This episode dissects Hyperliquid's disruptive potential, arguing it's not just another exchange but a fundamental re-architecting of crypto market structure, offering unparalleled transparency and developer incentives that could unbundle incumbent giants.
Guest Introduction and Disclosures
- The episode features Flood, a prominent crypto trader and thinker, who joins hosts Andy and Robbie.
- Flood begins with a disclosure: "Obviously, I own Hype... very very bullish on Hype. We we'll be talking our book and obviously I um I run inSilico Terminal as well."
- inSilico Terminal is Flood's financial tooling platform, an order execution management system (OEMS) designed for enhanced trading across multiple venues.
- This upfront declaration sets a transparent tone, acknowledging Flood's vested interest in Hyperliquid (Hype is its token) and his platform.
A Shifting Crypto Landscape: Beyond Vaporware
- Flood explains his recent profile picture change as symbolic of a "fundamental shift in crypto," moving towards "the rise of long short actually mattering."
- He observes that seasoned retail investors are "no longer bamboozled by... venture checks or all of this vaporware."
- The market, according to Flood, is tired of "overfunded, you know, low economic utility... tokens." This fatigue is fueling interest in platforms like Hyperliquid that prioritize product, token design, and fundraising integrity.
- This shift suggests investors and researchers should prioritize projects demonstrating tangible utility and sustainable economic models over speculative hype.
The Spectacle of James Wen: High-Stakes Trading on Hyperliquid
- The discussion turns to James Wen, a trader who reportedly made $87 million on Hyperliquid before losing most of it, then reloaded a $250 million long position.
- Flood emphasizes the unprecedented transparency: "this data being accessible to anybody for completely free." Previously, such insights were exclusive to exchange insiders.
- He views Hyperliquid as a unique "casino" where massive, verifiable bets can be placed openly. "There's no other venue that can facilitate that other than Hyperliquid."
- For researchers, the open access to detailed P&L and positioning data on Hyperliquid presents a rich dataset for market analysis and behavioral finance studies. For investors, it highlights the platform's capacity to handle extreme volume and the inherent risks of high leverage.
Learning from Legends: Flood on Arthur Hayes and BitMEX's Legacy
- Flood expresses deep respect for Arthur Hayes and the BitMEX founders, crediting them with popularizing the perpetual swap (a derivative contract without an expiry date, allowing speculation on asset prices).
- He highlights BitMEX's early infrastructure, which handled significant volume despite limitations ("70 orders per second"), and praises their security record: "they also don't receive enough credit for never, knock on wood, having any security issues or any hacks for user funds."
- Flood notes Arthur Hayes' bullish stance on Hyperliquid, attributing it to Hayes' understanding of the high-stakes exchange business.
- This underscores the importance of robust security and innovative financial instruments, lessons valuable for anyone building or investing in crypto financial infrastructure.
The Unbundling of Binance: Hyperliquid's True Market Potential
- Flood argues that Hyperliquid is fundamentally mispriced because the market underestimates the global perpetual swap market, which he estimates at "$20 to $30 billion in revenue a year."
- He posits that "Binance conservatively makes $10 billion a year in revenue" from perpetuals alone.
- Flood sees Hyperliquid, with its lean operations and innovative features like builder codes and self-custody, as initiating "the unbundling of Binance in real time."
- This perspective suggests a significant growth runway for Hyperliquid if it can capture even a fraction of the incumbent market share, a key consideration for investors evaluating its long-term value.
Navigating Market Narratives: Flood's Stance on Hype
- Addressing rumors of him selling large amounts of Hype (Hyperliquid's token), Flood states, "I can say that that's definitively not true."
- He clarifies his trading activity: "Have we sold some at times and bought it back? Yeah. I mean, I'm a trader, right?"
- Flood emphasizes that his firm has been "much larger net buyers than net sellers of Hyperliquid" and holds "millions of dollars worth of premium in in Hyperliquid call spreads."
- His candidness about his trading strategy offers a glimpse into how sophisticated investors manage positions in volatile assets while maintaining a long-term bullish outlook.
The L1 Commodity Trap: Why Hyperliquid Focuses on a Different Moat
- Flood presents a controversial view: "most L1s are commodity businesses." L1s (Layer 1s) are base blockchain protocols like Ethereum or Solana.
- He argues that users ultimately care about efficient and cheap transaction fulfillment, not the specific underlying blockchain, which will likely be abstracted away by frontends. "Users who will use blockchain technology... will not be deterministic for which chain they are using."
- Flood draws an analogy to traditional finance, where frontends like Robinhood or Schwab capture significant value by owning the user relationship, while the underlying exchanges (NYSE, NASDAQ) are more commoditized.
- He believes betting on L1s is "a very dangerous bet because you're inherently betting on technology not progressing."
- This challenges the "fat protocol" thesis for L1s and suggests that value may accrue more to application layers or specialized infrastructure like Hyperliquid, which aims to be the best liquidity layer rather than an all-encompassing L1. For AI researchers, this implies focusing on applications that can leverage any efficient backend, rather than being tied to a specific L1.
The Fat App Thesis: Where Value Accrues in Crypto
- Flood explicitly supports the "fat app thesis," stating, "you just have to look across the river at TradFi and understand that the aggregate market caps of these frontends... are larger than CME, NYSE, NASDAQ by a factor of 2.5x, 3x."
- He praises Hyperliquid's strategy: "we are fine with someone building a front end... and being essentially just the best matching engine and central base of liquidity."
- This reinforces the idea that platforms enabling user-facing applications and owning the customer relationship are positioned for significant value capture. Investors should look for projects that either are strong frontends or provide indispensable, best-in-class infrastructure for them.
Unlocking Innovation: The Power of Hyperliquid's Builder Codes
- Flood explains that builder codes on Hyperliquid "unlock for the Hyperliquid ecosystem" a way for developers to "permissionlessly monetize."
- This is a crucial differentiator from centralized exchanges like Binance, where developers building tools would need permission to implement rev-share or charge users directly for integrated services.
- Flood uses his platform, inSilico Terminal, as an example. With builder codes, he could charge a basis point fee directly through Hyperliquid without their approval. "Hyperliquid can't stop me, right? And that's never been possible on any CLOB in history."
- A CLOB (Central Limit Order Book) is the traditional exchange mechanism for matching buy and sell orders.
- This permissionless monetization is expected to "coordinate people to build exclusively on Hyperliquid," fostering an ecosystem of innovative trading tools and applications.
- For AI researchers and developers, builder codes offer a direct path to monetize AI-driven trading strategies or analytics tools built on Hyperliquid, creating a powerful incentive for innovation.
The Long Game: Can Hyperliquid Eclipse Binance?
- When asked if Hyperliquid could flip Binance in perpetuals volume by 2025 or 2026, Flood is measured.
- He deems it "very unlikely that it flips... Binance volumes in 2025" due to Binance's commanding lead, spot market integration, and capital efficiency advantages for large market makers.
- However, "in 2026, it's entirely possible because Binance is in a really tough spot." Flood argues Binance is caught in the middle: not as regulated as US-based exchanges and not as permissionless or innovative as newer platforms.
- "In crypto you you get killed when you're in the middle... You need to focus on doing one thing the best."
- This long-term outlook suggests that while immediate dominance is improbable, Hyperliquid's focused strategy and Binance's potential vulnerabilities could shift market dynamics significantly in the coming years.
Conclusion
Flood's analysis positions Hyperliquid as a lean, focused challenger poised to capture significant value by excelling as a core liquidity layer with unprecedented transparency and developer incentives. Crypto AI investors and researchers should monitor Hyperliquid's ecosystem growth, particularly the innovative applications spurred by builder codes and the increasing availability of granular trading data.
