Introduction
Hyperliquid has experienced tremendous growth in volume and revenue since the launch of HYPE, which went live on November 29th at $2 and has risen over 1400% in less than a month. This report provides an in-depth analysis of the fundamentals of Hyperliquid and HYPE, exploring the bullish logic of HYPE and its potential valuation under a 2025 volume and revenue growth scenario.
At On Chain Times, we have been following Hyperliquid for a long time. While this article focuses on Hyperliquid’s recent growth and the performance of $HYPE, you can also check out our previous article, All In on Hyperliquid. That article provided a comprehensive look at where Hyperliquid is and where it’s going through an interview with the team.
Volume
Prior to the release of HYPE, skeptics had expected lower trading volumes following the airdrop, as this is exactly how perpetual decentralized exchanges have performed in the past. Liquidity funds typically rotate between protocols, chasing the highest rewards. However, since the launch of HYPE, Hyperliquid has seen a significant increase in trading volume, hitting new highs of over $10 billion in one-day volume on multiple occasions. In addition to the substantial incentives previously offered to traders, Hyperliquid’s experience as an on-chain premium product has been recognized by the majority of traders who have used the platform.
It is worth noting that while the initial airdrop distributed 31% of HYPE’s total supply, 42.81% of the total supply is still expected to be used for future distributions and community rewards. While it is foreseeable that a portion of these rewards will be used for pledge incentives as well as potential rewards around the HyperEVM L1 ecosystem, there is a non-zero likelihood that current volume and/or HYPE holders may have inadvertently already earned some sort of reward.
42.81% of HYPE supply equates to approximately $11 billion (at $25 per HYPE), which is a sizable reward amount and makes trading on Hyperliquid even more attractive to perpetual contract traders. However, please note that this is purely speculative.
Hyperliquid vs. Centralized Exchanges (CEX)
We have been tracking the performance of Hyperliquid’s perpetual contract trading volume compared to centralized exchanges such as Binance, also known as “off-chain Hyperliquid”. The bullish logic for Hyperliquid is that it continues to grow in market share as more and more users and volume move off-chain.
Comparing Hyperliquid to Binance, it is clear that Hyperliquid still has a long way to go. However, since December, Hyperliquid’s market share has shown a clear upward trend. As the chart shows, Hyperliquid’s relative market share over the past two weeks has been around 5-8 percent. According to Coingecko, Binance’s recent daily derivatives trading volumes range from $60 billion to $150 billion. However, it is important to note that these volume figures from centralized exchanges cannot be truly verified and should be viewed with caution.
Spot Volume
As you may know, Hyperliquid also has a spot token market. Since the launch of HYPE, spot trading volumes have increased significantly, and the largest tokens in order of volume include HYPE, PURR, HFUN, and PIP.
Tokens are added to Hyperliquid’s spot market through auctions, with the highest bidder receiving the opportunity to activate their token. These auctions take place every 31 hours, and the current auction price is around $300,000, as shown below. The highest auction price occurred on December 16, $GOD’s auction, where almost $1 million was paid to win the auction.
Hyperliquid Spot Auctions – Source ASXN
Fees & Income
Perpetual Contracts
Hyperliquid’s fees are paid by traders on the platform. These fees are relatively low compared to other exchanges (e.g. Binance) and are intended to incentivize trading activity. For perpetual contract trading, the fees for most people are 0.035% for market orders (receiving side) and 0.01% for limit orders (pending side). The higher the trading volume, the lower the fees:
Hyperliquid Fee-Tiers
In order to calculate the fees earned on an agreement, it is necessary to calculate the average fees paid by traders (volume and average fee tier of the order taker versus the order taker).ASXN analyzed this well in their September report, as shown in the chart below. From this, the estimated average fee is 0.01276%, which is a conservative/worst case value as it assumes a rebate from the market maker.
ASXN Hyperliquid Fee Tier Analysis From September
Taking this average fee value into account, if Hyperliquid’s daily volume of perpetual contracts averaged $5 billion to $10 billion, the annual fee would be between $233 million and $466 million (actuals may be higher, as the assumed average fee is conservative).
These fees are collected by the HLP Market Making Vault, the Insurance Fund, the Assistance Fund, and a number of other miscellaneous addresses on Hyperliquid. It is difficult to accurately estimate the amount of HYPE buybacks as the team does not make publicly available information on the specific allocation of fees generated by trading activity on the platform.
Spot
The fees paid by traders in the spot market are used to purchase and destroy the traded tokens. Unsurprisingly, HYPE accounts for the majority of Hyperliquid’s spot market volume. To date, over 100,000 HYPE (over $2.5 million at current prices) have been destroyed through HYPE’s spot fees. Taken as a whole, this has not had a material impact on the availability of HYPE (at least for the time being) compared to the buybacks from the Aid Fund.
Spot Auctions
Hyperliquid also generates significant revenue through fees paid by winning bidders in spot auctions. At $300,000 per auction, this adds up to $84,774,000 per year in revenue for Hyperliquid, and Flo has posted an excellent analysis on X covering Hyperliquid’s revenues at different spot auction prices and daily trading volumes. At $1 million per spot auction and $6 billion in daily volume, Hyperliquid’s annual revenue is estimated at $829.5 million. At a 30x P/E ratio, HYPE would be priced at $74.52 per token.
The Aid Fund and the HYPE Buyback
While it is unclear how the revenue from spot auctions and perpetual contract trading is distributed between the Aid Fund (AF), insurance funds, HLPs and other addresses, we can measure daily HYPE buybacks through the Aid Fund (AF). A few days ago, I posted an analysis on X that looked at HYPE repurchases by the Assistance Fund (AF) over a 48-hour period. At that time, the Aid Fund repurchased 151,000 HYPE in 48 hours, which equates to an annual repurchase pressure of $686 million. During those two days, Hyperliquid’s daily volume averaged $8 billion.
Unlike many other protocols in the crypto space, HYPE derives its value directly from the revenues generated by Hyperliquid, as these revenues are used to purchase HYPE on the market.
Looking Ahead
The bullish case for HYPE going into 2025 is a bet on growth in trading volume on the Hyperliquid exchange and increased demand for spot auctions, which will lead to increased revenues, which in turn will drive more HYPE buybacks. One argument in favor of Hyperliquid’s growing adoption is that billions of dollars are still set aside for future rewards, which makes Hyperliquid a very profitable trading platform.Hyperliquid has a user-focused community, which has garnered a lot of attention and a strong market narrative for the protocol and HYPE.
With the introduction of new features such as pledges, cryptocurrency margin trading for perpetual contracts, and the apps that come with the HyperEVM ecosystem, Hyperliquid has many potential tailwinds to look forward to in the future.
