Article source: Yuliya
Original text: Flo
Compiled by: Yuliya, PANews
Hyperliquid is a perpetual contract trading protocol built on its own L1 public chain, aiming to provide users with a trading experience comparable to centralized exchanges while offering fully on-chain order books and decentralized trading features. The protocol supports trading in spot, derivatives, and pre-issuance markets.
This article will not delve deeply into the specific operating mechanisms of Hyperliquid or its differences from other perpetual contract DEXs. Instead, it will focus on the market opportunities for Hyperliquid and the fundamental investment logic of the $HYPE token.
As of the time of 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 analyze in depth from the following four aspects:
Exchange Development Opportunities
EVM Ecosystem Opportunities
Income Composition, Valuation, and Industry Comparison
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. 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.
In the perpetual contract market, DEX's market share against CEX is expected to gradually increase, similar to how AMM and Uniswap have driven the rise of DEX in spot trading.
With lower 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 prices are a prime example of effective marketing.
Although the specific incentive structure has not been announced, it is foreseeable that perpetual contracts and spot trading volumes will be incentivized, as over 40% of the token supply is reserved for community rewards.
The situation of the initial airdrop is as follows:
Now, assuming that 10% of the reserved supply in the first year is allocated for incentives, the situation will be as follows:
At current prices, nearly $1 billion in incentives will be distributed in the first year, exceeding the allocation scale of the initial airdrop at a $2 opening price.
This will lead to an inflation rate of about 11.65% (including staking rewards). However, as the increase in users leads to more 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. As the EVM ecosystem develops, the addition of more utility tokens and native assets will bring richer trading pairs.
Based on the open infrastructure of Hyperliquid and the continuous emergence of builder codes, projects like Insilico Terminal, Katoshi AI, and pvp.trade have shown promising 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 major exchanges like Binance, Coinbase, Bybit, and OKX is itself a bullish factor.
The most optimistic scenario is:
Other exchanges will use Hyperliquid as a decentralized backend
Exchanges hedge risks by increasing holdings of $HYPE
While these scenarios may seem unlikely in the short term, in the cryptocurrency market, anything is possible.
EVM Ecosystem Opportunities
HyperEVM is a crucial 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 such as perpetual contracts and spot order books, enabling programmability through APIs
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 scheduled to launch in the coming months, and many teams have begun active preparations. Why is this development trend bullish? It is mainly reflected in the following aspects:
New DeFi Ecosystem
Many DeFi projects are preparing for the launch of HyperEVM. Mainstream types of DeFi protocols, including automated market makers (AMM), lending platforms, liquid staking, and CDP (collateralized debt positions), will all go live simultaneously with the launch of EVM.
These projects will significantly enhance overall capital utilization efficiency by allowing $HYPE holders to use $HYPE as collateral in lending and money market protocols.
In addition to traditional DeFi protocols, the characteristics of on-chain order book liquidity are likely to give rise to a new wave of innovative applications. This provides fertile ground for the birth of entirely new DeFi-native protocols, with Hyperliquid expected to become the preferred platform for these innovative protocols.
For example, Ethena Labs plans to reduce reliance on CEX by integrating with Hyperliquid. This not only enhances system resilience but may also lower and diversify counterparty risk through decentralized hedging processes. This strategy has been detailed in its governance proposal.
Market demand for utility projects
Recent market trends clearly indicate that investors are highly interested in projects with real application value. This trend is reflected in the AI boom on Base and Solana, the excellent 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 practicality-focused investments in the near to medium term. Notably, the ongoing construction of AI infrastructure on Solana, driven by projects like AI16Z and Zerebro, is likely to extend to the Hyperliquid platform.
Hyperliquid's native vault function is particularly noteworthy. The strategies running 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 is inclusive 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 profits.
Other favorable 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. For example, Base generated $15 million in fees in the past 30 days. It is expected that HyperEVM's activity will reach a level comparable to Base in the coming months.
$HYPE Token Utility Enhancement: The launch of EVM will significantly expand the application scenarios of $HYPE within the ecosystem. Users will need $HYPE to pay gas fees, and can also engage in lending, staking, and locking to earn yields. These new applications will bring stronger buying pressure. The 2024 meme coin craze on Solana and the DeFi and NFT waves of Ethereum in 2020-2021 demonstrate the significant impact of on-chain activities on the demand for native tokens.
Income Growth Pathways: 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. Meanwhile, as more projects go live on EVM, the auction prices for token codes will also rise, providing additional revenue for the platform.
Ecosystem Awareness Improvement: The launch of EVM will help Hyperliquid establish its position as an "orthodox" L1 public chain in the market, enhancing the visibility of its ecosystem. This may activate funds that are currently on the sidelines.
According to the latest ecosystem market map (although many new projects have been added since its release last week), Hyperliquid is forming a comprehensive blockchain ecosystem. This complete ecological layout will provide the platform with sustained growth momentum.
The cumulative effect of these favorable factors is expected to bring significant value enhancement and ecological prosperity to Hyperliquid.
Income Composition, Valuation, and Industry 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 circulation) and 3.14 million USDC, while the insurance fund has accumulated about 7.07 million USDC to be transferred to the aid fund. Over $10 million in USDC may be used for market buybacks of $HYPE.
Recent Performance
In the past 30 days, Hyperliquid generated about $26.5 million in USDC income, of which:
Token Auction Revenue of $2 million
Platform Fee Revenue of $24.5 million
Approximately 79,600 $HYPE tokens (valued at $1.75 million) will be additionally burned
Annualized income exceeding $336 million, second only to Ethereum, Solana, and Tron among all public chains, but with a significantly lower market cap than these public chains. In terms of yield (annualized income/circulating market cap), Hyperliquid far surpasses other L1 and L2.
Income Growth Potential
Platform Fees: December trading volume has reached November levels, expected to grow 100% month-over-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 to achieve similar or higher economic activity after EVM goes live
Valuation Scenario Analysis
Benchmark Scenario:
Trading volume has increased by one-third compared to the past 30 days
Auction revenue remains stable
EVM activity is on par with Base
Optimistic Scenario:
Trading volume has doubled compared to the past 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 mainstream L1 public chain price-to-earnings multiples combined with annualized income for calculation.
Considering the current circulation and an inflation rate of 11.6% (for incentives and rewards), the price range of $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
Income mainly comes from DEX, which is different from Solana and Ethereum
"Reasonable" Valuation Reference:
Using a 40x price-to-earnings ratio
Annualized income of $1 billion (between the benchmark and optimistic scenarios)
Resulting in a market cap of $40 billion (fully diluted at $100 billion)
$HYPE price is approximately $100
Historical Cycle Comparison
Although a market cap of $40 billion and a FDV of $100 billion may seem high, the bull market could 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 has reached $373 billion, 16 times that of today's $HYPE
Capital Inflow Potential
Currently, there are about 60,000 holders of $HYPE, which is relatively small:
$KMNO: 55,000 holders
$WIF: 211,000 holders
$BONK: 861,000 holders
Based on the funding inflow multiplier effect (10x) calculated by Messari, 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 prices.
Potential Risks
While this article presents a relatively optimistic forecast for Hyperliquid's future prospects, it is not without risks.
Validator Centralization Risk
Currently, the validator nodes on the Hyperliquid mainnet are still highly centralized, operated solely by the team with 4 validator nodes in Tokyo. Although there are over 60 decentralized validators on the testnet (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 validators declines, it may affect user experience and trust.
EVM Ecosystem Risks
The quality of the ecosystem will directly impact the development of HyperEVM:
High-quality projects are needed to maintain ecosystem vitality
Low-quality projects or simple copies of other blockchain projects will reduce capital inflow and activity
Attracting genuine 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 affect the value of the $HYPE token
Exchange operations may also be affected
Regulatory Risks
Despite regulatory risks, geographical limitations and the attitude of the Trump administration have somewhat mitigated this risk. However, as an exchange platform, it is still necessary 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 market cycle ends
Market sentiment fluctuations may significantly impact token prices
Need to seize development opportunities during the bull market cycle
Investment Reminder
Cryptocurrency investments carry 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
Exercise caution regarding market volatility
