Is Hyperliquid's valuation reasonable? A quick 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 Meme. Its strategy of not accepting VC investment, allocating 70% of its tokens to the community, and returning all revenue to platform users has garnered market attention. The circulating market cap of HYPE has rapidly surpassed UNI, placing it among the top 25 cryptocurrencies, while also causing its platform business data to soar across the board.

This article aims to describe the current development status of Hyperliquid, analyze its economic model, and evaluate the current valuation of HYPE, providing an answer to the question of whether "HYPE is really expensive".

This article represents the author's interim thoughts as of the time of publication, which may change in the future, and the views expressed are highly subjective and may contain errors in facts, data, and reasoning logic. Criticism and further discussion from peers and readers are welcome, but this article does not constitute any investment advice.

The following is the main text.

2. Overview of Hyperliquid's Business

Hyperliquid's current business mainly consists of two parts: a derivatives exchange and a 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, playing a central role in the entire product ecosystem.

At the core product mechanism level of derivatives, Hyperliquid insists on using the Central Limit Order Book (, CLOB ), which is the most widely used mechanism by various exchanges worldwide, and puts effort into performance.

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

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

For end users, the experience on Hyperliquid is almost identical to that of certain centralized exchanges, not only in terms of trading experience and product structure but also in aspects such as trading fees and discount rules. The only difference is that Hyperliquid does not require KYC.

In addition to trading products, Hyperliquid has provided the Vault feature from the initial establishment of the product. The Vault is similar to the "copy trading" in centralized exchanges, where anyone can invest funds into any Vault, and the Vault manager will make investments. 10% of the profits will be allocated to the Vault manager, and in order to maintain alignment of interests, the manager must ensure they 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 typical Vault, HLP acts as a counterparty for a substantial number of transactions on the platform because it is the official Vault. As a result, HLP can receive a portion of various fees from the platform, including ( transaction fees, funding fees, and liquidation fees ). From this perspective, HLP is relatively similar to the liquidity pools of certain DEXs, with the distinction being that the liquidity pools of certain DEXs serve as counterparties for all transactions on the platform, and their strategy is passive and public; whereas HLP's strategy is non-public, and the counterparty for user transactions could be either HLP or other users, while HLP's strategy can be adjusted at any time.

Since its launch in July 2023, HLP has almost always maintained a net short position, providing liquidity for retail traders and remaining profitable with a net short position during the long-term 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 the three strategy addresses, the Hyperliquid team is using fees to maintain its relatively positive APR for 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 the continuous rise in price, various data of the platform reached a peak between December 17-20.

In the field of decentralized derivatives markets, Hyperliquid has held 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, the more appropriate comparable object for Hyperliquid at present is centralized exchanges.

Hyperliquid has seen a significant decline in recent data. The highest daily trading volume was 10.4 billion USD, but in recent days, the trading volume has dropped below 5 billion USD. However, its position size still accounts for 10% of a leading trading platform, and its trading volume is 6% of that platform. The position size and trading volume are roughly comparable to the level of 15% of certain second-tier trading platforms. During its peak popularity from December 17-20, Hyperliquid's position size could reach 12% of a leading trading platform, and trading volume reached 9% of that platform; both position size and trading volume data were close to 20% of certain second-tier trading platforms.

Overall, the Hyperliquid derivatives exchange has developed rapidly and has established a solid leading advantage in the field of decentralized derivatives exchanges. Compared to leading centralized exchanges, the gap has been narrowed to within 10 times.

( 2.2 Spot Exchange

The Hyperliquid spot exchange also adopts an order book model, and its product architecture and fee standards are consistent with those 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 the Hyperliquid spot exchange.

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

Everyone can participate in the auction, with the initial bidding price set at double the last successful auction price, which will linearly decrease to 10000U) within 31 hours. This value is adjustable, previously lower, and recently adjusted to 10000U###. The first developer to place a successful bid will receive the qualification 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, there is ( sorted in descending order by auction amount ):

• GOD: A game invested in by a well-known investment institution
• CREAM: The well-known lending project Cream, troubled by hackers, is associated with a certain famous KOL.
• ANIME: is the token ticker of a well-known NFT project, rumored to have been acquired by the project team, but has not yet been officially confirmed.
• MON: Game publisher Pixelmoon
• SWELL: A staking & re-staking protocol in the Ethereum ecosystem
• RIFT: A game protocol based on Virtual
• GAME: It is rumored to be a GAME based on Virtual, but has not yet been officially confirmed.
• ANZ: A stablecoin protocol of a certain L2 chain
• SOVRN: The game asset platform previously known as BreederDAO(, which was invested in by a well-known institution during the last cycle, is set to launch a game on Hyperliquid.
• FARM: Hyperliquid's native AI pet game, launched on the Hyperfun platform.
• ETHC: A well-known KOL associated mining project
• SOLV: A Bitcoin ecosystem staking protocol that has received investment from a certain investment institution, and has not yet issued tokens.

SOLV can be roughly seen as a dividing point for the HIP-1 auction, where previously it was mainly about meme and domain logic, with tickers often holding symbolic significance, and the focus of speculation being the uniqueness within the ecosystem.

After SOLV, most projects are competing for ecological niches & listing qualifications, and prices have gradually risen, with the highest GOD being sold for nearly 1 million USD. The focus of the projects is mainly on pan-entertainment, with games and NFTs accounting for the majority, but there are also DeFi projects like Solv, Swell, and Cream.

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

![Is Hyperliquid's valuation reasonable? A quick overview of its product status and economic model])https://img-cdn.gateio.im/webp-social/moments-6d3255e6b8f4663333b255da316eb8d0.webp(

Through HIP1, Hyperliquid has established a public "decentralized listing" mechanism, where the listing fees are determined by market participants themselves, avoiding the issues related to centralized exchanges. On the other hand, the collected listing fees will be used for HYPE buyback and burn, which is also beneficial for the price performance and valuation metrics of HYPE.

HIP-2) Hyperliquid's AMM (

Due to Hyperliquid's spot trading operating in the form of an order book, it is difficult to guarantee liquidity for new coins. Hyperliquid proposed HIP-2 to address the initial liquidity issue of tokens created through HIP1.

In simple terms, HIP2 provides an automated market-making system that allows developers to automatically market-make using tokens generated by HIP-1. The market-making logic is linear within a specified range, where developers set the upper and lower price limits of the market-making range, as well as the buy-sell dividing point. The system automatically market-makes within the range, treating every 0.3% price change as a unit.

After the launch of HIP-2, many newly created Hyperliquid ecosystem tokens have chosen to use the Hyperliquid AMM mechanism. Currently, the total USDC amount of HIP-2 has exceeded 25 million US dollars.

![Is Hyperliquid's valuation reasonable? A quick overview of its product status and economic model])https://img-cdn.gateio.im/webp-social/moments-12211393162c616cb62fa069ef2c83cc.webp(

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

) 2.3 HyperEVM

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

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

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

As for 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 NFTs ( on it.
• HyperEVM and Hyperliquid's L1 have interoperability, as the L1 oracle can be used by HyperEVM, and transfers of certain tokens can also be exchanged between the two VMs. ) cannot be fully interoperable because the assets on L1 are "permissioned," only including USDC and assets generated through HIP-1, while HyperEVM has many more assets (
• HyperEVM will use Hyperliquid's native token $HYPE as Gas, while Hyperliquid's current L1 does not require users to pay Gas.

Currently HyperEVM