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Hello readers,
Bear markets are for deep research. Truth seeking. And big questions.
Back in 2022, the big question was whether high-throughput chains would eat into Ethereum’s market share in the next expansion. The answer looks obvious now, with the benefit of hindsight (shout out to those who acted on our SOL report published 1/3/23).
In 2026, we think the big question is how perp markets will expand and evolve, and what that means for value accrual in the next bull run.
We explore in this week’s edition of The Watch List.
*Please note that you can click the data citation note under each chart to access the supporting dashboard for this week’s report.
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A perpetual future is a derivative with no expiry date. Instead of settling on a fixed maturity date (TradFi), it uses a funding rate (longs pay shorts, shorts pay longs) to keep the perp price in line with the spot price of the underlying asset.
On Hyperliquid, for example, funding is paid hourly and is purely peer-to-peer (no platform take rate).
Simplicity. That’s the name of the game here. Perpetual futures allow for leveraged, directional trades that function similarly to spot trading.
Complexity is stripped away via:
No expiration date.
No time/theta decay.
No convex driven returns.
No view on volatility.
The simplicity means that liquidity is concentrated into a single, continuous 24/7 market rather than fragmented across various strikes and maturities.
For this reason, perpetual futures are best suited for:
Short-term speculation (one instrument, deep liquidity, easy/high leverage).
Hedging spot holdings (if you hold spot BTC and want to reduce beta without selling spot, shorting via a perp is very straightforward).
Market Making and arbitrage (basis/funding trades, spot-perp arbitrage, and cross-venue hedging).
24/7 global trading (perps map nicely to global, 24/7 markets).
Perps have a clear product/market fit with retail traders, who control an increasingly large share of total market activity. According to CBOE estimates, retail broker activity accounted for more than half of total U.S. options volume in 2025. The CFTC indicates that average U.S. retail futures today are roughly 50% higher than pre-pandemic levels. Finally, 42.7% of Robinhood’s transaction-based revenue in 2025 came from options.
Crypto. Online gambling. Prediction markets. Retail trading & the rise of Robinhood. It’s all riding the same wave: the desire to speculate.
What’s driving the “retail trading wave?” We think it’s a combination of new technologies and products that enable access + rising costs of living/lack of upward mobility experienced by millennials and Gen-Z.
At their core, public blockchains are decentralized accounting systems. Anyone can access them. Build on them. And audit the data.
The blockchain provides the core infrastructure that enables peer-to-peer interaction, programability (via smart contracts), global distribution, and always-on markets that nobody can turn on/off.
By consolidating the roles of broker, custody, transfer agent/clearing, and settlement into a single platform, blockchains create efficiencies at a global scale while maintaining a record (accounting) of all economic activity on them.
For this reason, the most obvious use case for public blockchains is finance & payments.
Given that public blockchains are most useful for financial applications, it has been reasonable to conclude that the blockchain that “onboards TradFi” first will win.
It has long been held that the path to doing so was through tokenization. We are not so sure this is still the case.
Instead, we think Perpetual Futures will play an increasing role in the short term.
Why?
The SEC’s January statement on tokenized securities makes clear that they will sit inside the existing federal securities-law framework. Depending on the structure, the relevant actors may still need to deal with issuer obligations, broker-dealer rules, exchange rules, clearing, settlement, transfer agents, and custody requirements.
Tokenization is advancing. But through institutional plumbing and compliance. Furthermore, the firms that want to push for tokenization (e.g., Robinhood) have no say over which securities are tokenized. That’s decided by the issuer.
Perps are different because they are not trying to recreate the entire legal ownership stack of a stock, bond, or fund share. They are simply leveraged price exposure. This requires an oracle, a margin system, a matching/clearing engine, a liquidation framework, and posted collateral. That’s it. It’s just software that can all be integrated into one, decentralized platform.
For this reason, we think tokenization will move at a snail’s pace relative to the build-out of perpetual futures markets. RWAs onchain are the long game to rebuilding more efficient ownership & settlement rails. But perps increasingly look like the near-term game to move 24/7, global, permissionless trading activity (across all markets) onto crypto-native rails.
Ethereum dominated the ‘21 crypto cycle because it was the “home of crypto speculation” at that time. The mantle was passed to Solana in the ‘25 cycle, largely due to superior UX/wallets, onboarding (no L2s), and user-friendly launch pads & trading terminals (Pump Fun, Axiom).
The trend is clear. Follow retail. Follow the animal spirits.
Given that most speculation is now playing out on Hyperliquid via perps trading, we think it’s reasonable to conclude that this is where most of the energy will converge when liquidity returns and we enter the next bull market.
We can already see the early signs of this. Hyperliquid is now introducing HIP-3 markets, where anyone can permissionlessly launch new perpetual markets using Hyperliquid’s order book, provided they meet the minimum technical standards.
Below, we can observe progress in open interest for HIP-3 markets.
Assets trading in these markets now include commodities (oil, gold, silver), equities, indices, and pre-IPO firms.
Given the interest from retail traders for these products, VC funding into the category is growing. Builders and entrepreneurs are flocking to Hyperliquid.
Furthermore, Hyperliquid is now building the HyperEVM into the stack. This could transform Hyperliquid into a full financial system.
The strategy appears to be:
Solve a problem not yet solved in crypto (perps execution onchain).
Onboard users (via superior UX + airdrops with no VCs).
Expand the initial use case into a platform model (via HIP-3 and HyperEVM).
As noted in the intro, bear markets are for deep analysis and big questions.
Right now, the big question is this: Do Ethereum and Solana have a durable, strategic defense if Hyperliquid wins the Perps market?
Is there actually a moat if HYPE is adding stablecoins and spot trading? If HYPE has better token economics. No VCs. Better tech. A strong online community. Wallet and platform distribution (phantom + Axiom). And is it now gaining network effects in a bear market via HIP-3 and the HyperEVM build-out?
What advantages do Ethereum and Solana have? Given that Ethereum now has Lighter (perps DEX L2) and Solana has identified perps as a problem it needs to solve. We think it’s a fair question, given where valuations stand today.
In total, Perps volumes are averaging $136b of volume per day over the last 30 days. Decentralized exchanges make up 8.8% of the total.
At their peak, total volumes were roughly $239b/day, with decentralized exchanges accounting for 18%.
Below is the 30-day market share across both CEXs and DEXs:
Notably, Coinbase did more volume over the last 30 days than Hyperliquid. That’s interesting, given that Coinbase can only offer its Perps product in select international markets. Roughly 87% of Coinbase’s revenue comes from its U.S. customers. Therefore, a small subset of international customers is doing more perp volume than Hyperliquid in the bear market.
Here’s the full history.
That’s a narrative violation for those following the Hyperliquid story on crypto Twitter.
In total, Perps Open Interest has averaged $65.7b over the last 30 days. Decentralized exchanges account for 14%.
At their peak, Open Interest averaged roughly $120b/day, with decentralized exchanges accounting for 14% again.
Below is the 30-day Open Interest market share across centralized and decentralized exchanges:
Interestingly, Hyperliquid has 22x Coinbase’s Open Interest over the last 30 days, yet has less trading volume.
What is this signaling?
It’s telling us that Coinbase perps are being used more as a high-turnover trading venue. Orders are potentially larger in size on average (international institutions?). Meanwhile, Hyperliquid is being used more as a place to hold risk, with lower turnover.
This also means that Hyperliquid users may be “stickier” than Coinbase, given that they are parking long-term capital on the platform, keeping positions open longer, and using it as a core venue for ongoing exposure.
This is an important takeaway because it indicates that Hyperliquid may be evolving into a “collateral hub” or “home base” for trading. It’s particularly notable, given that Hyperliquid is now expanding into a network via HyperEVM with spot DEXs, stablecoins, prediction markets, etc.
As noted in the data, centralized products dominate the market today, albeit with a declining market share.
Below, we can see Hyperliquid’s share of volumes and open interest across the last few years (includes CEXs and DEXs).
*Hyperliquid has roughly 70% of open interest amongst decentralized exchanges, and roughly 58% of volumes.
Now. The key question moving forward: who wins the long game? Decentralized products or centralized products?
For this exercise, we’ll assume that decentralized products (such as Hyperliquid) are on par with centralized products in terms of liquidity, UX, execution, etc, if not better.
Coinbase already matches a lot of what serious perp traders want: 180+ markets, up to 50x leverage, cross-collateralized assets, APIs, 24/7 trading, etc. Furthermore, users can manage a portfolio on Coinbase, access prime services, and contact customer service if needed. Not to mention, it dwarfs Hyperliquid in terms of its distribution advantage. Same for Robinhood (which also offers perps internationally via its Bitstamp acquisition).
Our view is that decentralized products such as Hyperliquid will likely be on par with centralized exchanges in terms of trade execution. Products such as Hyperliquid can also offer transparency. Users can verify orders, trades, and liquidations onchain rather than relying on centralized exchange disclosures. This improves trust and supports composability, but it also means positions are open and vulnerable.
At the same time, centralized exchanges can still have an advantage in distribution and feature sets. Notably, Hyperliquid has nearly $7b of open interest, but only 55k daily users.
Where Hyperliquid could separate itself is by building out its platform via HyperEVM and HIP-3 markets. This is where Hyperliquid turns into “perp infrastructure” for other builders to “plug into.” As network effects grow, builders can route flow, launch markets, and integrate directly into Hyperliquid’s financial rails.
Coinbase and Robinhood are unlikely to do that (they are building their own). But TradFi incumbents just might.
Why?
Their existing infrastructure (and regulatory requirements) are incompatible with the compressed tech stack that DeFi perpetuals run on. For example, existing rules fragment service providers across brokers, exchanges, and clearing/settlement. As such, incumbents cannot simply “bolt-on” new perp products without a significant regulatory overhaul.
For this reason, they may instead build on Hyperliquid via HIP-3. Wait for regulatory approvals. And monetize later through their distribution and KYC-gated interfaces. We believe this is the path to Hyperliquid ultimately “winning” the long game as an infrastructure provider, rather than the interface to global perps markets. This is also, in our opinion, the path for Hyperliquid to win the L1 race.
As noted, bear markets are for deep research and for asking the big questions.
The next bull market is unlikely to look like the last one. Similar to how high-throughput chains (SOL, SUI, APTOS, SEI, etc.) disrupted the last cycle, we think perp markets will play an increasingly large role in the next one.
P.S. We’re actively building our long-term portfolio for the next expansion. TDR Pro members get access to the active portfolio + receive alerts when we make changes. If you’d like to upgrade with 30-days free, you can sign up here.
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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.