On December 16, the Hyperliquid ecosystem continued to heat up as HYPE reached a new all-time high, currently reported at $26.6, up 19% in the past 24 hours, with a circulating market capitalization of $8.8 billion and a Fully Diluted Value (FDV) of $26.6 billion.
Hyperliquid is a perpetual contract trading protocol built on its own L1 Primary Network, aiming to provide users with a trading experience equivalent to centralized exchanges, while offering a fully on-chain order book and decentralized trading functionality. The protocol supports spot, derivative, and pre-launch trading.
This article will not delve into the specific operational mechanisms of Hyperliquid or its differences from other perpetual contract DEXs. Instead, it will focus on Hyperliquid's market opportunities and the fundamental investment logic of the $HYPE token.
At the time of writing, the trading price of $HYPE has surpassed $20, with a market capitalization of $7.5 billion and a Fully Diluted Value (FDV) exceeding $20 billion, placing it among the top 30 cryptocurrencies by market value. So, what factors have driven this strong growth?
The article will analyze in-depth from the following four aspects:
- Exchange Development Opportunities
- Opportunities in the EVM Ecosystem
- Revenue Structure, Valuation, and Industry Comparison
- Potential Risks
Exchange Development Opportunities
Hyperliquid currently dominates the perpetual contract DEX market, with recent trading volume accounting for over 50% of the market.
According to data from Coinalyze and CVI.Finance, Hyperliquid's current Open Interest (OI) is around 10% of Binance's. As the market experiences strong growth and increased volatility (the Cryptocurrency Volatility Index is currently at 64), metrics such as OI, trading volume, funding rate, and liquidation volume are expected to continue increasing.
The market share of DEXs in the perpetual contract market is expected to gradually increase, similar to how AMMs and Uniswap have driven the growth of DEX market share in the spot trading market.
With lower fees compared to CEXs and more attractive incentive mechanisms, Hyperliquid has the potential to attract more users and capital from CEXs. The Token Generation Event (TGE) and the rapid price appreciation of $HYPE can be considered the best marketing campaign.
Although the specific incentive structure has not been disclosed, it can be expected that perpetual contract and spot trading volume will be incentivized, as over 40% of the token supply is reserved for community rewards.
The initial Airdrop situation is as follows:
Assuming 10% of the supply is allocated for incentives in the first year, the situation would be as follows:
At the current price, nearly $1 billion will be distributed as rewards in the first year, far exceeding the allocation at the initial Airdrop price of $2.
The expected inflation rate is around 11.65% (including staking rewards). However, with the increase in users, trading volume, revenue, token burning, and buybacks, the actual dilution cost may be lower than this level. The team may apply a higher inflation rate and incentives to attract more users, which explains the unique FDV of $HYPE.
In the spot trading domain, Hyperliquid is expected to become one of the top three decentralized exchanges in the short term. Yesterday's trading volume reached around $500 million, ranking fifth among all on-chain platforms. With the development of the EVM ecosystem, the addition of more utility tokens and native assets will expand the number of trading pairs.
The trading tools built on Hyperliquid's open infrastructure and codebase are continuously evolving, with projects like Insilico Terminal, Katoshi AI, and pvp.trade demonstrating promising potential. This will improve the user experience and attract more capital.
In the cryptocurrency industry, cryptocurrency exchanges and stablecoins are the most profitable sectors. Hyperliquid is in direct competition with large exchanges such as Binance, Coinbase, Bybit, and OKX, which is also considered a price-increasing factor.
The most optimistic scenario:
- Other exchanges will use Hyperliquid as a decentralized trading platform.
- Exchanges can manage risk by increasing their holdings of $HYPE.
Although these scenarios may have a low probability of occurring in the short term, in the cryptocurrency market, anything is possible.
Opportunities in the EVM ecosystem
HyperEVM is an important part of the Hyperliquid ecosystem, sharing state and a unified consensus mechanism with Hyperliquid's L1, but operating as an independent execution environment. Specifically:
- L1 is the permissioned chain responsible for operating core components such as perpetual contracts and spot order books, with programmability achieved through APIs.
- EVM is an Ethereum-compatible chain, supporting Ethereum's standard development tools, and smart contracts can directly access the on-chain liquidity of the L1 layer.
HyperEVM is expected to launch in the coming months, with many teams already actively preparing. This development trend is considered positive for the following reasons:
New DeFi Ecosystem
Many DeFi projects are preparing to launch on HyperEVM. Mainstream DeFi protocols such as AMMs, lending platforms, liquidity staking, and CDPs will be deployed on EVM upon launch.
These projects will significantly improve overall capital efficiency by allowing $HYPE holders to use $HYPE as collateral in lending protocols and money markets.
In addition to traditional DeFi protocols, the on-chain order book liquidity feature can create a range of innovative new applications. Hyperliquid is expected to become the preferred platform for these innovative protocols.
For example, Ethena Labs plans to integrate Hyperliquid to reduce dependence on CEXs, enhance system resilience, and mitigate counterparty risk.
Market Demand for Utility-Focused Projects
Recent market trends show that investors are very interested in projects with practical application value. This is reflected in the AI wave on Base and Solana, the outstanding performance of Hyena, as well as the strong demand for $HFUN and $FARM on the Hyperliquid platform.
As the DeFi ecosystem is poised to expand, Hyperliquid is likely to become the primary battlefield for utility-focused investments in the short and medium term. Notably, the development of AI infrastructure on Solana, led by projects such as AI16Z and Zerebro, may also extend to the Hyperliquid platform.
Hyperliquid's native Vault feature is particularly noteworthy. The strategies operating in this Vault enjoy advanced features similar to decentralized exchanges (DEXs), including an over-leveraged account liquidation mechanism and high-throughput market-making strategies. The highlight of this mechanism is that any organization, protocol, DAO, or individual can share in the profits by depositing funds. In return, Vault owners can receive 10% of the total profits.
Other Positive Factors for HyperEVM
- Revenue Growth Potential: The operation of HyperEVM will generate additional fee revenue, which can be used to reward staking, token burning, and other purposes. For example, Base has generated $15 million in fees over the past 30 days. HyperEVM is expected to reach a similar level of activity within a few months.
- Increased Utility of $HYPE Token: The launch of EVM will significantly expand the use cases of $HYPE within the ecosystem. Users will need to pay gas fees in $HYPE, and can also participate in lending, staking, or token locking to earn income. These new applications will create stronger buying pressure, similar to the memecoin effect on Solana in 2024 and the DeFi and NFT waves on Ethereum in 2020-2021.
- Revenue Growth Paths: The influx of high-value utility projects, along with the emergence of various native asset bridges like USDC, BTC, SOL, ETH, will increase spot trading volume and platform revenue. Additionally, as more projects launch on HyperEVM, the prices of token auction slots will also increase, providing additional revenue streams.
- Strengthened Ecosystem Visibility: The launch of EVM will help position Hyperliquid as a "mainstream" L1 blockchain in the market, enhancing the visibility of the ecosystem. This may activate capital that is currently in a state of observation.
According to the latest ecosystem market map (although many new projects have joined since the previous release), Hyperliquid is forming a comprehensive blockchain ecosystem. This complete ecosystem layout will provide sustainable growth momentum for the platform.
The cumulative effect of these positive factors is expected to bring significant added value and prosperity to the Hyperliquid ecosystem.
Revenue Structure, Valuation, and Industry Comparison
Hyperliquid primarily generates revenue through platform fees and token auctions.
(On-Chain Fees)
Currently, the support fund holds around 10.76 million $HYPE (over 3% of the circulating supply) and 3.14 million USDC, and the insurance fund has accumulated around 7.07 million USDC to be transferred to the support fund. In total, over 10 million USDC can be used to buy back the $HYPE market.
Recent Performance
Over the past 30 days, Hyperliquid has generated around $26.5 million USDC in revenue, including:
- $2 million from token auctions
- $24.5 million from platform fees
- 79,600 $HYPE (worth $1.75 million) have been burned
The annual revenue exceeds $336 million, ranking third among all public chains, only behind Ethereum, Solana and TRON, but the market capitalization is significantly lower than these public chains. In terms of profitability (annual revenue/circulating market capitalization), Hyperliquid far exceeds other L1 and L2 projects.
Revenue Growth Potential
Platform Fees: The trading volume in December has reached the same level as November, and is expected to increase by 100% compared to the previous month.
Auction Revenue: The latest auction price has reached nearly $500,000. With increasing competition for the available slots (282 slots per year), the price may continue to rise.
EVM Revenue: Refer to Base's monthly fee revenue of $15 million, and consider that Hyperliquid's TVL has surpassed Base, the economic activity is expected to be similar or higher after the EVM launch.
Valuation Scenario Analysis
Base Case:
- Trading volume increases by 1/3 compared to the past 30 days
- Auction revenue remains stable
- EVM performance is on par with Base
Optimistic Case:
- Trading volume doubles compared to the past 30 days
- Auction price doubles ($ 1 million per auction)
- EVM performance is 2 times that of Base
In the base case, the 30-day revenue could reach $59 million; in the optimistic case, this figure could reach $102 million.
Valuation using the common P/E ratio of public chains (L1), combined with annualized revenue.
Expected $HYPE Token Price:
- Base Case: $41.93
- Optimistic Case: $651.48
Reasonable Valuation Analysis
Compared to Solana and Ethereum, the valuation of $HYPE may be lower due to:
- The project is still young
- More risk factors
- Revenue mainly from DEX, different from Solana and Ethereum
Reference "Reasonable" Valuation:
- Using P/E ratio: 40x
- Annualized revenue: $10 billion
- Result: Market capitalization around $400 billion (fully diluted: $1 trillion)
- Estimated $HYPE price: $100
Comparison to Historical Cycles
In the growth market of 2021:
- BNB: $5 billion → $100 billion (20x increase)
- SOL: $86 million → $77 billion (900x increase)
- MATIC: $85 million → $20 billion (235x increase)
Filecoin's FDV once reached $373 billion, 16 times the current FDV of $HYPE.
Capital Inflow Potential
Currently, only about 60,000 people hold $HYPE, lower than other tokens:
- $KMNO: 55,000 holders
- $WIF: 211,000 holders
- $BONK: 861,000 holders
If Hyperliquid attracts capital equivalent to 5% of the market value of Solana and 1% of Ethereum (around $10 billion), the token value could increase significantly.
Potential Risks
Validator Concentration Risk: Currently, there are only 4 validator nodes operated by the team in Tokyo. Although the testnet has more than 60 decentralized validators, the transition to a decentralized architecture still faces many challenges.
EVM Ecosystem Risk:
- High-quality projects are needed to maintain the ecosystem
- Low-quality or cloned projects will reduce capital inflow and vibrancy
- Attracting real developers instead of speculators is crucial
DeFi Innovation Risk:
- New financial products may create unprecedented risks
- The value of the $HYPE token may be affected by new protocols
Legal Risk:
- Risks remain, although mitigated by geography and policies.
Market Risk:
- The performance of $HYPE is tied to the overall market, so market sentiment volatility can significantly impact the token price.
Investment Reminder
Investing in cryptocurrencies is high-risk. Investors should:
- Conduct independent research
- Assess risks reasonably
- Not consider this as investment advice
- Be cautious of market volatility
