This episode breaks down Hyperliquid's HIP-3, a radical upgrade enabling anyone with sufficient capital to launch perpetual markets, creating a direct challenge to the opaque listing practices of centralized exchanges.
The Problem with Centralized Exchanges and the HIP-3 Solution
The speaker begins by introducing Hyperliquid Improvement Proposal 3 (HIP-3), an upgrade that allows anyone to create a permissionless perpetual market. A perpetual market is a type of derivative contract that allows traders to speculate on an asset's price without an expiration date. While Hyperliquid already has perpetuals, HIP-3 makes their creation fully permissionless for qualified entities.
This directly addresses a core industry problem: the opaque and often extractive listing practices of centralized exchanges (CEXs).
- The speaker highlights how CEXs like Binance allegedly engage in "shady backing deals," demanding large token allocations from projects in exchange for a listing.
- He cites the recent case of the De.Fi app, where Binance reportedly changed investment terms at the "11th hour" to be less favorable for the community, demonstrating the power imbalance.
- This creates a system where CEXs can pick winners and losers based on their own financial interests rather than market demand. The speaker notes that while Binance US lists high-demand tokens like HYPE and Friend.tech, the main platform often favors more extractive deals.
- The speaker argues this centralized model is a step backward from crypto's goal of creating transparent markets. "TLDR: stupidly opaque, nothing transparent about it. I thought we were supposed to be creating more transparent markets, that's what crypto is all about."
The Mechanics of HIP-3: Who Can Deploy Markets?
Deploying a permissionless market under HIP-3 is not open to everyone. It requires a significant capital commitment, designed to ensure only serious and well-resourced participants can launch new markets.
- Requirement: A deployer must have 1 million staked HYPE tokens. At a price of $40 per HYPE, this represents a $40 million bond.
- Security: This stake acts as a bond that can be slashed for malicious behavior. There is a 7-day unstaking period, providing a window for the consensus mechanism to detect and penalize any "shenanigans."
- Function: This mechanism allows for the creation of markets for traditional assets like equities (S&P 500), commodities (gold, silver), foreign exchange (FX), and prediction markets, bringing them on-chain.
The Scale of the Opportunity: Traditional Markets On-Chain
The speaker emphasizes the immense scale of the opportunity by comparing traditional finance (TradFi) volumes to crypto. Bringing even a fraction of this activity on-chain via Hyperliquid could generate unprecedented volume and fees.
- Hyperliquid's Current Traction: The protocol is already capturing significant market share from top CEXs, accounting for 22% of Bybit's daily volume and 10% of Binance's.
- TradFi Volume:
- The S&P 500 and NASDAQ indexes trade $500-$600 billion and $250-$350 billion in daily volume, respectively.
- FX markets trade trillions of dollars daily.
- Strategic Implication: These figures dwarf the entire crypto market. Successfully launching and attracting liquidity to on-chain versions of these products represents a massive, untapped market for Hyperliquid's infrastructure.
Projecting Potential Revenue from HIP-3
To illustrate the financial potential, the speaker presents a hypothetical calculation, or "moon math," based on capturing a tiny fraction of the S&P 500's daily volume.
- Assumptions:
- Market Penetration: 0.1% of the S&P 500's daily volume ($550 billion) = $550 million in daily notional volume on a Hyperliquid-based market.
- Trading Fee: 0.1%.
- Fee Split: 50% to the market deployer and 50% to the Hyperliquid protocol.
- Projected Daily Fees:
- Total Fees: $550,000.
- Deployer Revenue: $275,000.
- Protocol Revenue: $275,000.
- Key Insight: This projection is for a single market. The potential revenue multiplies as more markets for different assets are launched, creating a powerful fee-generation engine for both deployers and the Hyperliquid protocol.
The Competitive Landscape: How Deployers Will Operate
The speaker clarifies that HIP-3 does not mean new markets simply appear on the main Hyperliquid exchange. Instead, it creates a competitive ecosystem where deployers must build and manage their own markets from the ground up.
- Deployer Responsibilities: Deployers only get access to Hyperliquid's core technology (the matching engine). They are responsible for everything else:
- Building their own front-end interface.
- Sourcing market makers and liquidity.
- Marketing their product.
- Integrating oracle providers for price feeds.
- Designing liquidity incentive programs (e.g., their own version of HLP vaults).
- Market Dynamics: This will create a competitive environment, much like the ETF market. Multiple deployers will likely launch competing products for high-demand assets like the S&P 500 (SPX), each with different fees, rebates, and incentives to attract users.
- Analogy: "Think about it like that... these deployers who have the 1 million staked hype... are not buyers of these tokens, they're sellers, right? Same as the BlackRocks and Fidelities of the world."
The Fragmentation Challenge and HYPE Buy Pressure
While a competitive market fosters innovation, it also introduces the risk of liquidity fragmentation. However, the speaker argues that the net effect is overwhelmingly positive for the HYPE token.
- The Issue: Multiple front-ends and liquidity pools for the same asset could fragment liquidity, potentially leading to a worse user experience if not managed well.
- The Upside: More markets and more competition lead to more overall volume. As all this volume generates fees that flow back to the Hyperliquid protocol, it creates immense and sustained buy pressure for the HYPE token.
- Mechanism: While not explicitly confirmed, the speaker assumes these fees will be used for the buyback-and-burn mechanism via the assistance fund, similar to how existing fees on HyperCore work. This directly links protocol success to HYPE token value.
Second-Order Effects: Staking Collectives and Liquid Staking
The high capital requirement (1 million HYPE) makes it difficult for a single entity to act as a deployer. The speaker predicts the emergence of "staking collectives" to pool resources, with liquid staking protocols positioned to be major players.
- The Need for Collaboration: A successful deployer needs a team of front-end builders, marketers, market makers, and capital providers.
- Liquid Staking Protocols: Protocols like the upcoming Kinetic are natural candidates to become deployers. They can use the large amount of HYPE delegated to them by users to meet the 1 million stake requirement.
- Investor Opportunity: This model allows average users to gain exposure to the revenue generated by these new markets. By staking HYPE with a liquid staking protocol, users could receive a share of the deployer's fees, either through a liquid staking token (LST) or a governance token.
The "Off-Grid" Launch: A New Model for Token Listings
HIP-3, in combination with Hyperliquid's spot market auctions (HIP-2), enables a new, fully on-chain token launch strategy that bypasses CEXs entirely.
- The Process:
- A new project buys its ticker through the spot auction on Hyperliquid.
- The project then partners with a HIP-3 deployer (like a liquid staking collective).
- They provide a portion of their token supply to the deployer in exchange for the creation of a perpetual market.
- The Result: This creates a fully transparent spot and perpetual market from day one, with clear token allocations and aligned incentives, all without needing a CEX.
Implications for HYPE Holders
The speaker concludes the analysis by summarizing the direct, positive implications for HYPE token holders, framing HIP-3 as a major value accrual mechanism.
- Demand Sink: The 1 million HYPE staking requirement will lock up a significant portion of the circulating supply as more deployers enter the market.
- Fee Generation: The massive potential volume from TradFi markets will generate substantial fees, which are expected to be used to buy HYPE off the market.
- Scarcity and Price Pressure: The combination of reduced supply (from staking) and increased demand (from fee-driven buybacks) creates powerful upward price pressure. The speaker speculates this could lead to "billions of dollars worth a year" in HYPE being bought and potentially burned.
Ecosystem Opportunities for Investors and Researchers
The speaker identifies several key areas within the Hyperliquid ecosystem that are poised for growth as a direct result of HIP-3.
- Actionable Insight: Investors and researchers should focus on protocols solving the challenges and capturing the value created by this new, fragmented market structure.
- Key Areas to Watch:
- Market Aggregators: Tools that consolidate all the fragmented markets and products into a single, user-friendly interface will be critical.
- Oracle Providers: Reliable oracles like Pyth will be essential for providing price feeds to these new markets and will likely see increased demand.
- Liquid Staking Protocols: These are positioned to become the "BlackRocks of Hyperliquid," acting as the primary deployers and offering a way for smaller investors to participate in the fee revenue.
Conclusion
HIP-3 transforms Hyperliquid into a foundational layer for permissionless derivatives, creating immense structural buy pressure on the HYPE token. Investors and researchers should closely monitor the development of liquid staking protocols and aggregation tools, as these are positioned to capture significant value from this ecosystem expansion.
