Author: Four Pillars

Translation: Baihua Blockchain

Core Points

• HIP-3 removes the technical barriers to launching new perpetual contract markets and implements a demand-driven market creation model. This transforms decentralized exchanges (DEX) from a stock game (PvP) dynamic with centralized exchanges (CEX) into a PvE expansion path that extends to non-crypto assets and real-world data.

• The market is shifting from narrative-driven growth to a cash flow-driven, sustainability-oriented valuation system. Only a few projects with real revenue flowing to Tokens (such as Hyperliquid and Pump.fun) may dominate the next cycle.

• Prediction markets convert previously private or illegal gambling activities into public on-chain data and serialized data of collective expectations. This creates real-time probability signals and alternative data that financial institutions, data providers, and AI models can use as an economic mechanism for information aggregation and probability estimation.

• Regulation has created a divided system: prediction markets are becoming institutionalized in the West while being suppressed in Asia. This poses a major short-term constraint but also paves the way for prediction markets to evolve into “infrastructure that transforms collective beliefs into information and markets.”

1. How HIP-3 Opens Up a New Growth Pattern for PvE

The business model of trading platforms is undergoing a transformation.

Centralized exchanges (CEX) maintain their position due to structural advantages based on institutional trust (fiat on-ramps, custody, and regulatory access). This makes them a natural entry point for institutional capital and provides stability in liquidity and operational reliability. However, the same regulatory obligations, internal controls, and custody infrastructure also incur high fixed costs. As a result, CEXs are slower in experimentation and decision-making, limiting their pace of innovation.

In contrast, decentralized exchanges (DEX) grow through incentive structures. They natively coordinate rewards among LPs, traders, and builders on-chain. However, previously, launching a new trading platform or market required teams to build matching engines, margin and clearing systems, and oracles from scratch. This created a very high technical barrier to entry.

HIP-3 removes this barrier.

Hyperliquid now allows anyone who stakes 500,000 HYPE to deploy their own perpetual contract market using the same CLOB engine, margin logic, and clearing system as the main site. The technical burden of building a trading platform has disappeared. Market creation has become a standardized on-chain deployment process that requires capital and reliable oracles, rather than an entire engineering team. The threshold has shifted from technical capability to capital and oracle design.

This change is not just an increase in efficiency; it also alters the locus of innovation.

Builders can now experiment with different liquidity structures, fee designs, oracle definitions, and leverage limits without needing to rebuild the backend. The challenge has become identifying the “demand surface” (i.e., how many people want to speculate on something) and anchoring it to reliable oracles. In fact, the market can now consist of three components: market + oracle + demand.

This expands the range of assets that can be listed.

As described by Ventuals founder Alvin Hsia, the “Fat Head” consists of asset classes already covered by traditional finance (index products, forex, commodities); the “Chunky Middle” includes raised equity, real-world datasets, and commodity indices; while the “Long Tail” extends to niche signals such as local real estate prices, product premiums, or cultural trend indices. Traditional finance cannot easily commoditize these data points, but on-chain settlement systems can. HIP-3 effectively opens up a demand-driven market creation model.

Source: X (@alvinhsia)

This transforms DEX from competitors of CEX into a structurally entirely different existence.

HIP-3 no longer competes for fixed crypto-native liquidity (PvP dynamic) but allows DEX to expand into non-crypto assets and real-world data. This brings new traffic, new users, and new forms of demand—a PvE dynamic where market size continuously increases rather than being redistributed. It also deepens revenue at the protocol layer.

A clear example is Hyperliquid's XYZ100 market, which surpassed $1.3 billion in cumulative trading volume within three weeks of launch, demonstrating how quickly new asset classes can scale when infrastructure is standardized.

In short, CEX continues to provide stability and regulatory access, but HIP-3-based perpetual DEX gains an advantage in speed, experimentation, and asset expansion. They are not substitutes but rather entirely different growth paths. The competitive advantage of trading platforms will shift from backend engineering to market design and user experience, and leadership will depend on which protocol can translate that into sustainable value.

2. Shifting from Narrative-Driven Valuation to Cash Flow-Driven Valuation

The market in 2025 is fundamentally different from previous cycles.

The once abundant liquidity environment that buoyed all assets has disappeared. Capital is now flowing selectively. Prices reflect actual performance more than narratives, and projects that cannot generate revenue are being naturally squeezed out. Most altcoins have yet to recover their 2021 highs, while protocols with clear revenue have shown relative strength even during market pullbacks.

The arrival of institutional capital has solidified this shift.

Traditional finance (TradFi) frameworks are being directly applied to the crypto space. Revenue, net profit, fee generation, user activity, and profit distribution are becoming the primary metrics for project evaluation. The market is moving away from relying on “storytelling” or expected growth for valuation. Only those projects with real revenue flowing back to Tokens can achieve higher market valuations.

In this context, Uniswap's recent proposal to activate the fee switch (Fee Switch) is symbolic. A flagship DeFi protocol explicitly chooses to link cash flow to Token value, signaling that fundamentals (rather than narratives) are now at the core of market pricing.

A clear set of frontrunners has emerged.

Hyperliquid (HYPE) and Pump.fun (PUMP) are typical cases:

• Hyperliquid is the largest perpetual DEX by trading volume, open interest (OI), and number of traders. As of November 2025, it has accumulated a trading volume of $3.1 trillion and an open interest of $9 billion. Notably, Hyperliquid uses 99% of perpetual contract fees to buy back HYPE, directly linking protocol cash flow to Token value. The total buyback amount has reached 34.4 million HYPE (approximately $1.3 billion), accounting for about 10% of the circulating supply.

• Pump.fun is a leading meme coin trading platform, generating approximately $1.1 billion in cumulative fees. Its buyback program has purchased about 830,000 SOL (approximately $165 million), equivalent to 10.3% of its (estimated) circulating value.

Other projects also show strong revenue momentum:

• Aave (AAVE) and Jupiter (JUP) continue to generate stable and growing cash flows. Aave's annual revenue has grown from $29.75 million in 2023 to $99.39 million in 2025. Jupiter's revenue growth is even more astonishing, soaring from $1.42 million in 2023 to $246 million in 2025.

• Coinbase (COIN), despite being a publicly traded stock, also benefits from the increasingly clear Base chain token issuance path. Coinbase has broadened its revenue structure: Q3 2025 subscription and service revenue reached $746.7 million (a quarter-over-quarter increase of 13.9%).

This shift is spreading from individual dApps to L1 and L2 ecosystems. Mere technical prowess or investor backing is no longer sufficient. Chains with real users, real transactions, and protocol-level revenue are gaining stronger market recognition. Core evaluation metrics are becoming the sustainability of economic activity.

In summary, the market is undergoing a structural transformation. The market in 2026 may reorganize around these performance-backed participants.

3. Quantifying Market Expectations Through Prediction Markets

Prediction markets are an experiment that transforms previously private or illegal gambling activities into public on-chain data. The core idea is that they quantify the probabilities people assign to future events by allowing them to stake real money on their beliefs. This makes them not just venues for betting but also economic mechanisms for aggregating information and estimating probabilities.

Prediction markets have grown rapidly since 2024: As of October 2025, the weekly nominal trading volume is approximately $2.5 billion, with over 8 million weekly trades. Polymarket holds 70–75% of the activity share, while Kalshi's share has climbed to around 20% after receiving CFTC approval and expanding into sports and political markets.

The uniqueness of prediction market data lies in: polls, social media sentiment, and institutional research are often slow to respond and costly. Prediction markets price expectations in real-time. For example, Polymarket reflected the increased probability of Donald Trump winning in 2024 significantly earlier than traditional polls.

In fact, prediction markets create serialized data of collective expectations. These curves can serve as real-time probability signals for political, economic, sports, and technological events. Financial institutions and AI models are increasingly viewing these markets as an alternative data source (Alt-data) for quantifying expectations.

Source: Grayscale Research

From an institutional perspective, what prediction markets represent is not the "datafication of gambling," but the "financialization of uncertainty." Since prices reflect consensus probabilities, macro traders can use them to manage risk. Kalshi has already provided markets linked to inflation, employment data, and interest rate decisions, attracting significant hedging interest.

As prediction markets mature, they create a new value chain: Market (generating signals) → Oracle (resolving outcomes) → Data (standardized datasets) → Applications (finance, media, AI consumption).

Current barriers are primarily regulatory:

• Asia: Regions like South Korea, Singapore, and Thailand mostly hold a prohibitive stance, classifying them as illegal gambling and penalizing users.

• West: The U.S. regulates prediction markets as "event contracts" under CFTC oversight. Kalshi operates legally with DCM licensing, while Polymarket plans to re-enter the U.S. market in 2025 through the acquisition of QCX.

This regulatory difference has created a divide: the West is moving towards institutionalization, while Asia is suppressing it. Although this is a short-term constraint, in the long run, prediction markets will evolve into infrastructure that transforms collective beliefs into information. They will shift from being "markets that interpret information" to "markets that produce information," reinforcing a world where "price becomes the primary expression of collective expectations."

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