Original Title: Analyzing Hyperliquid's Fundamentals

Original Author: Thor Hartvigsen

Original Source: https://www.onchaintimes.com/

Translation: Daisy, Mars Finance

Introduction

Since the launch of HYPE, Hyperliquid has seen tremendous growth in trading volume and revenue. HYPE went live on November 29 at a price of $2 and surged over 1400% in less than a month. This report delves into the fundamentals of Hyperliquid and HYPE, exploring the bullish narrative for HYPE and the potential valuation in light of volume and revenue growth projections for 2025.

At On Chain Times, we have long focused on Hyperliquid. Although this article primarily discusses Hyperliquid's recent growth and the performance of $HYPE, you can also check out our previous article (All In on Hyperliquid). This article provides a comprehensive overview of Hyperliquid's current status and future direction based on an interview with the team.

Trading Volume

Before the launch of HYPE, skeptics anticipated low trading volumes after the airdrop since this was the case with previous decentralized perpetual exchanges. Liquidity funds typically rotate between different protocols, chasing the highest rewards. However, since the launch of HYPE, Hyperliquid's trading volume has significantly increased, setting new single-day trading volume records exceeding $10 billion multiple times. Besides the considerable incentives previously offered to traders, Hyperliquid, as a high-quality on-chain product, has also received recognition from most traders who have used the platform.

Notably, despite the initial airdrop distributing 31% of the total supply of HYPE, it is expected that 42.81% of the total supply will still be reserved for future distribution and community rewards. While it is foreseeable that part of these rewards will be used for staking incentives and potential rewards surrounding the HyperEVM L1 ecosystem, current trading volume and/or HYPE holders may have inadvertently already earned some rewards, which is not zero.

42.81% of the HYPE supply equates to about $11 billion (calculated at $25 per HYPE), which is a substantial reward amount, making trading on Hyperliquid more attractive for perpetual contract traders. However, please note that this is purely speculative.

Comparison of Hyperliquid with Centralized Exchanges (CEX)

We have been tracking Hyperliquid's perpetual contract trading volume relative to centralized exchanges (like Binance, also referred to as 'off-chain Hyperliquid'). As more users and trading volume shift on-chain, Hyperliquid's bullish logic lies in its continued growth in market share.

When comparing Hyperliquid with Binance, it is clear that Hyperliquid still has a long way to go. However, since December, Hyperliquid's market share has shown a noticeable upward trend. As shown in the graph, Hyperliquid's relative market share has been around 5%-8% over the past two weeks. According to Coingecko data, Binance's recent daily derivative trading volume has ranged from $60 billion to $150 billion. However, it should be noted that these trading volume figures from centralized exchanges cannot be truly verified, so they should be viewed with caution.

Spot Trading Volume

As you may know, Hyperliquid also has a spot token market. Since the launch of HYPE, spot trading volume has significantly increased, with the largest tokens by volume including HYPE, PURR, HFUN, and PIP.

Tokens are added to Hyperliquid's spot market through an auction process, where the highest bidder gets the opportunity to launch their token. These auctions occur every 31 hours, with the current auction price around $300,000, as shown in the image below. The highest auction price occurred on December 16 during the $GOD auction, where nearly $1 million was paid to win the auction.

Hyperliquid Spot Auctions - Source ASXN

Fees and Revenue

Perpetual Contracts

Hyperliquid's fees are paid by traders on the platform. These fees are relatively low compared to other exchanges (like Binance) and are designed to incentivize trading activity. For perpetual contract trading, most fees are: Market orders (taker) at 0.035%, limit orders (maker) at 0.01%. The higher the trading volume, the lower the fees:

Hyperliquid Fee-Tiers

To calculate the fees earned by the protocol, the average fees paid by traders need to be computed (the trading volume and average fee tier of takers and makers). ASXN did a good analysis of this in their September report, as shown in the image below. From it, the estimated average fee is 0.01276%, which is a conservative/worst-case value as it assumes rebates for market makers.

ASXN Hyperliquid Fee Tier Analysis From September

Considering this average fee value, if Hyperliquid's daily perpetual contract trading volume averages between $5 billion and $10 billion, the annual fees would amount to between $233 million and $466 million (the actual figure may be higher as the assumed average fees are quite conservative).

These fees are collected by the HLP market-making treasury, insurance fund, assistance fund, and some other miscellaneous addresses on Hyperliquid. As the team has not publicly disclosed specific allocation information regarding fees generated from platform trading activity, it is difficult to accurately estimate the amount of HYPE buybacks.

Spot

The fees paid by traders in the spot market are used to purchase and burn the tokens traded. Unsurprisingly, HYPE accounts for the majority of trading volume in Hyperliquid's spot market. So far, over 100,000 HYPE (worth over $2.5 million at current prices) have been burned through HYPE's spot fees. Overall, this has no substantial impact on HYPE's supply compared to buybacks from the assistance fund (at least for now).

Spot Auctions

Hyperliquid also generates substantial revenue from the fees paid by the winning bidders in spot auctions. Each auction generates $300,000, adding $84,774,000 annually to Hyperliquid. Flo posted a great analysis on X covering Hyperliquid's revenue situation under different spot auction prices and daily trading volumes. Under the case of $1 million per spot auction and $6 billion daily trading volume, Hyperliquid's annual revenue is expected to be $829.5 million. Calculating at a 30x price-to-earnings ratio, HYPE's price would reach $74.52 per token.

Assistance Fund and HYPE Buybacks

While it is currently unclear how the revenue from spot auctions and perpetual contract trading is distributed among the Assistance Fund (AF), insurance fund, HLP, and other addresses, we can measure the daily HYPE buybacks through the Assistance Fund (AF). A few days ago, I posted an analysis on X that explored the HYPE buyback situation from the Assistance Fund (AF) within 48 hours. At that time, the Assistance Fund bought back 151,000 HYPE in 48 hours, equating to an annual buyback pressure of $686 million. During those two days, Hyperliquid's average daily trading volume was $8 billion.

Unlike many other protocols in the crypto space, HYPE derives value directly from the revenue generated by Hyperliquid, as this revenue is used to purchase HYPE in the market.

Looking Ahead

Entering 2025, the bullish case for HYPE hinges on a bet on the growth of trading volume on the Hyperliquid exchange and the rising demand for spot auctions, which will lead to increased revenue and further drive HYPE buybacks. One reason for the growing adoption of Hyperliquid is that billions of dollars remain reserved for future rewards, making Hyperliquid a highly profitable trading platform. Hyperliquid boasts a user-centric community that has garnered significant attention and a strong market narrative for both the protocol and HYPE.

With the introduction of new features such as staking, margin trading for perpetual contracts, and applications coming with the HyperEVM ecosystem, Hyperliquid has many potential tailwinds to look forward to in the future.