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Hello readers,
Over the last six months, Hyperliquid has generated $409 million in user fees.
That’s 1.23x more than Ethereum. And 1.75x more than Solana.
Yet, HYPE trades at an 88% discount to ETH and a 62% discount to SOL (on a fully diluted basis).
This begs the question:
Is HYPE undervalued?
We investigate in this week’s edition of The DeFi Report.
Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment advice.
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Let’s go.
Why is Hyperliquid winning?
They have a superior product, which we’ll get to shortly.
But we want to highlight the importance and strategic flywheel the team created by launching with no VC overhang.
Instead of raising capital from investors, Hyperliquid:
Excluded VCs/angels entirely from the token allocation.
Avoided the typical 12-24 month VC unlock cycle that depresses prices when vesting ends.
Dropped 31% of the token to early users at genesis ($1.2b of value!) — turning users into owners, loyalists, and marketing evangelists.
Funded operations from the 6% Foundation budget (token allocation at genesis).
Announced that user fees would be directed to the “Assistance Fund” — a fund that purchases HYPE on the open market, reducing the float of the token while supporting price action.
It’s a brilliant strategy that started with a great product (fast, self-custody perps DEX).
This was paired with sound token economics to create a flywheel around:
User engagement & trust (no VC).
Token price discovery (no VC unlocks + buybacks).
Product & community evangelists aka free marketing ($1.2 billion of wealth creation for users, now worth $14b).
This is why Hyperliquid is winning.
Hyperliquid is a high-throughput, onchain central limit order book for perps and spot trading. It features sub-second blocks, low fees, and self-custody UX (wallet connect or email wallet).
Positions, leaderboards, and liquidation heatmaps are publicly visible via the app and third-party analytics for 100% transparency.
Every position, liquidation level, and PnL leaderboard is public.
This visibility creates a “social trading game” like experience where users aren’t just trading — they are competing and watching the performance of others.
The secret sauce is the “CEX-like” experience, but onchain. In the aftermath of FTX, traders sought a non-custodial perps platform they could trust.
Hyperliquid was first to deliver this at scale.
In essense, Hyperliquid is an online casino (up to 40x leverage on BTC) and social experience with excellent UX and a sticky user base built on trust (and protocol ownership).
The team has been quick to provide relevant, new asset listings and APIs that market makers and high-frequency trading firms prefer over those of their competitors. Furthermore, wallets and apps like Phantom, Rabby, Rainbow, and Axiom (the fastest-growing app on Solana) are now integrated with Hyperliquid, significantly expanding distribution and network effects.
At launch, it was just a perps DEX running its own chain (HyperCore). The chain’s consensus and infrastructure are optimized entirely for matching, clearing, and settling perpetual futures contracts.
That’s what gives it “CEX-like” features and UX while maintaining non-custodial settlement.
However, it’s now expanding into an L1 ecosystem. This has the market wondering if HYPE should be compared to SOL and ETH, rather than Drift, Jupiter, dydx and GMX — its perps DEX counterparts.
HyperEVM is an EVM execution environment secured by the same consensus as HyperCore. System calls enable Solidity contracts to interact directly with HyperCore order books (e.g., placing orders, settling, or liquidating).
This is the core of the builder thesis: compose against deep CLOB liquidity without running your own exchange.
Most L1s attract builders and ecosystem partners with token incentives.
Hyperliquid is doing it with its sticky user base.
The roadmap:
HIP-3 (builder-deployed perps): permissionless listings of perp markets by builders (in testnet)
Unit Protocol (tokenization/bridging): lock and mint layer to make BTC/ETH/SOL and others native-like for both HyperCore and HyperEVM.
Lending/Borrowing: HypurrFi and Hyperlend are now live with nearly $1b of combined TVL.
Data: DeFiLlama
Perps dominate crypto trading.
Year-to-date, derivatives account for more than 75% of all crypto trading activity.
The vast majority of this historically occurred on centralized exchanges such as Binance, Bybit, and OKX.
For example, in 2024, CEX perps did $58.5 trillion in volume vs $1.5 trillion on decentralized venues.
What % of this market could Hyperliquid capture?
Given recent progress, we think a significant chunk.
For example, Hyperliquid is already doing significantly more volume than its decentralized platform competitors combined — $1.95 trillion over the last year.
Data: Allium
Open interest in BTC and ETH currently stands at $8 billion in contracts on Hyperliquid — representing 10% of the combined CEX open interest across these two assets.
It’s 32% of CME’s combined open interest on both assets.
In total, Hyperliquid has 7.6% of all open interest (CEXs + CME) for BTC & ETH.
This represents significant market penetration in under 1 year.
[for reference, Binance leads the market with $26b of open interest across BTC & ETH]
Now. If RWA’s (specifically equities) bring $5-$10 trillion of assets onchain in the coming years, just 1-2% of that in perps open interest could mean an additional $50-$200b in additional exposure (open interest) for onchain perps markets.
On a turnover basis (10-20x OI annually), this could create an additional $500b - $4T in new perp volume. Just from tokenized equities.
When you combine this with crypto-native growth, the perps market appears to have the potential to grow 2- 3 times over the next 3-5 years.
Data: Allium
In terms of total open interest, Hyperliquid currently has over $13b. For reference, Binance (the largest perp CEX) has $40b across all assets.
Data: Hyperliquid
Volumes are currently at all-time highs on the platform ($10-$20b/day), with ETH volumes now exceeding BTC. Hyperliquid accounts for roughly 9-11% of the total perps trading volume for BTC and ETH when compared to the combined volumes of CEXs and CME.
More recently, it’s doing nearly 10x the combined volume of its decentralized competitors (Drift, Jupiter, dydx, GMX).
Data: Artemis, The DeFi Report
Over the last 30 days, Hyperliquid has done $107m in user fees.
Over the same period, Solana has done $40m. Ethereum has done $67m.
In addition to the perp’s DEX fees, Hyperliquid is in the process of generating new revenue streams via transaction fees on the EVM as it scales its apps and users.
Data: Allium
It’s creating all of those revenues with just 30-60k active traders per day.
Data: Artemis
The average user transacts roughly 10k times/day and has spent $1.6k on Hyperliquid in August. That’s roughly $50/day (!).
This may seem shocking. But it’s in line with our understanding of unit economics within the crypto trading market. A small subset of highly active traders tend to pay most of the bills for the industry. Let’s not forget that these users were gifted $1.2b for being “early.”
With that said, it raises questions about sustainability if these users were to leave for another trading venue.
Total Supply: 1,000,000,000
Circulating Supply: 333,800,000
Genesis Distribution (airdrop): 31%
Future Emissions & Community Rewards: 38.88% (TBD issuance for the community).
Core Contributors: 23.8% (unlocks begin 11/29/25). By the way, it’s an 11-person team.
Hyper Foundation Budget: 6%
Community Grants: .3%
HIP-2 (Hyperliquidity): .012%
In summary, roughly 70% of the supply is allocated to the community/users.
The remaining 30% goes to the core contributors and the Hyper Foundation to support ongoing operations. Team unlocks start in late November.
Data: Artemis
The protocol did $92.2 million in fees in July. It bought back $90.2 million of the token over the same period.
How’s that for sound token economics?
In addition to the HYPE buybacks, the protocol “burns” fees from spot trading (much lower volumes). $50.7k was burned in July.
Crypto Exchanges: Binance, Bybit, and Okx are the kings of perp trading from the CEX side. With that said, Hyperliquid is eating into market share.
Decentralized Perps: Drift, Jupiter, dydx and GMX are the primary competitors here. Hyperliquid has already left them in the dust.
CME: CME has $26b of open interest for BTC and ETH right now (on par with Binance, the crypto native king).
Robinhood: has already launched perps in the EU, with plans to launch in the US soon (not set date)
Coinbase: launched perps trading on July 21st. It has about $60m of open interest on BTC and ETH currently (less than 1% of Hyperliquid).
Hyperliquid owns the decentralized, non-custodial market right now. We think it can continue to eat into the crypto-native CEX market share.
However, it will be interesting to see how user preferences shift when Robinhood introduces perpetual futures and Coinbase expands its asset coverage and open interest.
We believe these firms will offer a better user experience (with all assets in one place) and ease of onboarding compared to Hyperliquid. And let’s not forget that they have 10’s of millions of active users compared to less than 100k (active) for Hyperliquid.
Hype is currently trading at a fully diluted valuation of $48 billion.
With annualized fees at $729m, that’s a fully diluted price/sales ratio of 65.8.
In terms of circulating price/sales, it comes in at 21.9.
Now. These figures are higher than what we would typically see in tech/fintech (8-16x).
However, the analysis differs due to the buybacks. The revenue here isn’t being hoarded by the company (with a fiduciary duty to investors).
Instead, it’s programmatically buying back the token.
In some ways, investors can view this as a “buyback yield” because it’s driving capital directly back into the asset the investor holds.
Annualized buybacks amount to $691 million. This means the protocol has an implied “buyback yield” of 4.3% (using circulating market cap) and 1.44% in terms of fully diluted value.
Increasing competition from Robinhood and Coinbase.
Market cycles. Given that a small subset of users drives most of the activity on Hyperliquid, a bear market could expose this weakness.
Centralization/security. The active validator set is small (24), raising questions about how decentralized the platform really is (validators are currently “permissioned” in, based on stake (capital becomes the gatekeeper). Furthermore, the protocol relies on Arbitrum for bridging assets. Therefore, users must trust that Hyperliquid will honor balances & release funds back to you.
Team execution. Hyperliquid has an incredibly lean team of 11 engineers. It’s quite impressive. But it also raises questions around security, liveness, and the ability to add features and compete with larger teams.
EVM ecosystem expansion. The surface area for bugs is expanding with the build-out of the EVM and bridges.
The perception is that Hyperliquid is a non-custodial platform. This is true (assets stay with users). But it’s also true that Hyperliquid has a small validator set today (24). Furthermore, users have to trust Hyperliquid to withdraw funds. From this perspective, it looks similar to Binance today (with the difference that all activity and balances are onchain and transparent to users). That doesn’t mean it will stay that way forever (the team is actively decentralizing), but users should understand the risks.
HYPE may have the best fundamental story in crypto right now. It has a loyal (and wealthy) user base. Fantastic token economics. A boisterous online community. And a mission-driven founding team.
Its inception’s story is the best we’ve seen since BTC and ETH.
Meanwhile, the token hasn’t yet been listed on major exchanges.
Back to the question. Is Hyperliquid undervalued?
This appears to be the case when comparing the relative valuations of Ethereum and Solana, especially when pricing Hyperliquid as a Layer 1 with a similar addressable market.
We’re not ready for those comparisons, but believe it’s a narrative that could catch on regardless.
Of course, a $48 billion fully diluted ($16b circulating) is nothing to scoff at. Coinbase ($7b TTM revenue) currently trades at a $79b market cap.
Through this lens, it’s difficult to argue that Hyperliquid is undervalued today.
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Disclaimer: Individuals have unique circumstances, goals, and risk tolerances, so you should consult a certified investment professional and/or do your own diligence before making investment decisions. The author is not an investment advisor and may hold positions in the assets covered. Certified professionals can provide individualized investment advice tailored to your unique situation. This research report is for general educational purposes only, is not individualized, and as such should not be construed as investment advice. The content contained in the report is derived from both publicly available information as well as proprietary data sources. All information presented and sources are believed to be reliable as of the date first published. Any opinions expressed in the report are based on the information cited herein as of the date of the publication. Although The DeFi Report and the author believe the information presented is substantially accurate in all material respects and does not omit to state material facts necessary to make the statements herein not misleading, all information and materials in the report are provided on an “as is” and “as available” basis, without warranty or condition of any kind either expressed or implied.