Is Hyperliquid's valuation reasonable? Product status, economic model, and valuation analysis

1. Introduction

Hyperliquid is one of the biggest highlights in the recent crypto market, besides AI and meme coins. Its strategy of not accepting VC investments, allocating 70% of tokens to the community, and returning all revenue to platform users has attracted market attention. The strategy of directly repurchasing HYPE with its revenue has led HYPE's circulating market value to quickly surpass 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 reflects the author's interim thoughts as of the time of publication, which may change in the future. The opinions expressed are highly subjective and may contain errors in facts, data, or reasoning. However, this article does not constitute any investment advice.

A significant portion of the content in this article references the Hyperliquid research report released by ASXN in September, which is also the most comprehensive and in-depth Hyperliquid research report the author has read. If readers wish to learn more about the mechanism details of Hyperliquid, they can refer to this research report.

2. Hyperliquid Business Overview

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 serves as its flagship product, playing a central role in the entire product ecosystem.

At the core product mechanism level of derivatives, Hyperliquid has not adopted other innovative product logics due to on-chain performance bottlenecks, such as GMX, SNX, etc., but has instead chosen the Central Limit Order Book (CLOB) mechanism, which is the most widely used by various exchanges around the world and is also the mechanism that all trading users and market makers are most familiar with, while focusing on performance improvements.

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 previous blockchain team, capable of supporting up to 2 million TPS. With the strong underlying performance support, Hyperliquid has put core components of derivatives exchanges such as order books and clearing houses on-chain, ultimately forming its decentralized derivatives exchange architecture.

For end users, the experience of 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 from centralized exchanges is that Hyperliquid does not require KYC.

In addition to trading products, Hyperliquid has provided the Vault function since the product was established. The Vault is similar to "copy trading" in centralized exchanges, where everyone can invest funds into any Vault, managed by the Vault owner. 10% of the profits will be allocated to the Vault owner, and to maintain alignment of interests, the owner must ensure they hold at least 5% of the Vault.

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

Unlike a typical Vault, HLP acts as a counterpart for many transactions on the platform because it is the official Vault. Therefore, HLP can obtain a portion of various fees on the platform, such as ( transaction fees, funding fees, and liquidation fees ). From this perspective, HLP is relatively similar to the liquidity tokens of certain DEXs, with the difference being that the latter serves as the counterpart for all transactions on the platform, and its strategy is passive and public; whereas HLP's strategy is non-public, and the counterpart for user transactions may be HLP or other users, and 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 keeping profits with net short positions during the long-term bull market. Currently, the TVL is 350 million USD, and the PNL is 50 million USD. From the overall PNL curve of HLP and the PNL of 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 price increase, the platform's various metrics reached a peak 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, the more suitable comparable object for Hyperliquid at present is centralized exchanges.

Hyperliquid's recent data has shown a significant decline ( with a maximum daily trading volume of 10.4 billion USD, and in recent days, the trading volume has been less than 5 billion USD ). However, its open interest still accounts for 10% of a certain trading platform, while the trading volume is 6% of that platform; the open interest and trading volume are roughly equivalent to about 15% of certain trading platforms. During its peak popularity from December 17-20 (, Hyperliquid's open interest could reach 12% of a certain trading platform, and the trading volume reached 9% of that platform; both the open interest and trading volume data were close to 20% of certain trading platforms.

Overall, Hyperliquid's derivatives exchange is developing rapidly and has already established a relatively solid leading advantage in the field of decentralized derivatives exchanges, with the gap compared to leading centralized exchanges reduced to within 10 times.

) 2.2 Spot Exchange

The Hyperliquid spot exchange also adopts an order book model, consistent with the product structure and fee standards of derivatives exchanges.

Currently, Hyperliquid's spot exchange only lists Hyperliquid's native assets that meet 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 auction transaction price, and it will linearly decrease to 10000U( within 31 hours. This value is adjustable, previously lower, recently adjusted to 10000U). The first developer to successfully bid will obtain the qualification to create a TICKER, which can be listed on Hyperliquid's spot exchange. The bidding amount is payable in USDC.

Among the notable created Tickers, there is ### sorted in descending order by auction amount (:

GOD, CREAM, ANIME, MON, SWELL, RIFT, GAME, ANZ, SOVRN, FARM, ETHC, SOLV.

SOLV can be roughly seen as a dividing point for the HIP-1 auction, which previously mainly revolved around meme and domain name logic. The ticker often carries symbolic meaning, and the focus of speculation is on the uniqueness within the ecosystem.

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

Additionally, it can be observed that as an exchange, Hyperliquid's spot "listing fee" has stabilized at over 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 listing issues commonly faced by 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 (

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 issues of tokens created through HIP1.

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 specified range, where developers set the upper and lower price limits of the market-making range, as well as the buy-sell boundary. The system automatically market-makes within the range, with each 0.3% price change representing a grid.

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

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

) 2.3 HyperEVM

HyperEVM is not yet online. In the official documentation of Hyperliquid, the current derivatives and spot exchange running on RustVM is 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 its blockchain state. Importantly, HyperEVM is not a standalone chain, but is secured by the same HyperBFT consensus mechanism as the rest 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 of contracts and spot trading are based on RustVM, which will also focus on these two core dAPPs, while the remaining dAPPs will be based 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 are interoperable, such as the L1 oracle can be used by HyperEVM, and transfers of certain tokens can be communicated between the two VMs. ) cannot fully interoperate because the assets on L1 are "permissioned" and only include 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.

The HyperEVM testnet is currently running smoothly, and many validators have begun participating in the HyperEVM testnet validation, including some well-known blockchain infrastructure companies.

Due to RustVM not being open to all developers, there are currently few applications developed based on Hyperliquid's RustVM, mostly trading auxiliary tools:

Such as the Telegram trading bot Hyperfun) token HFUN(, the Telegram social trading bot pvp.trade, the trading terminal tealstreet, and Insilico, as well as the derivatives trading aggregator Ragetrade, etc.

HyperEVM is open to all developers, and there are many projects planned to be launched on HyperEVM, in addition to the projects mentioned above that have successfully obtained HIP-1 tokens.