This article is from:Pavel Paramonov

Compilation | Odaily Planet Daily (@OdailyChina); Translator | Azuma (@azuma_eth)

Currently, Hyperliquid is seen as one of the few assets in the cryptocurrency market that remains "investable."

The market overall is in a downward trend, yet HYPE shows very strong stability. There are many reasons for this, but one of them is undoubtedly Hyperliquid's strong fundamentals, its focus on revenue generation, and the continuous reinvestment of profits to buy back HYPE.

The cryptocurrency industry has matured relatively, and some changes are still occurring—protocols are trying to avoid marketing "crypto-first" products and instead are shifting towards more general fintech models, where cryptocurrency is just a part of the infrastructure and not a deliberately emphasized selling point.

Nowadays, whether it is asset management institutions, native crypto users, or more broadly general users, when evaluating a protocol, they increasingly adopt logic similar to traditional equity valuation—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 can be evaluated more easily through revenue and distribution mechanisms than simply relying on crypto-native metrics, making them easier for the market to "understand."

HIP-3 (the perpetual contract market deployed by builders) has already demonstrated a clear pattern: when an infrastructure is permissionless and has been validated by the market, liquidity tends to gather around stronger teams, regardless of whether they received additional support from the ecosystem.

The same logic will apply to HIP-4. Hyperliquid has defeated Aevo in the pre-market battlefield, outperformed dYdX in the Perp DEX war, and has won over Lighter and Aster in the new round of Perp DEX competition. Hyperliquid has completed the leap from 0 to 1; what remains 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 potential actually becomes quite limited. To meet the demands of investors, Google has had to pioneer new markets, subsequently entering fields such as advertising, images, news, email, maps, video, and documents. Aside from Google's own ambitions, it also has to respond to shareholder expectations.

However, in the case of Hyperliquid, there is no need to satisfy investors—only its own ambitions and goals, which is to "encompass the entire financial system." Hyperliquid is progressing in its own way, moving from 1 to ∞. They owe nothing to anyone; anyone can freely come to this platform to start trading or buy HYPE.

Hyperliquid has already solved the issues of user acquisition (excellent products with a verified track record), liquidity depth (almost perfect order books), and trading volume (the result of the previous two). Now, it's time to push these metrics further up.

The next update (HIP-4) focuses on "outcome trading," which will introduce prediction markets and certain specific types of options to Hyperliquid—these products can provide non-linear return outcomes while devoid of liquidation risks.

I have read many articles, predictions, and various studies on HIP-4, most of which focus on prediction markets yet hardly discuss the options side. In my view, options are also very interesting and have great potential, but they are currently receiving far too little attention.

This article aims to clarify three key questions:

• Why do many people underestimate the potential of HIP-4 despite praising it?
• Does Hyperliquid really need prediction markets?
• Why might Hyperliquid penetrate and capture a substantial portion of the traditional financial market through options?

The Concept Behind HIP-4

HIP-3 brought about some changes: those who previously wouldn’t use cryptocurrency exchanges began turning to Hyperliquid on weekends—a time when traditional markets are usually closed. Hyperliquid can bring "ordinary people" into the crypto world because it did something that crypto protocols usually avoid for various reasons—precisely addressing a clear pain point and tackling the real issue of insufficient liquidity in weekend markets.

People 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 as the platform is no longer limited to a single asset class. As Hyperliquid's founder Jeff stated: "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 been widely used outside the crypto world by both casual users and professional traders.

If Hyperliquid wants to continue growing, it cannot rely solely on a limited pool of crypto users; it needs to expand and bring in new users without them even realizing it. This has always been viewed as a type of endgame—hiding the "crypto" layer, and now it seems to be gradually becoming a reality. People who trade precious metals and stocks on weekends will eventually come across crypto tokens; those who come to trade perpetuals will discover options, and vice versa.

In addition to the already established mature users on Hyperliquid, HIP-3 also brought in two new user categories: users from centralized exchanges and traditional traders.

HIP-4 has the opportunity to attract both options traders from crypto exchanges and traditional exchanges, while also allowing existing users to build more customized trading strategies using options and prediction markets.

Those new traders brought in by HIP-3 will also gain new tools—namely options—enabling them to trade non-crypto assets on a permissionless exchange.

Deployers like trade.xyz, following HIP-3, are now able to achieve trading volumes on par or even higher than Lighter, even charging higher fees. Traders are willing to pay for features like deep liquidity markets, atomic settlement mechanisms, and automated fund allocation rates.

That said, prediction markets seem to appear as a business that doesn't align as well with Hyperliquid. How does a Perp DEX platform compete with platforms like Polymarket or Kalshi that target completely different audiences?

I believe it can compete with them and can also become a very close ally.

Why Does Perp DEX Need Prediction Markets?

It doesn't need to! The answer is actually hidden in the name: perp stands for perpetual futures, which are completely opposite tools to options. It’s like your local candy store suddenly starting to sell steaks; both are 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 it's time to aim at something new. To continue growing, Hyperliquid must capture new markets. This expansion will start with a few types of options products—such as binary options and bounded options—but won't cover all types of options in one go.

As some readers might know, options trading is a very popular tool in the world outside of 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 only need to judge one variable—direction. You know the chart will continue to move to the right, so the only thing left to determine is whether it will rise or fall. Its profit and loss curve is linear and predictable, and the logic is very simple.

In addition to the ease of understanding perpetual contracts themselves, they dovetail with the natural properties of the crypto market. The crypto market is highly volatile, so you can make a lot of money in a short time, or you might lose a lot very quickly. The larger the leverage, the more risk and reward are amplified. Many say crypto is like a casino, and this "casino feel" can be partially reflected in perpetual contract trading—often, using over 5 times leverage feels dangerously close to gambling addiction.

Moreover, one perpetual contract type corresponds to one contract. If you trade HYPE-PERP, then buyers and sellers are in the same order book—with deep liquidity, low slippage, orders continuously executed, and prices moving accordingly. Again, this makes it easier to trade.

Options are not like that at all. You not only have to judge price direction but also the sensitivity to price, time value decay, and sensitivity to changes in implied volatility. Many times, even if your direction is correct, you can still lose money on options: it might be because the market moves too slowly, or too quickly, or just due to the compression of implied volatility (IV).

An asset often corresponds to hundreds or thousands of options contracts. Each combination of strike price and expiration date forms a separate order book, leading to liquidity fragmentation—which is precisely the issue the crypto industry has been trying to resolve for years. A wide bid-ask spread acts as a direct tax burden for traders; often, as soon as you enter the market, you are already significantly underwater compared to fair value.

Crypto traders are already engaged in a continual psychological battle in this high-volatility, emotionally driven market, staring at unrealized losses, repeatedly questioning their entry points, and being constantly swept along by FOMO. If you add a countdown mechanism that continually erodes position value, then even if you are "technically right" in your directional judgment, holding that position becomes very difficult. A leveraged long in a perpetual contract can theoretically be held indefinitely (not considering funding fees), but this situation does not exist in options.

In a sense, perpetual contracts solve a problem that doesn’t exist in traditional finance. In traditional markets, the closest thing to perpetual contracts is continuously rolling quarterly futures—you hold a futures contract and roll the position into the next expiration cycle before it is due for settlement. This mechanism works relatively well when market volatility is calm; but in our industry, volatility is never "tranquil."

Hyperliquid is no longer just a decentralized crypto exchange; it resembles a decentralized exchange with a variety of tradable assets. Other assets differ from crypto assets, having different operational logics and requiring different trading tools.

Options Have Always Been Around

The reason Hyperliquid has been able to win the Perp DEX battle is due to many factors, and one of the key elements is UX—on this platform, you don’t need to sign every order, every trade, or every action taken. Frequent signing creates a lot of friction, while most teams in the industry optimize for "blockchain consistency" rather than user experience.

If the entire industry struggles to create a truly sustainable, permissionless perpetual contract trading product, it is not surprising that there hasn’t been a sufficiently excellent permissionless options trading protocol. It’s too complex, complex enough that people find it difficult to truly envision it. Though, I might be slightly inaccurate here because over the past few years, everyone has, in a sense, been trading options—options are prediction markets (more precisely, binary options).

Structurally, binary options are completely consistent with prediction markets: if an event is ultimately deemed true, the prediction market pays $1; if it does not, it pays $0. If at expiration the underlying asset price exceeds a certain strike price, the binary option pays $1; otherwise, it pays $0.

Both are essentially the same: they have the same profit structure and pricing mechanics. The only difference lies in the mode of expression and applicable scenarios (after all, you can't buy an option on the underlying named "Will Trump say a particular outrageous statement in his next speech").

Polymarket did a brilliant thing by allowing people to engage in options trading without even realizing they were trading options. Prediction markets thus achieved what every crypto practitioner has been talking about—allowing people to use crypto products without realizing they're using cryptocurrency. This is actually a direct solution to this problem.

HIP-3 attracted a large number of non-crypto trading users. In fact, most of today's trading volume on Hyperliquid comes from precious metals, oil, and the S&P 500, rather than crypto assets. Since the platform has already acquired a fresh user base, it is clearly reasonable to introduce more tools they are already familiar with.

Historically, one major reason stock options became popular is that shorting stocks is difficult. You need to borrow the stock, pay borrowing fees, and rely on brokers to lend them, while facing the risk of being short-squeezed if demand for the borrowed shares exceeds supply. Instead of going through this whole complex process, it's much easier to buy a put option.

Hyperliquid Has No Competitors

In the past, no protocol was excellent enough to truly bring sustainable options trading into the crypto world. Hegic, Ribbon Finance, Lyra, and so forth have not managed to do so; Aevo has been relatively successful and was seen as a strong competitor to Hyperliquid in 2024, but their order books remain off-chain. As for the reasons, I won't elaborate here; you are all familiar with them—liquidity fragmentation, latency issues, LP adverse selection, and so on.

HIP-4 introduces binary options and bounded options, which are applicable to nearly all major asset types: forex, stocks, indices, commodities, and the crypto assets we are familiar with.

Crypto traders will continue trading perpetual contracts while being provided with a new high-risk, high-reward tool. This can generate more trading strategies and also bring about new ways to hedge positions.

Users trading commodities on Hyperliquid will have tools they were already familiar with on other exchanges, only now it is permissionless and open 24/7.

With the introduction of products like perpetual S&P 500, more markets will be deployed, attracting more traders and bringing in more liquidity, and trading volumes will continue to grow.

Hyperliquid has the chance to continue attracting crypto traders from Binance, Bybit, OKX, as well as commodity traders from traditional exchanges, forming a thorough suppression in this side of the options market.

Why would crypto traders choose Hyperliquid? This has become quite clear, and this migration will only become more frequent in the future; but the question is, why would traditional options traders move from NASDAQ or NYSE to Hyperliquid?

NASDAQ is still considering opening a 24/5 trading window, but Hyperliquid is already 24/7. This is the natural attribute of a permissionless system: lower fees, instant settlement, no position size limits, lower margin costs, higher capital efficiency, non-custodial, and no geographical restrictions.

Hyperliquid operates 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 respect, Hyperliquid resembles Telegram—you don't need to spend much on marketing; it all comes down to the belief itself. If the product is good enough, people will eventually come to use it.

People have countless reasons to migrate from traditional exchanges to Hyperliquid for trading the same assets and will gain the ability to construct completely new trading strategies because of its truly excellent composability.

I predict that within a year, Hyperliquid's trading volume for binary options and bounded options will exceed that of any centralized exchange's options trading volume.

What About Standard Options?

There is an important note that needs to be clarified first: HIP-4 does not support "vanilla 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 strike price for standard options is unlimited—higher prices mean greater profits. The current design of HIP-4, however, is exactly the opposite: its profit ceiling is capped at 1 USDH.

The absence of standard options in HIP-4 means three things:

• As the first type of options introduced, standard options are much more complex than binary options and bounded options.
• Prediction markets represent the first attempt to integrate a form of native 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% sure that the next updates, HIP-5 or HIP-6, will introduce standard options because this is the logical next step on the complexity spectrum. Hyperliquid Labs’ work can be roughly categorized into two things: first is the introduction of new markets; second is the introduction of new trading tools.

Currently, Hyperliquid does not have enough markets to support standard options trading; it essentially still leans more towards an equity-like tool.

Hyperliquid does not yet have enough stock markets to support the introduction of standard options. In other words, "there are people with this demand, but not enough." To truly unleash the potential of standard options, more markets are needed, as well as the prior validation of simpler options products—namely binary options and bounded options—otherwise introducing vanilla options now wouldn’t make much sense.

However, I believe there's another reason why HIP-4 has not introduced standard options—it is not 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, and in most people's perception, it is still primarily linked to the crypto market. HIP-4 targets two audiences: crypto traders and traditional traders, while binary options happen to apply to and are indeed needed by both groups—whether they are trading crypto, commodities, or stocks.

It provides new tools for both groups. You could argue that standard options are clearly better suited for trading stocks, indices, and commodities, but crypto assets do not completely align with this logic—they lack a natural event calendar (like dividends, financial reports, etc.), and the standard options market quickly falls into liquidity scarcity because each combination of strike price and expiration date corresponds to a separate order book.

While Hyperliquid is rapidly moving towards 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, introducing standard options will make perfect sense. This action can be taken now, but it is not timely.

The potential success of prediction markets in places where standard options have struggled to break through is precisely because it strips away all the complexities of options while retaining the non-linear and capped downside risks that perpetual contracts cannot provide.

Hyperliquid has an opportunity to capture the entire cryptocurrency options market because no protocol over the past many years has been excellent enough to truly achieve this.

Hyperliquid also has the chance to capture a significant portion of the binary options and bounded options share in the stock, index, and commodity markets because, in terms of permissionlessness and cost, no mainstream exchange's technology can compare to Hyperliquid's.

Market Sentiment is Rock Bottom

Now, almost everyone agrees that the market is generally at a bottom area.

Bitcoin has fallen below its previous historical high set in 2021—this situation has only happened once before, and that instance corresponded to the previous market bottom at the end of 2022; protocols are shutting down almost daily, VCs are unusually silent, and they are extremely disappointed with their investments made between 2024 and 2025—that was a phase where even a scam project could easily raise large sums of money; Trump even launched his memecoin... the market sentiment couldn’t be worse (unless a major CEX has a major failure again).

However, bear markets are actually the most suitable times for VCs to bet. Indeed, there are fewer builders in the market, but those who remain are almost all truly committed individuals, and they have more time to refine their ideas and continuously adjust their direction, completing several iterations before competition becomes completely fierce and attention-seeking spirals out of control.

For builders, this is a window period for laying foundations; for VCs, it is also a stage where they can finally think calmly rather than be driven by FOMO. Although Hyperliquid does not belong to the new products of this cycle—it launched back in the first quarter of 2023—precisely because it laid a solid foundation between 2022 and 2023, it now has more opportunities. Through HIP-4, more promising new opportunities will emerge in the market. Notably, the FIFA World Cup to be held in the US this summer will further bring a large number of new users into the prediction markets; and for events like this, 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 boundaries between "crypto" and "everything else" are gradually dissolving.

Protocols are finally starting to realize that relying solely on a batch of on-chain wool-pulling users cannot truly lead a project to success—even though this has been clear enough from the very beginning.

Real success comes from enabling people outside the crypto circle to use crypto products without realizing they are using them. This requires time and is one of the reasons why the Hyperliquid Policy Center (HPC) was established. It’s challenging to get millions of people to directly use on-chain products; but if those on-chain products are embedded into systems that millions of people are already using—that is to say, 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 each can bring in its existing user base while merging liquidity into the same underlying engine.

Winners will build products that are genuinely oriented towards the real world, embedding cryptocurrency as underlying implementation details. Losers will cling to the old narrative of "crypto for the sake of crypto" and expect the world to adapt to them.

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