Hyperliquid: A Rising Star in the DeFi Space

The decentralized finance (DeFi) sector is buzzing, and at the forefront of this excitement is Hyperliquid. Recently, the HYPE token has skyrocketed, climbing over 300% since April. This surge is largely attributed to increased usage of the Hyperliquid exchange, which is steadily becoming the preferred platform for decentralized perpetual trading. The platform is making an impressive mark, processing over 70% of decentralized exchange (DEX) perpetual volume.

Hyperliquid has seen rapid growth, peaking on June 17 with its HYPE token hitting an all-time high. Meanwhile, it has asserted itself among the elite in the crypto arena, now ranking 8th in total value locked (TVL) with an impressive $1.75 billion, according to DefiLlama. Notably, the exchange is already clearing more than $420 million in daily volume, positioning it as the 6th largest DEX in the market. In a significant move, the Nasdaq-listed Lion Group announced it will hold $600 million in reserves, choosing HYPE as its primary treasury asset.

Amidst this backdrop, questions arise: is this meteoric rise anchored in robust fundamentals, or are we witnessing yet another hype cycle?

The Unique Selling Proposition of Hyperliquid

Founded in 2023 by Harvard alumni Jeff Yan and Iliensinc, Hyperliquid is remarkable for launching without external funding—a rarity in today’s landscape. The platform’s vision is compelling: to combine the self-custody and transparency of decentralized platforms with the speed and user experience typically found in centralized exchanges.

Practically, Hyperliquid delivers on this vision with features like one-click trading, direct deposits from over 30 chains, and seamless access to spot, margin, and perpetual markets. It differentiates itself by providing perpetual contracts linked to token prices rather than the tokens, enhancing efficiency but limiting cross-chain interoperability and composability. This approach places significant reliance on the precision of price oracles and funding rate mechanisms.

At the heart of Hyperliquid is its custom layer-1 blockchain, which employs a proprietary variant of Byzantine fault tolerance (BFT) consensus known as HyperBFT. This architecture emphasizes rapid, high-volume communication between nodes, boasting the capability to support as many as 200,000 transactions per second. However, this speed comes at a cost: the network currently relies on just 21 delegated validators, contrasting starkly with Ethereum’s 14,200 execution-layer nodes.

A crucial turning point for Hyperliquid occurred in November 2024, when daily trading volume surged tenfold, jumping from $2 billion to more than $20 billion. The platform now proudly serves over 500,000 users, solidifying its place in the competitive DeFi landscape.

Examining HYPE’s Tokenomics

Creating an impressive platform is one thing; monetizing it effectively to benefit token holders is another. The HYPE token made its debut via airdrop in November 2024, distributing 31% of its total supply of 1 billion to early users. This marked a historical moment, with its market cap soaring to an astounding $12.4 billion within a month.

The HYPE token serves dual purposes: it acts as both the gas token and the governance asset of the Hyperliquid ecosystem. Users can stake HYPE directly or via our validation process. Yet, skepticism remains about whether holding HYPE offers long-term value. Simon Dedic, CEO of Moonrock Capital, expressed concerns on social media regarding the high fully diluted valuation, questioning how sustainable the current prices are.

Some users counter Dedic’s concerns by emphasizing Hyperliquid’s substantial market share in decentralized perpetuals, controlling 70% of the sector, while still having only a minor 10% share of Binance’s global volumes. They argue that the potential for growth, especially with favorable regulatory developments in the United States, could widen this gap significantly.

The management of HYPE supply further augments its bullish narrative; Hyperliquid’s Assistance Fund has executed $910 million in HYPE buybacks over the recent months, reinvesting approximately 97% of platform fee revenue into the token. Currently, only 34% of the total supply is in circulation, and 23.8% of the total tokens are vested until 2027-2028. Additionally, close to 39% is allocated for community rewards, which will be distributed gradually over time. Notably, with no venture capital backing, there lies minimal pressure for early investors to liquidate their holdings.

Given these dynamics, while a fully diluted valuation between $38 billion and $45 billion may seem daunting, it could reflect a calculated bet on Hyperliquid’s future trajectory. According to analysts, the current interested buyers likely include late-stage venture capitalists, traditional finance analysts applying standard equity logic to crypto, and wealthier crypto users eyeing emerging trading layers.

Despite a promising outlook, Hyperliquid must navigate the persistent allure of centralized platforms, which often offer greater user convenience. The dichotomy between decentralization as an ideal and the practical realities of user preferences remains to be fully reconciled. As hyper-focus on resilience and decentralization builds, the market’s sentiment can shift rapidly.