to buy back $HYPE in the market.
Recent performance
Over the past 30 days, Hyperliquid generated approximately $26.5 million in USDC revenue, including:
Token auction revenue $2 million
Platform fee income US$24.5 million
Approximately 79,600 additional $HYPE (worth $1.75 million) burned
Annualized revenue exceeds $336 million, second only to Ethereum, Solana and TRON among all public chains, but its market capitalization is significantly lower than these public chains. From the perspective of yield (annualized income / circulating market capitalization), Hyperliquid far exceeds other L1 and L2.
Source: PANews
Source: PANews
revenue growth potential
Platform fees: December transaction volume has reached November levels and is expected to grow by 100% month-on-month
Source: PANews
Bidding revenue: The latest round of bidding approached $500,000, with prices likely to continue to rise as competition intensifies for available spots (282 per year)
Source: PANews
EVM revenue: Referring to Base’s monthly fee revenue of $15 million, considering that Hyperliquid has exceeded Base’s TVL, EVM is expected to achieve similar or higher economic activity after going online
Source: PANews
Valuation scenario analysis
Baseline scenario:
Trading volume increased by 1/3 in the past 30 days
Auction revenue remains stable
EVM activity is the same as Base
Optimistic scenario:
Transaction volume doubled in the past 30 days
Bid prices are doubled ($1 million each)
EVM activity is 2 times that of Base
Source: PANews
Source: PANews
30-day revenue could reach $59 million in the baseline scenario and $102 million in the optimistic scenario. The valuation is calculated using the price-to-earnings ratio multiple of the mainstream L1 public chain, combined with annualized revenue.
Source: PANews
Taking into account the current circulating supply and an inflation rate of 11.6% (used for incentives and rewards), the $HYPE price range is:
Baseline scenario lower limit: $41.93 (lowest multiple)
Optimistic upper limit: $651.48 (highest multiple)
Source: PANews
Source: PANews
Reasonable valuation analysis
HYPE should trade at a lower valuation multiple compared to Solana and Ethereum for the following reasons:
The project is relatively immature
More risk factors
Revenue mainly comes from DEX, unlike Solana and Ethereum
"Reasonable" valuation reference:
Using a P/E ratio of 40x
Annualized revenue of $1 billion (between baseline and optimistic scenario)
Resulting in a market cap of $40 billion ($100 billion fully diluted)
$HYPE costs around $100
Historical cycle comparison
While $40 billion in market cap and $100 billion in FDV seem high, the bull run could be even crazier.
In the 2021 bull market:
$BNB: $5 billion to $100 billion (20x)
$ADA: $5 billion to $95 billion (19x)
$SOL: $86M to $77B (900x)
$AVAX: $282 million to $30 billion (100x)
$MATIC: $85M to $20B (235x)
$FIL has an FDV of $373 billion, 16x what $HYPE is today.
Source: PANews
capital inflow potential
There are currently about 60,000 $HYPE holders, which is relatively few:
$KMNO: 55,000 holders
$WIF: 211,000 holders
$BONK: 861,000 holders
Calculated according to the capital inflow multiplier effect (10 times) studied by Messari, if it can attract capital inflows of 5% of the market capitalization of $SOL and 1% of the market capitalization of ETH (approximately $10 billion), it will have a significant impact on the price.
Source: Dune
Potential risks
While this article is a fairly optimistic prediction for Hyperliquid's future, it's not without risks.
Validator concentration risk
At present, the validator nodes of the Hyperliquid main network are still highly concentrated, with only 4 validator nodes operated by the team in Tokyo. Although the testnet already has more than 60 decentralized validators (including well-known institutions such as Chorus One, ValiDAO, B Harvest, Nansen, etc.), the transition to a decentralized architecture still faces challenges. If the performance of the verifier decreases, it may 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 the vitality of the ecosystem
Low-quality projects or simple copies of other on-chain projects will reduce capital inflow and activity
Attracting real builders rather than speculators is crucial
DeFi innovation risks
With the launch of EVM, the capital efficiency of $HYPE will be improved through liquidity staking, lending and other methods. New DeFi innovations may bring unprecedented risks:
The interaction between innovative financial products and the L1 layer may create unknown risks
New DeFi Protocol May Impact $HYPE Token Value
Exchange operations may also be affected
regulatory risk
While there are regulatory risks, geographic restrictions and the Trump administration’s attitude have somewhat mitigated that risk. However, as an exchange platform, it still needs to pay close attention to changes in the regulatory environment.
Market correlation risk
As an exchange token, $HYPE’s performance is highly correlated with the overall crypto market:
Teams need to complete key milestones before the end of the market cycle
Fluctuations in market sentiment may significantly affect token prices
Need to seize development opportunities in the bull market cycle
Investment reminder
Cryptocurrency investing is highly risky and there is a risk of zeroing out on any token, including $HYPE. Investors should:
Conduct adequate independent research
Rationally assess risk tolerance
Do not take this as investment advice
Be cautious about market fluctuations
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reproduced with permission from: (PANews)
Original author: Yuliya
'HYPE market cap 7.5 billion magnesium! 4 points to analyze the potential of Hyperliquid to become the next Binance? 』This article was first published on 'CryptoCity'