Why Hyperliquid Could Win the Everything Exchange Race

Transcript

Multicoin provides investment advice to certain private funds that own hype tokens discussed herein and stands to gain in the event of that price of the token increasing. Multicoin's hype valuation report discussed in the podcast can be found as a link in the show notes. The report includes important disclosures concerning the data and assumptions by multicoin discussed today. Also, any trading discussion is forformational purposes only and is not a re recommendation to engage in derivatives, leverage or any specific trading strategy. Bank list nation. I'm back with Tar Jane. He's a partner at Multicoin and a co-author on Multicoin's recent investment analysis paper on Hyperlquid which is going to be the subject of today's podcast. And since we have Multicoin on and since Multicoin's size is size, I have to tell you that although our guest this week is

a managing partner of a registered investment adviser, nothing in this podcast should be considered an offer of Multicoin's investment advisory services or should otherwise be confused for investment, tax, legal, or other financial advice. Tushar, how you doing, dude? >> I'm doing great. >> Bank nation, a quick pause in my episode with Tushar so I can talk to you about OKX. Did you know the Intercontinental Exchange, the parent company of the New York Stock Exchange, backed OKX at a $25 billion valuation with a plan to launch tokenized New York Stock Exchange stocks and derivatives later this year on OKX.

This is Tradfi and DeFi in the same app. Trusted by over 120 million users globally, OKX is bringing products to the US market that Wall Street has been talking about for years. This is the new money app from OKX. Not just a vision, but a road map with institutional backing to execute it. So, if that got you peaked, you can get a 6% deposit match by using the link in the show notes to try out OKX, but not if you are a citizen of New York or Texas. Not investment advice. Let's get back to the episode with Tousar. I think pers have just kind of captured the attention of basically all almost all of crypto I would say. Would you agree?

>> Not just crypto trady too. I mean you saw this uh announcement from the CME that they're suing the CFTC for approving onshore per. And there's nothing that tells you you've hit product market fit more than an incumbent suing to try and protect their monopoly. So I think per have captured more than just crypto's attention. >> Yeah. The incumbents getting scared is definitely what you want to see. I'd also say it's a bare case though because comparing crypto to AI, AI doesn't have an incumbent to really go up against.

And crypto when we ran up against the incumbents, it really slowed the industry down. So, while seeing the CME get scared is obviously exactly what we want, one part of me is like, "Oh, they're going to they're going to fight us, though." Oh, AI definitely has an incumbent to go up against and that's human intelligence with political will behind it. >> Sure. So, >> sure. >> Uh there is an incumbent if you're building something new and disruptive. Uh there's always um you know some barrier to go up against and you have to welcome the challenge and want to go up and and face that challenge. I'm very bullish on AI and I'm also very bullish on BPS. Uh I think the fact that there

are challenges is not in any way bearish. >> In the uh paper that you wrote to you said at $63 we believe the market is deeply mispricing hype viewing it too narrowly as just a fast growing perplex. So if hyperlquid is more than just a fast growing perex what is it? I think Hyperlid has the potential to starting with its Perex roots and expand into being the place for the everything exchange where anyone anywhere can get exposure to any asset or event contract or derivative that they want to. Uh so

at a high level I think that's the very bullish case for hype is that it started out as a perex but then it becomes the back end of a global defi mullet and powers the everything exchange. The everything exchange is a phrase I've been hearing more and more lately. Everyone kind of wants to be the everything exchange. I think Robin Hood maybe just spawned that idea in the first place way back when. At least the everything exchange for retail. Coinbase wants to be the everything exchange. Hyperlid is becoming a platform. Is so is this the same fight as some of these competitors that I just named or just the broad desire to be the everything exchange or is Hyperlid's idea of an

everything exchange or your idea for Hyperlid uh as an everything exchange. Is that different in any particular way? >> There are differences and similarities uh with Robin Hood. Robin Hood is a brokerage, not really an exchange. Uh, so a little bit different, very US focused. Uh, I think they're doing a great job of executing on their business but >> maybe Super App might have been more apt for Robin Hood in that case. >> Yes. Yes, I I agree. And I can imagine a future where some of Robin Hood's volumes end up actually uh trading on Hyperlid on the back end where Robin Hood owns a customer

relationship but then routes liquidity to the most liquid venue uh which they already do to some extent. I think they're going to need some more regulatory clarity before they can go and uh route to Hyperlquid, but that seems like a very plausible future state. >> Coinbase is more of a direct competitor. Coinbase is an exchange. uh however I think the key trade-off here and the thing that's uh at the core of this industry and part of the soul of the industry is decentralization and permissionless accessibility and censorship resistance which uh you know

DeFi offers and CFI does not. And so if you're still here in the industry and you're still and you're still listening to bank list like you must truly believe in the value of these crypto ideals. Um so I think that's uh just something that you have to um you have to want to see happen in the world. >> There are a bunch of venues of hyperlquid bullishness that I want to go through with you one by one. There's so much to talk about and maybe that's kind of why uh multicoin is bullish on hyperlquid. There's uh HIPP3 permissionless markets. I kind of view HIPP3 as the platformization of Hyperlquid. Hyperlquid turning into

rather than a firstparty exchange but just more of just a platform uh a backend as you kind of alluded to. There's HIPP4 for prediction markets and options. Uh there's portfolio managing. There's the Coinbase USDC deal. There's the Hyper EVM. There's just the growth of PERPS as an instrument. There's the opening of the US capital markets. Of all of all of these, there's a bunch of different ways to get bullish about Hyperlid. What's your number one? What's your number one reason why or your favorite reason, the one that excites you the most why Hyperlid is a good investment? I think it's uh portfolio margining actually because a lot of the value of the everything

exchange is being able to go and trade Bitcoin and ETH and oil and gold and event contracts on will the Fed raise rates or cut rates and options all in one place with one collateral balance cross margining between everything. So to me, portfolio margining is the most exciting because it empowers all of the other uh categories of products uh and it provides a very powerful compounding return to scale >> because uh you can then put on a paired trade of hey, I want to be long Bitcoin and I want to bet to hedge. I'm going to

say that the Fed is raising rates next time they meet because I think if they raise rates, Bitcoin will go down, but at least I'll make money here, losing it here. And maybe I can construct a really effective uh trade with that combination. Uh and I can imagine a number of similar combinations. Maybe you want to bet on what DRAM prices are going to be in the future and at the same time you want to take a position on Micron stock uh in order to construct some sort of trade there. So to me, portfolio margin is the most uh bullish exciting thing because competitors can launch the same product and you see this right like you're going

to see um other exchanges whether centralized or decentralized launch these same markets. Uh, but I think portfolio margining and having balances on there allows for cross-selling in a way that a new entrant will have a difficult time competing with. >> Now, I might need help actually understanding uh technically portfolio margining. So, maybe you could explain that to me and the listeners. All perpex is all margin. It's all leverage inherently. Is there is portfolio margining something different than that?

So what portfolio margining allows you to do is you have one collateral account >> and that you are trading against. So if one derivatives position moves in your favor and the other one moves against you, you don't have to take an action to post more collateral to the one that's moved against you, it nets between those for you automatically. Uh this is the latest cross margin, right? >> Yeah. It's like cross margin. Yeah. >> Right. Yeah. And and perexives have had this. Correct. Uh so some perplexes have but the cross margin between these different categories of products >> uh I don't believe we've seen >> okay and this is the this is just

capital efficiency right and so this is why you're saying that there's an economy of scale here putting everything under one single roof you know the winner kind of winning begets winning in the world of finance and so when you are taking one trade on one leg you are likely going to do the other trade in expressing a different idea under that same roof because cross margining portfolio margining enables you to just unlock all of these potentials all in the same place. So it's kind of like um just a winning baguettes winning um uh idea. Is that is that is that true?

Yeah, that it's compounding returns to having a user base, having scale, having assets on platform already just makes it marginally easier to sell the next financial product that you have. So you want to launch, you know, some new thing uh you already have these users and they don't even need to take a deposit action. It's already a unified collateral account. I like the idea of the these are building blocks or a fundamental building block to be able to create financial trades, financial expressions of ideas. We need more building blocks. However, like the the portfolio margining, that's just capital and it's allowing the capital to kind of

get like packaged up in different ways, but we need more markets to come on Hyperlquid and I think that's what HIPP3 really brings to the table. Can you talk about what HIPP3 does for Hyperlid as uh in like the long-term growth story for it? HIPP3 is a decentralization of market creation on Hyperlid. Um so when Hyperlid started there was basically just Hyper Core. So the core team got to choose which markets get listed and choose all the parameters of those markets. And HIPP3 allows for new deployers to come in.

They have to they have to post a bond of 500k hype in order to have the ability to deploy markets, but that's permissionless to do. You you have to just accumulate the 500k hype. Um or some of these deployers have actually raised it from the community um in order to um go and post that bond. And then those deployers get to choose what markets they think people will trade and they get to keep half the fees earned from traders uh going and using that market. And so, uh, this is, uh, actually mirrored by builder codes,

which has been an idea that's been around for a while on the demand side, where builder codes allow you to build your own front end and then you can route to Hyperlid and get some percentage of the trading fees. So, I see this as two sides of the same coin. They're both product decentralization avenues where you don't have the core team making decisions on which markets to list with what kind of parameters and how to manage the liquidity on them and all of those variables. And you also don't have the core team making the decisions on what does the user interface look like, how to localize it for specific geographies and specific user segments. um and how to distribute

it or market it uh out to those segments. So I I think they're uh both moves towards decentralization. >> Yeah. One is having Hyperlid be the backend for market producers and this is how Hyperlid ended up with uh very liquid oil markets and gold markets right when traders wanted to trade those things. And then on the other side of things, it's uh the Phantom, MetaMask, Infinex, uh hooking their users into Hyperlid. So Hyperlid just gets to entrench itself. And I think this is kind of what you were getting at with like the the crypto ethos. This is open like red breaking down the silo, breaking down the walls and allowing Hyperlid to kind of just position itself

as a a credibly neutral hub of sorts whereas like Coinbase or any centralized exchange just doesn't really have the same ability or incentive. Does that mean over the long term Tushar that you expect HIPP3 and also builder codes to kind of be like the dominant source of both market creation and user trades? Like where do you think uh the equil equilibrium nets out over the longest term time horizon? So like 5 10 years beyond between Hyperlid core and people going direct to Hyperlid versus uh the builder codes and HIPP3 side of things.

HIPP3 and HIPP4 uh will end up being the vast majority of volume uh because there's just going to be many more markets and you're already seeing uh that start to happen, right? Uh HIPP3 volumes went from basically nothing to uh I believe about a third of total volume on Hyperlid in the matter of months. So that's really meaningful. Uh and quite frankly, I think the Hyperlid team wants that to happen. It's a part of progressive decentralization where it started out with the team having complete control over what gets listed, how you trade it, so on. And

I believe that what they want to do is become a platform for others. Um, and they're a very opinionated platform, right? It's not a general purpose kind of, hey, anyone can do anything kind of platform. It's a very opinionated one. But I think that opinionated platform is decentralizing the listing process and the supply side and the demand generation process, but then allowing those two to match together in one place because um that's where a lot of the economics are is in actually matching those two sides.

What I see the optimistic side that I see about this construction is that it turned it has the potential to turn a competitor into a collaborator. And so where somebody might have become a competitor to hyperlid they are given the option the the route uh to work with Hyperlid and either with builder codes or be a market deployer. uh uh Trade XYZ is like the dominant HIPP3 deployer on Hyperlid and this is kind of just like a different it's a different entity than Hyperlid but it's highly aligned with Hyperlid. It's hyper helping Hyperlid grow. Trade XYZ is making a ton of revenue by themselves. There's an alignment here but Trade XYZ uh is brand new and it's still like a

hyperlquid native company. I think the biggest signal I would want to see as a hype bull is somebody like Coinbase using builder codes and having Hyperlid as the backend, but I don't know if that's what we see right now. We see Hyper we see Coinbase trying to go for its own first party purpose exchange uh and choosing to compete. There are some some other aspects of the Coinbase hyperlquid deal that's cooperation and we'll talk about that. But uh with with uh put pumping volume into Hyperlquid, I don't see that happening yet, at least with Coinbase. Uh what what would you say or respond to with that?

>> Yeah, Coinbase is not uh routing order flow to Hyperlid just yet. >> Uh could that happen in the future? plausibly, but I think uh looking at the wallets like Phantom or MetaMask uh is the right place to look right now because they are in the business of uh just being a front end and routing their users activity to the best place to execute those trades. uh whereas Coinbase is in the business of uh executing trades on their platform often at egregious fees. Uh right like Coinbase is not uh um routing your

trades to another place even if the price is going to be better there. Uh wallets are much more competitive in this way. Um so I think wallets will come first. I would really be excited to see a regulated front end that actually takes custody of assets. The reason why these wallets are able to do this right now is they're non-custodial, right? So, they're just software that is allowing you to interface with the backend protocol. Um, a big catalyst that would get me even more excited about Hyperlid would be to see a regulated custodial front end plug

in to Hyperliquid's backend liquidity. >> I I believe we did see Anchorage uh integrate Hyperlid recently and Anchorage takes in uh like institutional deposits is it's a it's a custodian u but now it's also hooked in with Hyperlid. Is that kind of like what you're talking about? I'm not very familiar with that specific um integration, so I can't comment on that. I know that they have support for custody um and perhaps they're allowing for routing of trading, but um I can't comment on that.

>> Okay. One of the concerns or constraints that I see with Hyperlid is lack of on-ramps. is kind of depending on on ramps to happen elsewhere and then that money eventually flow onto Hyperlid one way or another either via the wallets as you've said or actually depositing first party onto Hyperlid but it seems to be that Hyperlid is kind of removed from direct capital flows and that really separates it from an exchange like Coinbase which has actual banking relationships and the reason why a Coinbase can charge high fees is because well once they are the on-ramp they are the highway they can charge the tolls there. How would you see Hyperlid overcoming this constraint that they

have of just being so uh disconnected from direct fiat on-ramps? >> I think stable coin on-ramps uh will be sufficient as stable coin proliferation just grows. Uh so I don't I don't really see that as a huge barrier. There's plenty of companies out there uh you know one in our portfolio is called fun.xyz XYZ that provides this type of on-ramp onto stablecoin service uh and allows users to show up with whatever form of fiat or u stable coin that they have and then very quickly and easily have that um available on the platform where they want to trade. So there's a

number of options uh to enable that type of onboarding. So I I don't see that as a huge hurdle. It's already being solved. Uh and I don't see that as a huge edge for incumbents either. >> One way to look at Hyperlid is that it's got a very strong team, can execute very fast. It's kind of built for the age of AI that I believe Hyperlid has something like 14 engineers building the entire company. And so in in the post AAI labor age positioned very strongly. But then so that's that's just like you know investing in a startup investing in the founder you know Jessica Killer I I'll talk to you all about that but then there's also just the perp is a brand new innovation is a brand new financial instrument per penetration across tradi

across finance broadly is low and so you could say you could argue that like well tradi and finance broadley really likes is going to like the perp they're going to love the perp once they get their hands on it and I want exposure to the perp And we have early indications that the CFTC is trying to figure out how to open up the US markets to the perp that's bullish even outside of the United States just like finance broadly is per penetration across finance broadly is still low. How much of this how much of the this decision to invest in hype is you looking for exposure to the perp as an instrument as a growth instrument versus anything else that we would talk about that's bullish about

Hyperlid? >> The contract type is really attractive but that's not a core part of the thesis. >> There's there's nothing stopping anyone else from building per as well. Right? You just saw Khi got approved to offer PERPS in the US. The CFTC approved that. Um, Coinbase has PERPS. Binance has had PERPS for a long time. Uh, I think PERPS are a really effective instrument, but that's not a competitive edge that Hyperlid has over its um over the field because everyone can launch PERPS.

>> So, you were you were like, "Ah, PERS are bullish. How do I get exposure to pers? What are my options? Let's pick hype. You you were like, "Let's pick hype for a few more fundamental reasons." You you talked about portfolio margining. We've talked about HIPP3. I'm still looking for what gets you excited, Tara. Portfolio margining I can wrap my head around, but really what what gets you the most excited about Hyperlid. >> What gets me the most excited is anyone anywhere can get exposure to any asset that they want. Right? that has been a core thesis for DeFi uh from kind of the origins of this sector.

>> And I think that plus the DeFi mullet where you have localized frontends that handle user acquisition that that handle engagement with regulators that handle all of the kind of user support questions and so on. Um those are that combination of those two things is what gets me fundamentally the most excited because ultimately I think uh we are going to live in a world where you have localized centralized frontends and a defi global liquidity backend and I'm just looking for how do you get there right from an investor perspective uh

you know we've been doing this for almost a decade now at multicoin and we've seen a lot of trends come and go and I think uh one thing to be wary of is have um like a lot of conviction on like the specific path. You have to be willing to revisit your assumptions as the market gives you information. You can have the goal in mind, right? the goal here being the everything exchange which I think has been the goal for DeFi for a long time but there's a lot of path dependency on how you get there and so I think some of the worst investing mistakes you can make is say I am certain about the goal

and I'm certain about the path to get there and then you're wrong >> right uh let me give you an analogy for that right like imagine being really bullish on ride sharing but then you bet on Haleo or one of those other ride sharing companies because you were really betting that oh it's going to be regulated through the taxi medallions or or you know something right um and because you had the conviction about the path it didn't matter that you were right about the ultimate goal you didn't make any money right and so what I have conviction in is the ultimate destination of the everything exchange of this DeFi vision uh And what I'm

willing to revisit my assumptions on is what is the path that gets us there. And right now I see hyperlquid as the most credible path to get there. Markets don't move one asset at a time. One day it's Bitcoin, the next Nvidia, then gold, and then the S&P. But most traders are still managing their portfolio across different platforms, different accounts, and different pools of capital. Bit just changed that. Their new stocks 2.0 0 product lets you trade tokenized equities directly with USDT all inside the same app you already use for crypto. This is not just another tokenized stock product. Stocks 2.0 is designed around deeper liquidity, faster execution, and the lowest fees in the market at just04% and 1:1 economic exposure to the

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structure, entry targets, fair market value of Bitcoin and Ether, and where we are in the cycle. There's new episodes that are released every Wednesday. They're 30 minutes, they're short, they're punchy. I think this crypto cycle is harder to navigate than most. So, let's do it together. Go subscribe to this podcast. Search the DeFi Report wherever you get your podcast, YouTube, Apple, Spotify, or find a link in the show notes. There's a new episode waiting for you. Now, >> what's the evidence of that credibility? cash flow. You can't argue with cash flow, right? Users want to use the product. They're willing to pay money to use the product. Uh users are taking actual directional risk on the platform.

You see volumes on other perexes, but quite frankly, a lot of that is uh to put it kindly incentivized volume. Um and you know, we can get into that uh in more detail on hyper liquid. you are seeing people take actual directional risk, >> right? Price discovery is happening on hyperlquid. >> Uh price discovery to some extent, but I think the thing that I'm most pointing to here is people holding positions, not just market makers trading with two separate accounts in order to farm points or rebates or whatever. You you said that you said other platforms are

are doing this. Uh there's Aster, there's lighter, there's a few a few others. As I understand it, Lighter's uh points program is over. They've distributed their token. I don't know about Aers. Um uh so have you looked into like the nature of the volume on on these exchanges and you then you like compare to Hyperlquid and it tells a different story? Uh, I do. And look, volume is the easiest thing to fake >> on a exchange because you and I can just trade back and forth at the same exact price infinite number of times and that counts as volume, >> right? So, I actually don't even look at

volume as that interesting. Um, here are the things that I do look at. one, I look at the net trading fees paid after you subtract any rebates or anything else uh because that is an actual expense that is being incurred. The second thing I look at is open interest because open interest requires you to leave capital on the platform and have some amount of leverage that you can manage against that capital. Um, so maybe I have $100 on the platform. I'm willing to do up to 3x leverage. So at most I can create $300 of open interest with that. Uh, and you and I can't take

that same finite base of capital and create infinite open interest. But if you have $100 and I have $100, we can trade back and forth and create infinite volume. U so I look at open interest. But we have seen some platforms uh lighter specifically comes to mind subsidize open interest now where what they do is they give you a rebate for funding fees that are paid. So if uh I have you know if you're long some contract and I'm short that contract and funding gets egregiously positive, right? Uh so you as the long are having to pay me a ton of uh funding. If they subsidize that to you

uh and give you a rebate on that funding, well then that incentivizes us to drive up open interest in order to receive that subsidy. Uh so we are seeing even you know this incentive layer show up on open interest. So this is why I would go to the third item uh on my list to measure real traction. And that is the amount of liquidations on your platform because liquidations um like you lose money when when there are liquidations, right? We can trade volume back and forth. No one needs to lose any money. Uh if I if you know I have two accounts that are taking opposite sides of a trade and putting on

open interest between them and collecting the fun the funding rebate. Uh then I can do that without losing any money, right? perfectly hedged. Liquidations explicitly carry a liquidation penalty that cannot be faked. And so I think the liquidation data is the truest source of seeing are there real users and are they taking directional risk on your platform? >> And what what is the hyperlquid liquidation data look like? What story does that tell you? Uh so Hyperlid has uh a much higher ratio of liquidations to trading volume compared to Aster and Lighter who are the main competitors.

>> Um there's a a really good source for this data. Um Coin Glass has this uh so you know I would encourage people to go and um look at the data themselves. uh and keep that up to date. We put some of the data in our report, but obviously it's a real-time data feed that changes. There's one um bit of data out there that I want to check with you. Uh in terms of revenue, lighter is trading at a 6.5 uh x premium on its revenue where Hyperlid is trading as at an 18x premium on its revenue. implying that like um hyper hyperlquid is trading you know three roughly three times higher versus

the revenue that it makes versus lighter. How do you understand this bit of data? >> I'm not making a comment on the valuation multiples. I think valuation multiples are the market talking about how sustainable they think that revenue is. Um and I don't know what period you're annualizing from uh in order to get that data right like that. It's hard to compare without comparing exactly apples to apples. So, what I'm looking at is the revenue earned on a trailing 12-month basis, right? That way, we're looking at apples to apples. And if you see lighter trading at a lower multiple than hyperlquid, that tells you that the market is willing to pay a lower

multiple for it, which is probably because the market either doubts the durability of it or thinks it's going to be lower margin or has some reason to want to pay a lower multiple. Or the market could just be wrong, right? Like that's always possible. The market just hasn't paid attention and is wrong. That happens all the time, too. Uh but generally uh for high-profile projects that are getting a lot of attention, there's a reason why multiples trade where they do. >> Uh you put out some price targets in your report. Uh let me just read few a few of these. uh you say at a 20x or the the paper says at a 20x multiple on $8 billion in earnings in our bare case we arrive at a $ 160 billion valuation

which on an adjusted supply of 502 million tokens implies a hyped price of over $319 representing more than a 5x upside from current levels. That's the conservative assumption from uh the paper that you wrote. Is this this is just nothing has to happen you know time passes business as usual or does hyperlquid still need to in this bare case still need to execute on things in order to make this uh a reality? What is this uh potential price prediction uh based on uh Hyperlid actually achieving here?

>> Yeah. So, small correction. Uh, we outlined three cases here. A bear, a base, and a bull. The case that you just mentioned, the $319 case is our base case. Base case. >> We have a bear case, uh, which has a lower outcome. But look, I first would encourage everyone read the report and read this section. What we intend to do with these types of valuation sections is not to say this is precisely the number. I think that's false precision.

What we're trying to do is give you the framework of how we think about it and then we are presenting three scenarios of uh sets of variables that go into that framework that then come out with some price target. But we're not just looking at three scenarios. We're not saying oh this is exactly going to be the one right even internally like we looked at many more scenarios we decided to present these three because it's digestible to an audience to consider them as examples of the framework um but we're not saying oh it has to be one of these outcomes there is clear uncertainty and it's a range of outcomes there

>> so that's just one clarification I want to provide upfront but then let me talk about what needs to happen for each of these cases. Uh so there are really four critical assumptions in this report. The first is how does total crypto derivatives volume grow? Uh how fast does that grow? The second is what is the market share that dexes have of the crypto derivatives market.

The third is how much market share does hyperlquid own of the dexes. And then the fourth is how much uh in stable coins will be on hyperlquid proportional to that trading volume because of that coinbased deal where hyperlid is getting 90% of the interest on that stable coin balance. So those are the four core assumptions. Now let let's look at some data. Um if you look at that first assumption total crypto derivatives volume uh it's grown at about 45% annualized for the past 5

years. Um so that that's a pretty impressive growth rate. Uh in our base case we assume that that'll come down to 35%. for the next couple of years. In our bare case, we assume it'll only grow at 10%. >> And in our bull case, uh we're expecting it's going to grow faster than that. Um so we expect it to grow at 50%. in the bull case.

>> Um then let's go and visit the second assumption which is how much volume or what percentage of volume goes to dexes versus centralized exchanges. Um, for context, DEX's made up basically 0% of derivatives volume um, in 2022 and are now up to 16% >> of derivatives volume. So, uh, in our base case, we assume that that's going to get to 32%.

And that's looking at the growth rate. That's looking at the trajectory that the market is on today and just extrapolating that forward. In our bare case, we assume it's going to only get to 20%. So, a dramatic decrease in growth of dexes versus centralized exchanges. uh and in our bull case we assume that derivatives dexes will reach half of the overall market for crypto derivatives. You can see how these assumptions start to compound on each other in order to build these cases and why I insist that uh people look at this as a framework to

then incorporate their own assumptions into not just oh yeah here's a number I just take it at face value. We want people to actually think about these assumptions. Our third assumption in our base case is that Hyperlquid holds its percentage of DeFi derivatives market share constant at 30%. I believe this is actually a very conservative assumption because uh Hyperliquid is currently at almost 60% of open interest. It's 59% of open interest. uh they're lower in terms of volume because of the farming uh kind of concept that we've already discussed. We

think that hyperlquid's percentage share will actually increase over time due to the team's execution, due to the fact that there are real organic users. Farming behavior does not last forever. It's impossible to sustain that for an extended period of time. So I think this is probably the most conservative assumption that we have here is holding that constant in our base case. Um and I think it should grow from there. Uh and then last but not least would be uh that stable coin revenue that hyperlquid has. uh and we assume that the ratio between stable coins to open interest to volume on

hyperlquid stays constant. And what that means is we're saying that we have no reason to believe that users will be more or less levered in the future than they are today. So if you expect volume to go up by X, then you probably expect open interest to go up linearly. And then if you don't expect leverage to change, you can expect the stable coin balances to also go up linearly. >> And then that turns into uh the yield from the Coinbase program which goes to buy back uh the hype token. In fact, basically almost everything that we talked about ultimately buys back the hype token. Um, hype I think as a token story is probably the greatest story

that cryptos had in terms of direct relationship between value creation and value capture. Uh, talk about the value capture story of of Hyperlid and the confidence that that provides you as an investor. >> Yeah, it's just so simple and easy, right? like you're not there's no convoluted um questions here of well is there an equity entity that's going to make money and then how is it going to route that or you know you look at um some other older protocols and like there were just like questions you know it's just a governance token like what's going to happen here from the beginning like hype is the core asset uh there's no equity entity revenue goes to buy and burn hype

uh if you want to go be a HIP free deployer, you have to stake hype. If you want to pay priority fees on hyperbm, you use hype for that. So everything is aligned around this one asset. Uh I don't see this as remarkable. This it's just simple and uh there's not a lot of ambiguity and it doesn't uh it doesn't leave like a risk open of like well what if this business makes a lot of money will I actually be able to share in that as a token holder? There is one risk that you guys cited in the report which is the hype unlocks. Uh core contributors were allocated about 24% of the total supply at hype and that vests at around uh 10 million hype per month through 2028. Uh so at $63 that's $625

million per month unlocking. A lot a lot. Not all of that is going to therefore be sold but could be sold. So that that's a lot. I'm not really worried about that risk specifically, but I am kind of a little bit worried about just like the 14 hyperlquid employees are just going to be so wealthy. They did it, you know, they achieved their goals. They if they set off to, you know, be capitalist and build a startup and have that startup be monetized and become wealthy as a result, they did it. The job's done. And so what kind of long-term incentive does the hyperlquid team materially have when they're locking when they're unlocking

$625 million a month? >> That's a good question. And there you have to go and like talk to team members and see what motivates them. Uh, look, I've been fortunate to have been around um a lot of people who've made quite a bit of money. Uh, and I can tell you that the money feels like a really important goal when you don't have enough to feel secure. But once you have enough to feel secure, more money is not about making more money. It's about what that enables you to do. All right? It's

about um what influence that gives you. All right? And a lot of people who make it to this level are motivated by something more than the money. They're not motivated by consumption. They're not trying to just buy more yachts or or houses or anything like that. Uh it's they have a vision that they want to see in the world. And I believe Jeff has a vision that he wants to see play out in the world. He's not just doing this to uh, you know, make enough money to retire. If that was the case, this whole team would be gone by now, right? Like they they've they're already there. They've been there, right? Like uh it's not um it's not likely that a switch flips now

almost, you know, a year and a half after they hit that type of generational wealth. Mhm. >> Uh if that was going to happen, I believe it would have happened already. >> Maybe I'm just not looking in the right places, but uh you Jeff does podcasts every now and then. I don't know anything about the other Hyperlquid team members. Everyone says that they're, you know, cracked engineers. They're very, very competent. I mean, you have to be to have 14 people build a single $60 billion fully diluted platform. What do you know about the team? And what about the team gives you confidence as an investor? The key thing that gives me confidence is one um we would have seen evidence if there was uh kind of the rugpull of oh hey we made it we built

this successful thing and we're leaving now >> like we would have seen evidence of that what we are seeing is that the pace of execution continues unabated and that's what ultimately matters not saying that none of the team members will leave if some of them leave and you hire a new one like that that's just normal turnover right like people living their lives. I think you have to look at the founder who is the motivating energy who is keeping the whole thing uh working. You have to look at the execution of you know like are they shipping? You have to just look at the evidence out there. Um and you have to think about how sustainable is this?

Has it hit escape velocity such that you can have some amount of turnover and still be uh extremely durable or is it entirely dependent on uh you know a couple of core engineers in order to to make the thing work? >> Hey bank list nation it's David. If you're hearing this that's because you are listening to the free bank list podcast feed. Did you know that there is a premium bank list RSS feed? The premium feed has extra interviews that I do for my own personal research and just deeper questions that I want answered about the crypto industry. Questions that I want to answer so I can be more informed as an investor both at Banks Ventures and also just in my own personal portfolio too. Also, there are no ads which means if you listen to the premium feed instead of the free feed,

you'll get about 20 hours of your life back every year because you choose to support Banklist directly. So, if you're interested in getting extra content all while skipping the ads or you just appreciate what we do here and want us to keep doing it, we'd appreciate it if you signed up for Bankless Premium and there is a link in the show notes to get started. Cheers to a good 2026. I think one of the biggest exciting moments right now for in the story of the perp is the opening of the US capital markets. Uh, chair CFTC chair Mike Celig has just been very explicit about wanting to onshore per uh Hyperlid seems to be the most offshore per platform.

Uh, Coinbase wants to do PERPS, Robin Hood wants to do PERPS, KHI is doing PERPS, it is onshore. Uh, Lighter is kind of in the same position as uh, Hyperlquid in this moment except for the fact that the company is registered onshore of all the different competitors in the per platform ecosystem. Hyperl seems to be just the most offshore and I think to Hyperlid's benefit like to some degree like you get more freedom and flexibility offshore and so maybe that's better for Hyper Hyperlid. I'm I'm not sure about Hyperliquid's ability to really penetrate the US market. That's my understanding. Do you have an opinion on Hyperlid's ability to come onshore while also being the amazing thing that it's become so far?

>> I think it's a process. You're you cannot expect this to happen overnight. Uh in fact, that's a frustration I have with uh the crypto markets expectations of regulators. Look, uh, the market thinks that this stuff just moves at the pace that crypto markets move and it doesn't, right? Uh, the Genius bill was passed last year. It's still not in effect. It goes into effect January 2027 because they had to have a period for rulemaking and comments and public discussion and so on, right? Like this stuff is just slow and it is a series of steps. Here's a plausible series of steps that has hyperlquid uh in onshore US markets. First is you

see pers become legalized and regulated in the United States. We have seen the first step of that with the kalshi approval. Uh you should expect to see more platforms get that approval. The second is we have some sort of law, probably the Clary Act, which passes and enshrines decentralized finance as uh having certain protections where you don't need to register as a broker, where you don't need to comply with some rules that uh a custodial centralized intermediary would need to comply with because it's

impossible for you to do so. The current draft of the Clarity Act has some of these safe harbors. We'll see what text actually ends up in the final version obviously, but we need something like that to pass. Then we need to see hyperlquid meet the requirements within the clarity act which is going to have some requirements around probably open source code or uh validator count or there's a number of variables in there. Uh I have confidence that hyperlquid will be able to meet them even if it doesn't meet them at the moment of the bill's passing. there there can be a a progressive process to then meet those requirements. And then

fourth, you see a regulated front end show up in the US that's compliant with all the US laws and is routing volume to this decentralized DeFi backend which is enshrined in US law as uh being compliant with whatever requirements ultimately end out in a clarity act or something like it. So, it's a series of steps and it will take years. This is not a fast series of events, but I think that there is a plausible path to get there. Uh, and we are seeing the early signs of progress.

Do we know that Hyperlid even wants to become onshore and regulated? One model I have for this is Tether, for example, just does not. They don't really care. They're so big. They're so successful. They command so much of the market that they don't really need to become onshore and the way that they are becoming onshore is they're just spinning off a mini tether that's compliant and you know main tether just remains doing exactly what it wants to do. Do we know that Hyperlid wants to come on shore or maybe it'll follow the tether path? >> You know I don't know. I'm not sure that uh Hyperlid needs to actually take explicit action to make that happen. I think builder codes which allow for frontends to permissionlessly like uh go

and start aggregating users routing volume and make revenue off that uh will be the path. So I don't know that the hyperlquid core team needs to actually do anything >> other than the open source and node count depending on those details. Correct. >> Yes. But I I would expect that uh they're going to want to do those things anyway. >> I don't think that's just a oh we need to be on shore in the US. Uh they've talked about open sourcing the code base um in the future. They've talked about uh things like increasing the validator set which they've actually done over time progressively increasing that uh size. It's still pretty small uh but the number is going in the right direction.

Uh, so I think they're going to want to do those things anyway. Um, and quite frankly, it would be silly for them to not take advantage of the protection enshrined in US law because what if we have a less friendly administration at some point in the future uh that you know wants to go and target something? You want to be able to say uh hey like we're able to point to the law and say that we are following it even if we're not technically an onshore exchange.

>> Is there anything else about Hyperlid that excites you that I haven't asked about open-ended? >> No, I think we hit on all of the main points. Um it's just the relentless pace of execution. It is the fact that users are telling you and voting with their wallets that they want to use this product. Uh and it's the huge secular tailwind of financialization in our economy where more and more of the economy is about uh trading and investing in financial markets. uh and as we move to a world of AI, I expect that more and more human attention and energy will be put towards

financial markets as opposed to labor markets. Uh and so there's just this huge tailwind behind uh hyperlquid and others as well. Uh so I'm excited to uh basically ride that wave. >> One last question before I let you go to chart. Why doesn't Kyle Samani like Hyperlid? >> I will let Kyle comment uh on his own opinions. >> All right. All right. Tar, thanks for coming on the show today. >> Absolutely. Thank you for having me.

>> Bankless Nation, you guys know the deal. Crypto is risky. Definitely leverage as well. You can lose what you put in, but nonetheless, this is the frontier. It's not for everyone, but we are glad you're with us on the bankless journey. Thanks a lot.