This episode reveals how Kinetic is building the core financial infrastructure for Hyperliquid, moving beyond a simple liquid staking token to create a launchpad for an entire ecosystem of new exchanges.
Introduction to Kinetic and its Mission
- Omnia and Greens, two of the three co-founders of Kinetic, introduce their project as the native liquid staking protocol for the Hyperliquid network. They explain that Kinetic was born from a desire to build a DeFi product they, as long-time DeFi users, wanted to use themselves. The protocol is designed to be the most general-purpose Liquid Staking Token (LST) on Hyperliquid, positioning itself to capitalize on all new staking-related features the network ships.
- LST (Liquid Staking Token): A token that represents staked assets in a Proof-of-Stake network. LSTs allow users to gain liquidity on their staked funds, enabling them to participate in DeFi activities while still earning staking rewards.
- Omnia emphasizes the team's deep roots in the community, stating their goal was to build a product that "all of us as, you know, nerds for DeFi have effectively wanted to use for a very long time."
The Unique Challenge of Building on Hyperliquid
- The team details the unique technical hurdles of building on Hyperliquid, which functions with two distinct environments built on a single consensus mechanism.
- Hypercore: This environment houses the high-performance perpetual and spot order books (processing up to 200,000 TPS) and, crucially, the network's staking module. It does not support smart contracts.
- HyperEVM: This is the EVM-compatible environment where smart contracts like Kinetic are deployed.
- The primary challenge was bridging these two environments trustlessly. The solution came with Hyperliquid's
Core-Rider upgrade, which enabled Kinetic's smart contracts on HyperEVM to manage stake ingestion and delegation on Hypercore in a fully on-chain, permissionless manner. This integration was a critical dependency for Kinetic's launch.
A New Standard for Liquid Staking on Hyperliquid
- Omnia draws a sharp distinction between Kinetic and prior LSTs on the network, which they categorize as "EOA LSTs" versus Kinetic's "Core-Rider LST."
- EOA (Externally Owned Account) LSTs: These earlier versions relied on a single, permissioned wallet (an EOA) to manage all staked funds. This created a centralized, trusted model where stake management happened off-chain.
- Core-Rider LSTs: Kinetic’s model is fully on-chain, transparent, and permissionless. The smart contract handles all stake management, from delegation to unstaking, providing verifiable security.
- Strategic Implication: Kinetic’s architecture sets a new standard for trust and decentralization in the Hyperliquid ecosystem. For researchers, this model provides a case study in building cross-environment applications on specialized L1s.
- Furthermore, validator selection is not manual. It's governed by a performance-based algorithm that computes a score for each validator and allocates stake equally among the top performers (currently the top seven), with plans to expand this set over time to further decentralize the network.
Driving DeFi Adoption Amidst Low Yields
- The hosts discuss Hyperliquid's low native staking yield (around 2.2%), which paradoxically drives demand for liquid staking. Stakers are incentivized to seek additional yield and utility for their assets in DeFi.
- Kinetic's token, KHype, has seen massive adoption, with over 70% of its minted supply already being utilized across money markets, AMMs, and yield trading platforms like Pendle.
- Omnia notes the rapid growth: "Kinetic had the largest ever one-week inflows ever for an LST. Second only to Binance... Kinetic closed at like 550 million the first week."
- Actionable Insight: The high utilization of KHype signals a powerful, unmet demand for DeFi primitives on Hyperliquid. Investors should monitor the depth and breadth of these integrations as a key indicator of ecosystem health and growth.
iHype: Bridging the Institutional Gap
- Kinetic is also addressing institutional demand with iHype, a permissioned version of their staked Hype token designed for compliant access.
- iHype: An institutional-grade LST that leverages the same audited security architecture as KHype but operates within a completely isolated, permissioned stake pool.
- All depositors and validators must be KYB/KYC'd, ensuring compliance for institutions that cannot interact with permissionless DeFi pools.
- Omnia reveals that initial interest has been strongest not from traditional finance, but from crypto-native funds and even some TradFi funds that have a crypto allocation.
- Strategic Implication: iHype provides a crucial, compliant on-ramp for institutional capital that was previously unable to access the Hyperliquid ecosystem due to a lack of custodial support. Its adoption could significantly increase the total value staked on the network.
The Future is Launch: Powering HIP-3
- The conversation shifts to Kinetic's most ambitious product: Launch, a platform designed to facilitate HIP-3, Hyperliquid's proposal for enabling third-party sub-exchanges.
- HIP-3 (Hyperliquid Improvement Proposal 3): A framework allowing teams to launch their own specialized exchanges on Hyperliquid's backend, for assets like pre-IPO stocks, bonds, commodities, or high-leverage crypto pairs.
- Kinetic's Launch platform acts as a "Shopify for HIP-3," providing the infrastructure for teams to crowdfund the Hype stake required to bootstrap their exchange.
- Contributors to a crowdfund will receive a new type of LST called an XLST (eXchange Liquid Staking Token), specific to that sub-exchange (e.g.,
POKIOHYPE). These XLSTs will have unique, dynamic yield profiles based on the sub-exchange's performance.
- Omnia clarifies Kinetic's role: "It's just going to help with the actual crowd-sourcing of the stake and then also the issuance of the LSTs permissionlessly... very much selling shovels."
- Actionable Insight: Launch positions Kinetic as a core infrastructure provider for Hyperliquid's next phase of growth. Investors and researchers should watch the first curated launches on this platform closely, as they will serve as a proof-of-concept for a new model of decentralized exchange creation and capital formation.
Deepening DeFi Integrations
- The team highlights the importance of their deep integration with other Hyperliquid-native protocols, particularly the Volantis team.
- Volantis launched a dedicated AMM for KHype, which quickly became their highest TVL pool.
- AMM (Automated Market Maker): A type of decentralized exchange protocol that relies on mathematical formulas to price assets.
- The Volantis AMM is optimized for pegged assets like KHype/Hype, minimizing slippage while also generating extra yield by lending idle assets on Hyperlend.
- This symbiotic relationship demonstrates Kinetic's strategy of embedding KHype as a foundational collateral asset across the entire Hyperliquid DeFi ecosystem.
Conclusion
- Kinetic is strategically positioning itself not just as a liquid staking provider but as the foundational infrastructure for capital formation and new market creation on Hyperliquid. Investors and researchers should monitor the rollout of the Launch platform and the emergence of XLSTs, as they represent a new frontier for decentralized exchange ecosystems.
