This article is from: Pavel Paramonov
Compilation | Odaily Planet Daily (@OdailyChina); Translator | Azuma (@azuma_eth)
Currently, Hyperliquid is regarded as one of the few still 'investable' assets in the cryptocurrency market.
The overall market is in a downward trend, while HYPE has shown remarkable stability. There are many reasons for this, but one of them is undoubtedly Hyperliquid's strong fundamentals, focus on generating revenue, and the continuous use of profits for HYPE buybacks.
The crypto industry has matured relatively, and some changes are still occurring — protocols are trying to avoid continuing to promote 'crypto-first' products and are instead shifting to a more universal fintech model, where cryptocurrency is just a part of the infrastructure rather than the emphasized selling point.
Today, whether it is asset management agencies, native crypto users, or more broadly ordinary users, they will increasingly adopt a logic similar to traditional equity valuation when evaluating protocols—namely, focusing on revenue and how that revenue will create value for token holders (similar to the relationship between equity and dividends).
Ultimately, protocols like Hyperliquid are easier to evaluate through revenue and distribution mechanisms rather than solely relying on crypto-native metrics, and they can be more easily "understood" by the market.
HIP-3 (the perpetual contract market deployed by builders) has shown a clear pattern: when the infrastructure is permissionless and has been validated by the market, liquidity tends to gather around stronger teams, regardless of whether they have received additional support from the ecosystem.
The same logic will also apply to HIP-4. Hyperliquid has defeated Aevo on the pre-market battlefield, surpassed dYdX in the Perp DEX battle, and won against Lighter and Aster in the new round of Perp DEX competition. Hyperliquid has completed the leap from 0 to 1; what remains to be done next?
Google was initially just a search engine until it nearly swallowed the entire market. When a company becomes a monopoly in its field, unless the global market and demand are still growing rapidly, its growth space actually becomes quite limited. To meet investors' demands, Google must explore new markets, and thus it has entered the fields of advertising, images, news, email, maps, video, documents, and more. Besides Google's own ambitions, it must also respond to shareholders' expectations.
But here at Hyperliquid, there are no investors to please—only their own ambitions and goals, which is to "accommodate the entire financial system." Hyperliquid is moving from 1 to ∞ in its own way; they owe nothing to anyone, and anyone can freely come to this platform to start trading or buy HYPE.
Hyperliquid has already solved the user acquisition problem (excellent products and a proven historical record), liquidity depth problem (almost perfect order book), and trading volume problem (the result of the first two combined). Now, it is time to push these metrics further up.
The next update (HIP-4) focuses on "outcome trading," which will bring prediction markets and certain specific types of options into Hyperliquid—these products can provide nonlinear returns and do not carry liquidation risk.
I have read quite a few articles, predictions, and various studies on HIP-4, most of which focus on prediction markets but hardly discuss the options side at all. In my view, options are also very interesting and full of potential; it's just that they have not received enough attention so far.
This article aims to clarify three questions:
Why do many people praise HIP-4 yet still underestimate its potential?
Does Hyperliquid really need prediction markets?
Why is there a possibility that Hyperliquid can penetrate and capture a large portion of the traditional financial market through options?
The philosophy behind HIP-4.
HIP-3 brought some changes: those who previously would not use cryptocurrency exchanges began to use Hyperliquid on weekends—which were originally the times when traditional markets were closed. The reason Hyperliquid can bring "ordinary people" into the crypto world is that it did something that crypto protocols usually do not do for some reason—it precisely filled a clear pain point and solved the real issue of liquidity shortage in weekend markets.
Those using Hyperliquid are no longer just "crypto traders" but traders using the best tools available.
After HIP-3, crypto traders on Hyperliquid have dropped the "crypto" prefix because this platform is no longer limited to a single asset class. As Hyperliquid founder Jeff said, "Hyperliquid is not a crypto company."
HIP-4 continues this philosophy and direction. As I mentioned earlier, this update consists of two parts (prediction markets and options), and both types of tools have already been widely used outside the crypto world, both for ordinary users and professional traders.
If Hyperliquid wants to continue to grow, it cannot rely solely on a limited pool of crypto users; it needs to expand and bring new users into the crypto world without them even realizing it.
This has always been seen as a kind of ultimate form—hiding the "crypto" layer, and now it seems to be gradually becoming a reality. Those who trade precious metals and stocks on weekends will eventually come into contact with crypto tokens; those who come to trade perpetuals will find options, and vice versa.
In addition to the existing mature users on Hyperliquid, HIP-3 also brought in two new user groups: one from centralized exchanges and the other from traditional traders.
HIP-4 has the opportunity to attract options traders from both crypto exchanges and traditional exchanges, while also allowing existing users to build more customized trading strategies using options and prediction markets.
Those new traders who came from HIP-3 will also gain new tools—namely options—allowing them to trade non-crypto assets on a permissionless exchange.
Deployers like trade.xyz from HIP-3 can now achieve trading volumes that match or even exceed Lighter, even while charging higher fees. Traders are willing to pay for deep liquidity markets, atomic settlement mechanisms, and automatic allocation of funding rates.
That said, prediction markets seem to be a business that does not fit Hyperliquid very well. How can a Perp DEX platform compete with platforms like Polymarket or Kalshi that target completely different audiences?
I believe it can both compete with them and become very close allies.
Why do Perp DEXs need prediction markets?
When HIP-4 was first proposed and widely regarded as a means to bring prediction markets into Hyperliquid, I pondered some questions: Is this (prediction market) truly suitable for this platform?
Hyperliquid has always focused on perpetual contracts, while the operation of prediction markets is actually closer to options—both have the same profit structure and therefore belong to completely different tools. Hyperliquid has always been a platform focused on "hardcore trading"; while Polymarket and Kalshi can also be seen as trading venues, their user experience is not as technical and is instead more user-friendly for ordinary users.
Overall, I certainly agree that expanding to more trading tools is reasonable; but at the time, I did not understand how Hyperliquid was going to compete with Polymarket or whether there was a true competitive relationship between them.
If we do not delve too deeply into the technical details, Polymarket's DeFi composability is actually quite limited, and its user experience is also fragmented compared to other platforms. Kalshi, on the other hand, is a regulated, centralized platform that lacks any on-chain integration capabilities. Both serve as independent prediction platforms and are certainly useful, but integrating them into a larger strategic system is nearly impossible.
Agentic payments, integrated with Hyperliquid and serving various trading strategies, are likely to gradually develop into a standalone vertical track.
"Outcome contracts" (result contracts, i.e., prediction markets) can be combined with various trading tools, such as providing liquidity, perpetual contracts, spot trading, etc. You can even open a short position on ETH perpetuals while betting in the prediction market that "if the ETH price rises above a certain level, you will receive compensation."
This is just a very simple example, but it is enough to help you understand the composability that HIP-4 brings under the same framework. This is almost impossible to replicate on Kalshi or Polymarket because on Hyperliquid, these two positions can reside in the same margin account and automatically hedge each other. Traditional prediction market platforms are isolated from each other, but Hyperliquid is not.
However, even with such a clear advantage, I still do not think Hyperliquid can defeat Polymarket or Kalshi based solely on this—it's simple: user experience (UX).
Polymarket serves a large number of users outside the crypto industry, while the vast majority of Kalshi's users may have never been exposed to cryptocurrency. I don't think regular users will switch to Hyperliquid to accept a more trading-terminal-like experience just to buy a 'yes' share on 'Will Trump say something outrageous?', but the key point is that Hyperliquid is not actually competing with them in that direction.
Hyperliquid's native UX for prediction markets will likely only be used for prediction markets centered around themes such as economics, prices, equity valuations, and geopolitical events related to precious metals in the future. Of course, there are many more related scenarios, but these will be the core category, as they can directly influence the direction of trading strategies.
As for other types of markets, there will be different UIs to accommodate them, each tailored for different content, making them more suitable for ordinary users. With builder codes (independent applications running natively on Hyperliquid), the imaginative space at this layer is almost limitless.
Yes, Hyperliquid itself may not be able to win against Polymarket in a head-to-head competition, but independent protocols built on Hyperliquid at least have a chance to compete with it or pose a substantial challenge to it. Moreover, even Kalshi's crypto director John Wang was one of the contributors to the initial HIP-4 proposal. Therefore, it would not be surprising if Kalshi's prediction markets were to settle directly on Hyperliquid, or even if Polymarket did the same; they could fully leverage the existing user base of Hyperliquid to make the overall experience smoother and more seamless.
In addition to composability, HIP-4 also brings mechanisms like low-latency execution and cancellation priority, enabling real-time liquidity adjustments. In highly asymmetric events, if a prediction market cannot quickly cancel orders and rapidly re-price, it can easily be penetrated by toxic order flow.
This is precisely why prediction markets are naturally suited to be placed on Hyperliquid—they inherit the unified execution standards of the entire ecosystem. Many micro-moments require underlying technology to adapt to high-frequency trading and approach real-time settlement. Winners need to be paid quickly, and results need to be settled swiftly.
However, prediction markets are only part of HIP-4. The other part of this update is options trading.
The significance of HIP-4 in the options realm has been almost completely overshadowed by the current narrative surrounding prediction markets, while options trading could potentially bring hundreds of thousands of new traders to Hyperliquid. Before explaining this, one must first answer a question—why does a Perp DEX need a completely different trading tool like options?
Why do Perp DEXs need options?
It does not need to! The answer is actually hidden in the name: perp is for perpetual futures, which are completely opposite tools to options. It's like your local candy store suddenly starting to sell steaks; they are both food and can be eaten, but at the same time, they are completely different.
As I mentioned at the beginning, Hyperliquid has already won the local candy store battle, so now it is time to aim for new things. To continue growing, Hyperliquid must capture new markets. This expansion will start with several types of options products—such as binary options and bounded options—but will not cover all types of options all at once.
As some readers may know, options trading is a very popular tool in the world beyond crypto, but it is not well-received in the crypto world (at least compared to options trading in the stock market). Why? Because perpetual contracts are much simpler.
When trading perpetual contracts, you actually only need to judge one variable—the direction. You certainly know that the chart will always move to the right, so the only thing left to judge is whether it will go up or down. Its profit and loss curve is linear and predictable, and the logic is very simple.
In addition to the fact that perpetual contracts are extremely easy to understand, they also fit very well with the natural attributes of the crypto market. The crypto market is highly volatile, so you can make a lot of money in a very short time, but you can also lose a lot of money just as quickly. The greater the leverage, the more the risks and returns are further amplified. Many people say crypto is like a casino, and this "casino feeling" can actually be partially reflected in perpetual contract trading—many times, over 5x leverage already feels very close to gambling addiction.
In addition, a perpetual contract variety corresponds to only one contract. If you trade HYPE-PERP, then both buyers and sellers are on the same order book—deep liquidity, low slippage, orders continuously filled, and prices moving accordingly. Once again, this also makes it easier to trade.
Options are not like that at all. You not only have to judge the direction of the price, but also the sensitivity to price, time value decay, and sensitivity to changes in implied volatility. Many times, even if you are correct in your directional view, you can still lose money on options: it may be because the market moves too slowly, or it may be moving too quickly, or simply because implied volatility (IV) has been compressed.
An asset often corresponds to hundreds or thousands of options contracts. Each combination of exercise prices and expiration dates forms an independent order book, which leads to liquidity fragmentation—this is precisely the problem that the crypto industry has been trying to solve for years. A wide bid-ask spread acts like a direct tax burden for traders; many times, as soon as you enter the market, you are already clearly at a loss compared to the fair value.
Crypto traders are already engaged in a continuous psychological battle in this highly volatile, emotion-driven market, keeping an eye on unrealized losses, repeatedly doubting their entry points, and constantly being swept up in FOMO. If you add a countdown mechanism that continuously erodes the value of positions, then even if you are "nominally correct" in directional judgment, that position will still become difficult to hold. A leveraged perpetual contract long can theoretically be held indefinitely (not considering funding fees), but such a situation does not exist in options.
In a sense, perpetual contracts solve a problem that does not even exist in traditional finance. In traditional markets, the closest thing to perpetual contracts is actually continuously rolled quarterly futures—you hold a futures contract and roll it into the next expiration cycle before it expires. This mechanism works well when market volatility is relatively mild; but in our industry, volatility is never "mild."
Hyperliquid is no longer just a decentralized crypto exchange; it resembles a decentralized exchange with various tradable assets. Other assets differ from crypto assets in their operational logic and require different trading tools.
Options have actually always been there.
Hyperliquid's ability to win the Perp DEX battle comes from many reasons, one of which is undoubtedly UX—on this platform, you do not need to sign every single order, every transaction, or every operation. Frequent signing creates a lot of friction, while most teams in the industry are optimizing for "blockchain consistency" rather than user experience.
If the entire industry struggles to produce even a truly sustainable, permissionless perpetual contract trading product, then it is actually not surprising that a sufficiently good permissionless options trading protocol has not been created. It is too complex, so complex that people find it difficult to truly envision it. However, I am slightly inaccurate here because over the past few years, everyone has, in a sense, been trading options—all options are prediction markets (more accurately, binary options).
Structurally, binary options and prediction markets are actually completely consistent: if an event is ultimately determined to be true, the prediction market pays $1; if it does not occur, it pays $0. If the price of the underlying asset is above a certain exercise price at expiration, binary options pay $1; if it is not above, they pay $0.
The two are essentially the same: the profit structure is the same, the pricing mechanism is also the same. The only difference lies in the expression method and applicable scenarios (after all, you cannot buy an option with an underlying called 'Will Trump say a certain word in his next speech?').
Polymarket did something very genius: it allowed people to complete options trading without even realizing they were trading options. Prediction markets have thus achieved something that every crypto practitioner has been talking about—allowing people to use cryptocurrency without realizing they are using cryptocurrency. This is actually a direct solution to the problem.
HIP-3 attracted a large number of non-crypto trading users. In fact, most of the current trading volume on Hyperliquid comes from precious metals, oil, and the S&P 500, rather than crypto assets. Since the platform already has a brand new user base, it is clearly very reasonable to introduce more tools that they are already familiar with.
Historically, one of the initial important reasons why stock options became popular is that shorting stocks is very difficult. You have to borrow the stock, pay borrowing fees, have a broker lend it to you, and bear the risk of being forced out if the demand for borrowed shares exceeds supply. Rather than going through this entire complex process, it is much easier to just buy a put option.
Hyperliquid has no competitors.
In the past, no protocol has been good enough to truly bring sustainable options trading into the crypto world. Hegic, Ribbon Finance, Lyra, etc., have all failed to do so. Aevo is relatively successful and was even seen as a strong competitor to Hyperliquid at one point in 2024, but their order books remain off-chain. As for the reasons, I do not intend to elaborate here, as you are all quite familiar with liquidity fragmentation, latency issues, LP adverse selection, and so on.
HIP-4 introduces binary options and bounded options, both of which are applicable to almost all mainstream asset types: foreign exchange, stocks, indices, commodities, and the cryptocurrencies we are familiar with.
Crypto traders will continue to trade perpetual contracts while acquiring a new high-risk, high-reward tool. This can lead to more trading strategies and bring about more new ways to hedge positions.
Users trading commodities on Hyperliquid will receive a tool they were already familiar with from other exchanges, but now it is permissionless and open 24/7.
With the introduction of products like S&P 500 perpetuals, more markets will be deployed, more traders will be attracted, and more liquidity will flow in, leading to continued growth in trading volume.
Hyperliquid has the opportunity to continue attracting crypto traders from Binance, Bybit, OKX, and commodity traders from traditional exchanges, forming a complete suppression in the options market on this side.
Why would crypto traders choose Hyperliquid? This is already quite clear, and this migration will only become more frequent in the future; but the question is, why would non-crypto options traders switch from NASDAQ or NYSE to Hyperliquid?
NASDAQ is still considering opening 24/5 trading hours, but Hyperliquid is already 24/7. This is the inherent characteristic of permissionless systems: lower fees, instant settlement, no position size restrictions, lower margin costs, higher capital efficiency, non-custodial, and no geographical limitations.
Hyperliquid does things differently from all other platforms. This platform has no investors and is not influenced by any external pressures; Jeff can freely decide what the company wants to do. In this regard, Hyperliquid is very much like Telegram—there is no need to spend too much money on marketing; what matters is the belief itself. If the product is good enough, people will eventually come to use it.
People not only have countless reasons to migrate from traditional exchanges to Hyperliquid to trade the same assets, but they will also gain the ability to build entirely new trading strategies due to its truly excellent composability.
I predict that within a year, the trading volume of Hyperliquid's binary options and bounded options will exceed that of any centralized exchange's options trading.
So what about standard options?
Here, it is important to clarify that HIP-4 does not support "vanilla options" (the most basic standard options) and "perpetual options" (note that perpetual options are not perps; perpetual futures are the perps).
There are neither calls nor puts here. The profit above the exercise price for standard options is unlimited—higher prices yield greater profits. However, the current design of HIP-4 is precisely the opposite: its profit ceiling is capped at 1 USDH.
The non-inclusion of standard options in HIP-4 means three things:
As the first introduced category of options, standard options are much more complex than binary options and bounded options.
Prediction markets are the first attempt to natively integrate some form of options into the margin engine of a Perp DEX (of course, this is not the first attempt to bring permissionless options into the crypto world).
In terms of complexity, binary options are closer to perpetual contracts than standard options.
I am 99% confident that the next HIP-5 or HIP-6 update will introduce standard options, as this is the next logical step on the complexity spectrum. The work of Hyperliquid Labs can generally be summarized in two aspects: one is to introduce new markets; the other is to introduce new trading tools.
Currently, Hyperliquid does not have enough markets to support standard options trading; it essentially still leans more towards an equity-type tool.
Hyperliquid currently does not have enough stock markets to support the introduction of standard options. In other words, "there are people who have this demand, but not enough of them." To truly unleash the potential of standard options, more markets are needed, and simpler options products—namely binary options and bounded options—must first be validated; otherwise, introducing vanilla options now does not make much sense.
However, I think there is another reason why HIP-4 did not introduce standard options—it is not actually the most suitable tool for crypto assets.
Although the trading volume of commodities has now surpassed that of crypto, Hyperliquid is still primarily a crypto-first exchange; in most people's perception, it is still primarily associated with the crypto market. HIP-4 targets two audiences: crypto traders and traditional traders, and binary options happen to apply to and indeed be needed by both groups—whether they are trading crypto, commodities, or stocks.
It provides new tools for both groups of people. You could certainly say that standard options are clearly more suited for trading stocks, indices, and commodities, but crypto assets do not fully fit this logic—they do not have a natural event calendar (e.g., dividends, earnings reports, etc.), and the standard options market can quickly fall into liquidity shortages because each combination of exercise price and expiration date corresponds to an independent order book.
Despite Hyperliquid rapidly moving toward this goal, it has not yet truly become a global trading venue for non-crypto assets. Once more stocks, indices, and commodities start trading on Hyperliquid, it will be a natural step to introduce standard options. This move can be made now but is not timely.
The reason prediction markets may succeed where standard options have consistently struggled is precisely because they strip away all the complexities of options while retaining the nonlinear, capped downside risk profit structure that perpetual contracts cannot provide.
Hyperliquid has the opportunity to capture the entire cryptocurrency options market because, over the past several years, no protocol has been good enough to truly achieve this.
Hyperliquid also has the opportunity to capture a significant share of binary options and bounded options in the stock, index, and commodity markets because, in terms of permissionless degree and cost, no mainstream exchange's technology can compare with Hyperliquid.
Market sentiment is terrible.
Now, almost everyone more or less agrees that the market is roughly at the bottom.
Bitcoin has fallen below its previous historical high set in 2021—this situation has only occurred once before, corresponding to the previous market bottom at the end of 2022; protocols are shutting down almost daily, VCs are unusually silent, and extremely disappointed with their investments made between 2024 and 2025—that was a stage where even scam projects could easily secure large amounts of money; Trump even launched his own memecoin... Market sentiment could hardly be worse (unless another large CEX directly collapses).
However, bear markets are actually the best time for VCs to bet. Indeed, the number of builders in the market has decreased, but those who remain are almost all genuinely dedicated to doing things, and they have more time to repeatedly polish their ideas, constantly adjust their directions, and complete multiple iterations before competition becomes completely heated and attention grabbing goes out of control.
For builders, this is a window period for laying foundations; for VCs, this is a stage where they can finally think calmly rather than being driven by FOMO. Although Hyperliquid is not a new product in this cycle—it was launched back in Q1 2023—it has actually gained more opportunities due to the solid foundation it laid between 2022 and 2023. With HIP-4, more new opportunities worth betting on will emerge in the market. Especially with the FIFA World Cup taking place in the United States this summer, a large number of new users will be further brought into the prediction market; for such events, rapid settlement will become the core demand.
Crypto is dead.
As Dougie DeLuca pointed out in one of his articles, the so-called "crypto-native" industry is heading towards extinction, and the boundary between "crypto" and "everything else" is gradually dissolving.
Protocols have finally begun to realize that relying solely on the same batch of permissionless on-chain users cannot truly lead a project to success—though this has been quite obvious from the beginning.
Real success is when people outside the crypto circle use crypto products without realizing they are using crypto. This takes time and is one of the reasons why the Hyperliquid Policy Center (HPC) was established. Getting hundreds of millions of people to directly come use on-chain products is inherently difficult; but if these on-chain products are embedded in systems that hundreds of millions of people are already using—namely, the traditional financial system—then it becomes much easier.
The builder code model of HIP-4 means that any company can deploy on Hyperliquid, and they can each bring their existing user base along while pooling liquidity into the same underlying engine.
Winners will build products that truly serve the real world, embedding cryptocurrencies as underlying implementation details; losers will continue to cling to the old narrative of "crypto for crypto's sake" and expect the whole world to adapt to them.