Written by: Flo
Compiled 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 fully on-chain order book and decentralized trading features. The protocol supports trading in spot, derivatives, and pre-issue markets.
This article will not delve into the specific operating 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:
Opportunities for exchange development
Opportunities in the EVM ecosystem
Income composition, valuation, and peer comparison
Potential risks
Opportunities for exchange development
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. As the bull market progresses and market volatility increases (the cryptocurrency volatility index is only 64), it is expected that open interest, trading volume, funding rates, and liquidation amounts will continue to rise.
The market share of DEX in the perpetual contract market is expected to gradually increase like in the spot market, which is similar to the earlier process where AMM and Uniswap drove up DEX's share in spot trading.
Hyperliquid, with lower fees than CEX and a more attractive incentive mechanism, is expected to attract more users and funds from CEX. Its token generation event (TGE) and the rapid rise in $HYPE prices are exemplary marketing activities.
Although the specific incentive structure has not yet been announced, it can be expected that both perpetual contract and spot trading volumes will be incentivized, as over 40% of the token supply has been reserved for community rewards.
The situation of the initial airdrop is as follows:
Now assume that 10% of the reserved supply in the first year is allocated for incentives, the situation will be as follows:
At the current price, nearly $1 billion in incentives will be distributed in the first year, surpassing the distribution scale at the initial airdrop when the opening price was $2.
This will lead to an inflation rate of about 11.65% (including staking rewards). However, as more users lead to increased trading volume, revenue, 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 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. With the development of the EVM ecosystem, the addition of more practical tokens and native assets will bring richer trading pairs.
Based on the open infrastructure and builder code of Hyperliquid, trading tools are continuously emerging, 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 field. Hyperliquid's direct competition with mainstream exchanges like Binance, Coinbase, Bybit, and OKX is itself a bullish factor.
In the most optimistic scenario:
Other exchanges will use Hyperliquid as a decentralized backend
Exchanges will hedge risks by increasing their holdings of $HYPE
Although these scenarios are unlikely in the short term, in the cryptocurrency market, anything is possible.
Opportunities in the EVM ecosystem
HyperEVM is an important part of the Hyperliquid ecosystem, sharing a unified state and consensus mechanism with Hyperliquid L1, but operating as an independent execution environment. Among them:
L1 is a permissioned chain responsible for running core components like perpetual contracts and spot order books, with programmability achieved through API
EVM is a general-purpose Ethereum-compatible chain that supports standard Ethereum development tools, and smart contracts can directly access on-chain liquidity from the L1 layer
HyperEVM is set to launch in the coming months, with many teams actively preparing. Why is this development trend bullish? It is mainly reflected in the following aspects:
DeFi new ecology
Many DeFi projects are preparing for the launch of HyperEVM. Mainstream DeFi protocol types, including automated market makers (AMM), lending platforms, liquid staking, and CDP (collateral debt positions), will all launch simultaneously with the EVM.
These projects will significantly enhance overall capital efficiency by allowing $HYPE holders to use $HYPE as collateral in lending and currency market protocols.
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 dependence on centralized exchanges (CEX) by integrating with Hyperliquid. This can not only enhance system resilience but also potentially lower and diversify counterparty risk through decentralized hedging processes. This strategy has been discussed in detail in its governance proposals.
Market demand for practical projects
Recent market trends clearly indicate that investors are highly interested in projects with real application value. This trend is fully reflected in the AI boom on Base and Solana, the outstanding performance of Hyena, and the strong demand for $HFUN and $FARM on the Hyperliquid platform.
With the imminent expansion of the DeFi ecosystem, Hyperliquid is likely to become the main battleground for practical investments in the near to medium term. Notably, the AI infrastructure development currently driven by projects like AI16Z and Zerebro on Solana may extend to the Hyperliquid platform.
The native vault function of Hyperliquid is particularly noteworthy. Strategies operating in these vaults can enjoy advanced features similar to DEX, including liquidation mechanisms for over-leveraged accounts and high-throughput market-making strategies. This mechanism's inclusivity is reflected in that any entity—whether DAO, protocol, institution, or individual—can share in the profits by depositing funds. In return, vault owners can receive 10% of the total profits.
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 past 30 days. It is expected that HyperEVM's activity will reach a level comparable to that of Base in the coming months.
$HYPE token utility enhancement: The launch of EVM will significantly expand the application scenarios of $HYPE in the ecosystem. Users will need $HYPE to pay gas fees, and can also engage in lending, staking, and locking for yield. These new applications will create stronger buying pressure. Referencing the meme coin boom on Solana in 2024 and the DeFi and NFT waves on Ethereum in 2020-2021, the driving effect of on-chain activity on the demand for native tokens should not be underestimated.
Revenue growth avenues: The influx of high-market-cap practical 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. Additionally, as more projects go live on EVM, the prices of token auction bids will also rise, bringing additional income to the platform.
Ecosystem awareness enhancement: The launch of EVM will help Hyperliquid establish itself as a 'legitimate' L1 public chain in the market, enhancing the exposure of its ecosystem. This may activate funds that are still on the sidelines.
According to the latest ecosystem market map (although many new projects have joined since its release last week), Hyperliquid is forming a comprehensive blockchain ecosystem. This complete ecological layout will provide continuous growth momentum for the platform.
The cumulative effect of these positive factors is expected to bring significant value enhancement and ecological prosperity to Hyperliquid.
Income composition, valuation, and peer comparison
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 (over 3% of circulating supply) and 3.14 million USDC, with the insurance fund accumulating about 7.07 million USDC to be transferred to the aid fund. A total of over $10 million in USDC may be used for market buyback of $HYPE.
Recent performance
In the past 30 days, Hyperliquid generated approximately $26.5 million in USDC revenue, of which:
Token auction revenue of $2 million
Platform fee revenue of $24.5 million
Additional burning of about 79,600 $HYPE (valued at $1.75 million)
Annualized revenue exceeds $336 million, second only to Ethereum, Solana, and Tron among all public chains, but with a market cap significantly lower than these public chains. In terms of yield (annualized revenue / circulating market cap), Hyperliquid far exceeds other L1s and L2s.
Revenue growth potential
Platform fees: December trading volume has reached the levels of November, expected to grow 100% month-on-month
Auction revenue: The latest round of auction prices is close to $500,000, and as available slots (282 per year) become more competitive, prices may continue to rise.
EVM revenue: Referencing Base's monthly fee income of $15 million, considering that Hyperliquid has surpassed Base's TVL, it is expected that similar or higher economic activity will be achieved after the EVM launch.
Valuation scenario analysis
Benchmark scenario:
Trading volume has increased by one-third 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, 30-day revenue could reach $59 million; in the optimistic scenario, it could reach $102 million. The valuation uses the price-earnings ratio of mainstream L1 public chains combined with annualized revenue for calculation.
Considering the current circulation and an inflation rate of 11.6% (for incentives and rewards), the price range for $HYPE is:
Benchmark scenario lower limit: $41.93 (minimum multiple)
Optimistic scenario upper limit: $651.48 (maximum multiple)
Reasonable valuation analysis
Compared to Solana and Ethereum, the valuation multiple of HYPE should be lower for the following reasons:
Projects are relatively immature
There are many risk factors
Revenue primarily comes from DEX, which is different from Solana and Ethereum
"Reasonable" valuation reference:
Using a price-earnings ratio of 40 times
Annualized revenue of $1 billion (between benchmark and optimistic scenarios)
Resulting in a market cap of $40 billion (fully diluted to $100 billion)
$HYPE price around $100
Historical cycle comparison
Although a market cap of $40 billion and a fully diluted valuation (FDV) of $100 billion seems high, the bull market could get even crazier.
In the 2021 bull market:
BNB: $5 billion to $100 billion (20 times)
ADA: $5 billion to $95 billion (19 times)
SOL: $86 million to $77 billion (900 times)
AVAX: $282 million to $30 billion (100 times)
MATIC: $85 million to $20 billion (235 times)
The FDV of FIL reached $373 billion, which is 16 times today's $HYPE
Funding inflow potential
Currently, there are about 60,000 $HYPE holders, which is relatively few:
$KMNO: 55,000 holders
$WIF: 211,000 holders
$BONK: 861,000 holders
Based on the funding inflow multiplier effect (10 times) calculated by Messari Research, if it can attract 5% of the market cap of SOL and 1% of the market cap of ETH (about $10 billion), it will have a significant impact on price.
Potential risks
Although this article presents a fairly optimistic outlook for Hyperliquid's future prospects, it is not without risks.
Validator concentration risk
Currently, the validator nodes of the Hyperliquid mainnet are still highly concentrated, operated solely by the team with 4 validator nodes in Tokyo. Although the testnet has more than 60 decentralized validators (including well-known institutions like Chorus One, ValiDAO, B Harvest, Nansen, etc.), the transition to a decentralized architecture still faces challenges. If validator performance declines, it may affect user experience and trust.
EVM ecosystem risk
The quality of the ecosystem will directly impact the development of HyperEVM:
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
Attracting real builders rather than speculators is crucial
DeFi innovation risks
With the launch of EVM, the capital efficiency of $HYPE will be enhanced through liquid staking, lending, and other methods. New DeFi innovations may bring unprecedented risks:
The interaction of innovative financial products with L1 may pose unknown risks
New DeFi protocols may impact the value of $HYPE tokens
Exchange operations may also be affected
Regulatory risks
Despite regulatory risks, geographic restrictions and the attitude of the Trump administration have somewhat reduced this risk. However, as an exchange platform, it is still necessary to closely monitor changes in the regulatory environment.
Market correlation risk
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 market cycle ends
Market sentiment fluctuations may significantly affect token prices
Opportunities for development need to be seized during the bull market cycle
Investment reminder
Investing in cryptocurrencies is highly risky, and any token including $HYPE has a 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 fluctuations