Is Hyperliquid's valuation reasonable? A brief overview of its product status and economic model.

1. Introduction

Hyperliquid is one of the biggest highlights in the recent crypto market aside from AI and Memes. Its strategy of not accepting VC investment, allocating 70% of tokens to the community, and returning all revenue to platform users has attracted widespread attention in the market. The practice of directly repurchasing HYPE with its revenue has quickly propelled HYPE's circulating market value to surpass UNI, placing it among the top 25 cryptocurrencies, while also driving a significant surge in its platform business data.

This article aims to describe the current development status of Hyperliquid, analyze its economic model, and discuss the current valuation of HYPE, attempting to answer the question "Is HYPE really expensive?"

It should be noted that this article only represents the author's interim thoughts at the time of publication, and changes may occur in the future. The viewpoints expressed in this article are highly subjective and may contain errors in facts, data, or logical reasoning. Industry peers and readers are welcome to critique and correct, and engage in deeper discussions. However, this article does not constitute any investment advice.

A considerable portion of this article references the Hyperliquid research report released by ASXN in September. This is the most comprehensive and in-depth Hyperliquid research report I have read. If readers want to learn more about the detailed mechanisms of Hyperliquid, they can refer to this report.

2. Business Overview of Hyperliquid

Hyperliquid's current business mainly includes two parts: derivatives exchange and spot exchange. They also plan to launch a universal EVM - HyperEVM in the future.

2.1 Derivatives Exchange

The derivatives exchange is the first product launched by Hyperliquid and is its flagship product, occupying a core position in the entire product ecosystem.

At the core product mechanism level of derivatives, Hyperliquid did not adopt other innovative product logics like GMX, SNX, etc. due to on-chain performance bottlenecks (, but instead chose the Central Limit Order Book (CLOB) ), which is the most widely used mechanism by various exchanges globally and is also the most familiar mechanism for all trading users and market makers, while putting effort into performance.

The decentralized derivatives exchange they built operates on Hyperliquid L1, which is a PoS chain composed of the consensus layer HyperBFT and the execution layer RustVM.

HyperBFT is a consensus algorithm modified by the Hyperliquid team based on LibraBFT developed by the Meta pre-blockchain team, capable of supporting up to 2 million TPS. With strong performance support at the underlying level, Hyperliquid has brought core components of derivatives exchanges, such as order books and clearinghouses, on-chain, ultimately forming its decentralized derivatives exchange architecture.

For end users, the experience with Hyperliquid is almost identical to that of a centralized exchange like certain trading platforms, not only in terms of trading experience and product structure but also in terms of trading fees and discount rules. The only difference from centralized exchanges is that Hyperliquid does not require KYC.

In addition to trading products, Hyperliquid has provided the Vault function since the product's inception. The Vault is similar to "copy trading" in centralized exchanges, where everyone can invest funds into any Vault, managed by the Vault's operator. 10% of the earnings will be allocated to the Vault operator, and to maintain consistency of interests, the operator must ensure to hold at least 5% of the Vault's shares.

However, based on the current TVL, 95% of the TVL is in the official Vault HLP.

Unlike a regular Vault, HLP serves as the official Vault and effectively acts as the counterparty for a significant number of transactions on the platform. Therefore, HLP can receive a portion of various platform fees, such as ( transaction fees, funding fees, and liquidation fees ). From this perspective, HLP is relatively similar to the GLP of a certain DEX, with the distinction that: GLP acts as the counterparty for all transactions on the platform, and its strategy is passive and public; while HLP's strategy is non-public, and the counterparty for user transactions may be HLP or other users, with HLP's strategy also subject to adjustment at any time.

Since its launch in July 23, HLP has almost always maintained a net short position, providing liquidity for retail traders and keeping profitable with a net short position during the long bull market. Currently, the TVL is $350 million, and the PNL is $50 million. From the overall PNL curve of HLP and the PNL of three strategy addresses, the Hyperliquid team is using fees to maintain the relatively positive APR of its HLP.

From the perspective of trading volume and open interest, Hyperliquid is developing rapidly, especially in the last two months. With the $HYPE airdrop and continuous price increases, various metrics of the platform peaked between December 17-20.

In the field of decentralized derivatives markets, Hyperliquid has maintained a leading position in terms of trading volume since June of this year. In the past two months, the gap between other decentralized derivatives exchanges and Hyperliquid has further widened, and there is now an order of magnitude difference.

From the perspective of valuation and trading volume, Hyperliquid is currently more comparable to centralized exchanges.

Hyperliquid's recent data has shown a significant decline. On its highest single-day trading volume, it reached 10.4 billion USD, but in recent days, the trading volume has been less than 5 billion USD. However, its open interest still represents 10% of a certain trading platform, while the trading volume is 6% of another platform. The open interest and trading volume are roughly equivalent to 15% of certain platforms. During its peak popularity, from December 17 to 20, the open interest of Hyperliquid could reach 12% of a certain platform, and the trading volume reached 9% of another platform; both open interest and trading volume data were close to 20% of certain platforms.

Overall, Hyperliquid's derivatives exchange has developed rapidly and has already established a solid leading advantage in the decentralized derivatives exchange sector, with its gap compared to leading centralized exchanges reduced to within 10 times.

( 2.2 Spot Exchange

Hyperliquid's spot exchange also adopts an order book model, consistent with the product architecture and fee standards of derivative exchanges.

Currently, Hyperliquid's spot exchange only lists Hyperliquid's native assets that comply with the HIP-1 standard and does not list tokens from other chains.

HIP-1) Decentralized Token Listing (

HIP-1 is similar to ERC-20 or SPL-20, and is the token standard of the Hyperliquid network. However, unlike ERC-20 and SPL-20, the cost of creating a HIP-1 token is quite high, as the successful creation of a HIP-1 token also means eligibility for listing on Hyperliquid's spot exchange.

Hyperliquid's HIP-1 is conducted publicly in the Dutch auction format, specifically:

Everyone can participate in the auction, with the initial bidding price set at twice the last successful auction price, and it will linearly decrease to 10000U) within 31 hours. This value is adjustable; it was previously lower and has recently been adjusted to 10000U(. The first developer to successfully bid will qualify to create a TICKER, which can be listed on Hyperliquid's spot exchange. The bidding amount is paid in USDC.

Among the noteworthy created Tickers, ) are sorted in descending order according to the auction amount: ###:

• GOD: The game invested by Pantera
• CREAM: Lending project Cream
• ANIME: Rumored to be acquired by a certain NFT project team, but not yet officially confirmed.
• MON: Publisher of the game Pixelmoon
• SWELL: Staking & Re-staking Protocol in the Ethereum Ecosystem
• RIFT: A gaming protocol based on Virtual
• GAME: Rumored to be a GAME based on Virtual, but has not yet received official confirmation.
• ANZ: stablecoin protocol of the base chain
• SOVRN: Game asset platform is about to launch games on Hyperliquid.
• FARM: Hyperliquid's native AI pet game, launched through the Hyperfun platform.
• ETHC: Mining Project
• SOLV: Bitcoin ecological staking protocol, with investment from BN labs, has not issued tokens yet.

SOLV can be roughly seen as a dividing point for the HIP-1 auction, previously primarily focused on meme and domain logic, with the ticker often carrying symbolic meaning, and the focus of speculation being the uniqueness within the ecosystem.

After SOLV, most of the projects are vying for ecological positions & listing qualifications, with prices gradually rising, the highest GOD auctioned for nearly 1 million USD. The focus of the projects is mainly on pan-entertainment, with games and NFTs making up a large portion, but there are also DeFi projects such as Solv, Swell, and Cream.

Additionally, it can be seen that as an exchange, Hyperliquid's spot "listing fee" has stabilized above $100,000 in the past month, which is already quite close to the listing fees of some second-tier centralized exchanges.

Through HIP1, Hyperliquid has established a public "decentralized listing" mechanism, where the listing fees are determined by market participants, avoiding the issues associated with centralized exchange listings. On the other hand, the collected listing fees will be used for HYPE buybacks and burns, which is also beneficial for the price performance and valuation metrics of HYPE.

HIP-2( Hyperliquid's AMM )

Since Hyperliquid's spot trading operates in the form of an order book, it is difficult to guarantee liquidity for new tokens. Hyperliquid has proposed HIP-2 to address the initial liquidity issue of tokens created through HIP-1.

In simple terms, HIP2 provides a set of automated market-making systems that allow developers to automatically market-make tokens generated by HIP-1. The market-making logic is linear within a range, where developers specify the upper and lower price limits of the market-making range, as well as the buy-sell breakpoint. The system automatically creates a grid with a price change of 0.3%, automatically market-making within the range.

After the launch of HIP-2, many newly created Hyperliquid ecosystem tokens chose to use this set of Hyperliquid's AMM mechanism. Currently, the total USDC amount of HIP-2 has exceeded 25 million dollars.

Hyperliquid's average daily spot trading volume in the last 30 days is around 400 million USD, ranking in the top ten among DEXs, and is comparable to the trading volumes of Curve, Lifinity, and Orca.

( 2.3 HyperEVM

HyperEVM is not yet live. In Hyperliquid's official documentation, the current derivative and spot exchange running on RustVM is referred to as Hyperliquid L1, while HyperEVM is referred to as EVM. According to its definitions in the official documentation, HyperEVM is not an independent chain:

Hyperliquid L1 has a universal EVM as part of its blockchain state. Importantly, HyperEVM is not a standalone chain, but like other parts of L1, it is secured by the same HyperBFT consensus mechanism. This allows the EVM to directly interact with L1's native components, such as spot and perpetual order books.

Hyperliquid is built on a consensus layer )HyperBFT(, equipped with two execution layers )RustVM and HyperEVM(. The core functionalities for contracts and spot trading are based on RustVM, which will focus on these two core dApps, while other dApps will operate on top of HyperEVM.

Regarding HyperEVM, according to the team's documentation, we know that:

• Unlike Hyperliquid's current spot and exchange on RustVM, HyperEVM is permissionless, meaning any developer can build applications and issue assets )FT or NFT### on it.
• HyperEVM has interoperability with Hyperliquid's L1, such as L1's oracle being available for HyperEVM, and the transfer of certain tokens can also be interchanged between the two VMs. ( cannot be fully interoperable, as the assets on L1 are "permitted," only including USDC and assets generated through HIP-1, while HyperEVM has many more assets ).
• HyperEVM will use Hyperliquid's