Is Hyperliquid's valuation reasonable? A quick look at its product status and economic model.

1. Introduction

Hyperliquid is one of the most notable projects in the recent cryptocurrency market, aside from AI and memes. Its strategy of not accepting venture capital, allocating 70% of tokens to the community, and returning all income to users has garnered widespread attention. The circulating market capitalization of the HYPE token has rapidly surpassed UNI, placing it among the top 25 cryptocurrencies, and the platform's business data has also seen significant growth.

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 current stage of thinking, which may change in the future. The views are subjective and may contain errors in facts, data, or reasoning logic. Readers are welcome to criticize and correct, but this article does not constitute any investment advice.

Some of the content of this article refers to the Hyperliquid research report published by ASXN in September. Interested readers can read the report for more details.

2. Hyperliquid Business Overview

Hyperliquid's main business currently includes a derivatives exchange and a spot exchange. In the future, it also plans to launch a universal EVM - HyperEVM.

2.1 Derivatives Exchange

The derivatives exchange is the first product launched by Hyperliquid and is also its flagship product, playing a central role in the entire product ecosystem.

In terms of core product mechanisms, Hyperliquid has not adopted other innovative logic such as GMX or SNX due to on-chain performance bottlenecks, but instead chose the Central Limit Order Book (CLOB), a widely used mechanism, and has made efforts in terms of 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 can support up to 2 million TPS. With strong underlying performance support, Hyperliquid has fully put core components such as the order book and clearinghouse on-chain, ultimately forming a decentralized derivatives exchange architecture.

For end users, the experience on Hyperliquid is almost identical to that of certain centralized exchanges, including trading experience, product structure, fee rates, and discount rules. The only difference is that Hyperliquid does not require KYC.

In addition to trading products, Hyperliquid has offered Vault functionality from the very beginning, similar to the "copy trading" feature of certain centralized exchanges. Everyone can invest funds into any Vault, which is managed by the Vault manager. 10% of the profits are distributed to the manager, and to maintain aligned interests, the manager must hold at least 5% of the Vault's shares.

However, currently 95% of the TVL is concentrated in the official Vault HLP. As the official Vault, HLP effectively acts as the counterparty for many trades on the platform, thus earning a portion of various fees such as transaction fees, funding fees, and liquidation fees. From this perspective, HLP is relatively similar to the LP pools of certain DEXs, with the distinction that: the LP pools of certain DEXs act as the counterparty for all trades, and their strategy is passive and public; whereas HLP's strategy is non-public, and the counterparty for user trades 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 remaining profitable with a net short 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 three strategy addresses, the Hyperliquid team is using fees to maintain a relatively positive APR for HLP.

From the perspective of trading volume and open interest, Hyperliquid is developing rapidly, especially in the past two months. With the $HYPE airdrop and the continuous price increase, various data of the platform 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, and the gap with other decentralized derivatives exchanges has further widened in the past two months, with a significant difference now.

From the perspective of valuation and trading volume, Hyperliquid is currently more suitable for comparison with certain centralized exchanges. Recent data for Hyperliquid shows a significant decline, with a peak single-day trading volume of $10.4 billion, but falling below $5 billion in recent days. However, its open interest still accounts for about 10% of a top centralized exchange, with trading volume at 6%; the open interest and trading volume are roughly equivalent to about 15% of certain second-tier centralized exchanges. At its peak popularity from December 17 to 20, Hyperliquid's open interest could reach 12% of a top centralized exchange, with trading volume at 9%; both the open interest and trading volume data are close to 20% of certain second-tier centralized exchanges.

Overall, Hyperliquid's 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 also narrowed 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 the derivatives exchange.

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

HIP-1) decentralized 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 HIP-1 tokens is relatively high, as successfully creating HIP-1 tokens also means that they can be listed on the Hyperliquid spot exchange.

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

Everyone can participate in the auction, with an initial price set at 2 times the last transaction price, which linearly decreases to 10000U) adjustable( over 31 hours. The first developer to successfully place a bid will qualify to create a TICKER, which can be listed on the Hyperliquid spot exchange. The auction amount is paid in USDC.

The created Tickers worth noting include: GOD, CREAM, ANIME, MON, SWELL, RIFT, GAME, ANZ, SOVRN, FARM, ETHC, SOLV, etc.

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

After SOLV, it is mostly the project parties that compete for ecological niches and listing qualifications, and prices gradually rise, with the highest GOD auctioned for nearly 1 million USD. The project direction is mainly focused on pan-entertainment, with games and NFTs accounting for a large portion, 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 remained stable at over $100,000 in the past month, which is 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 listing issues faced by centralized exchanges. On the other hand, the collected listing fees will be used for HYPE buyback and destruction, 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 HIP1.

In short, 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 market-making within a range, where developers specify 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 movement representing one grid.

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

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

) 2.3 HyperEVM

HyperEVM is not yet online. In the official Hyperliquid documentation, 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 official documentation, HyperEVM is not an independent chain:

Hyperliquid L1 features a universal EVM as part of the blockchain state. Importantly, 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 ), equipped with two execution layers ### RustVM and HyperEVM (. The core functions of its contracts and spot trading are hosted on RustVM, which will also focus on these two core dApps, while the other dApps will be hosted on HyperEVM.

Regarding HyperEVM, according to the team documentation we know:

• Unlike Hyperliquid's current spot and exchange located on RustVM, HyperEVM is permissionless, meaning any developer can build applications, issue assets )FT or NFT ( on it.
• HyperEVM is interoperable with the L1 of Hyperliquid, such as the L1 oracle being available for HyperEVM, and some currency transfers can also be communicated between the two VMs. ) cannot be fully interoperable 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.

In the author's current understanding, the relationship between HyperEVM and Hyperliquid L1 may be more akin to that of "an L2 with certain interoperability and an L1," or the relationship between some centralized exchanges and their exchange EVM chains.

The HyperEVM testnet is currently running normally, and many validators have started participating in the HyperEVM testnet verification, including some well-known verification organizations.

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

Such as the social platform trading robot Hyperfun) token HFUN###, social trading robot pvp.trade, 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 earlier that have successfully obtained HIP-1 tokens, there are many other projects.

The specific mechanism of HyperEVM and its relationship with Hyperliquid L1 will only be revealed after its official launch. Currently, the official has not provided a planned launch time for HyperEVM.

Summary: Hyperliquid's overall business positioning is similar to that of leading trading groups, with its core business being trading + L1 operations, making it a direct competitor to major trading groups. Although the business model is consistent, Hyperliquid differs from existing leading trading groups by choosing to build its trading business on-chain. Compared to centralized exchanges that require permission and have opaque data, Hyperliquid's trading platform advantages lie in permissionless access ( no KYC ), transparent and verifiable business data, better composability, and lower overall operational costs, which also enables it to channel more revenue and profits to its token HYPE.

3. Hyperliquid Team, Token Economic Model and Valuation

( 3.1 Team

Hyperliquid has two co-founders, Jeff Yan and iliensinc, who are from Ha