Hyperliquid valuation: is this the next future of DEXs?

What is Hyperliquid? L1 with high-performance native components, including a DEX with over 100 perp contracts and native spot trading.

In just two years, Hyperliquid has quickly positioned itself as a leading force in the crypto derivatives market, emerging as one of the most actively traded perpetual DEXs.

Let’s find out more:

I. TEAM AND PROJECT VALUE

1. CEO Jeff Yan

In the past, Jeff was a successful quant who, since early 2020, wrote simple scripts that effectively captured market inefficiencies.

According to him, their team was the best in their field. This explains both the source of the project’s funding and the quality of the product itself.

Jeff is often compared to Amazon and cites the example of Jeff Bezos (Amazon founder), who didn’t generate revenue for the first 10 years.

That’s why Hyperliquid is frequently called the “Amazon of DeFi” on Twitter.

We recommend you watch this podcast with Jeff — https://www.youtube.com/watch?v=WeRh589I76o

2. NO VCs

The Hyperliquid team has not raised external funding (no VCs) and does not generate income from exchange activity. All revenue is returned to the community.

The product’s growth is driven by internal funds. This is not charity, but it’s not a business yet, either. It’s simply long-term thinking.

3. PRODUCT FIRST

Hyperliquid has taken a product-first approach, fostering organic growth without heavy reliance on incentives and maintaining financial independence as a strictly self-funded team.

It processed $21B in volume last week alone and has 3x’d its total share of perpetual volume this year, climbing from ~11% in December 2023 to 33% last week.

II. Valuation model

HyperLiquid consists of a Layer 1 blockchain, a Perp DEX, a Spot DEX, and a Bridge. While the Spot DEX sees around $4M in daily volume, the Perp DEX dominates with $2B–$4B in daily volume. Clearly, the 2 main drivers of valuation are the Perp DEX and Layer 1.

Messari analysis suggests that HyperLiquid’s valuation equals the sum of the Perp DEX and Layer 1. However, we don’t agree. As we have experienced, the market tends to value an asset based on one primary category, not a combination. We’ve seen this in past examples:

• DYDX: Top 1 Perp DEX of the last cycle, built & moved to its own blockchain (Cosmos) → yet its valuation stayed as a Perp DEX.
• Uniswap: Top 1 AMM announced plans for its own blockchain → its valuation remains as AMM.
• SHIB: Top 2 memecoin launched Shibarium, Ethereum — Layer 2 blockchain → its valuation remains tied to its memecoin identity.

While these are all leading projects in their sector, their valuation still remains after changing into a blockchain. So, in a typical scenario, HyperLiquid will likely be valued primarily as either a Perp DEX or a Layer 1, not a combination of both.

With this in mind, we’ve created valuation models for different scenarios:

Now, let’s break down the valuation for each component:

1. Perp DEX

For the valuation method, we do not use a cash flow model because, in crypto space, things change too quickly, and long-term assumptions are rarely accurate. Cash flow models often only give a fancy appearance but lack reliability in market price. From our experience, prices tend to follow comparative methods instead.

To value HyperLiquid, we compare it to top derivative protocols like GMX, Gains Network, DYDX, and Drift, focusing on key metrics of Perp DEX, such as trading volume, annualized fees, and TVL.

HyperLiquid uses a tiered fee structure. Therefore, we use the calculated worst-case 30-day volume-weighted average fee at 0.01276% → annualized fee is ~ $50.28M.

All the data is in millions of dollars ($M).

Using the average multiples in 3 metrics, we calculate HyperLiquid’s valuation at $1.9B, $4.7B, and $955M, respectively. Taking the average:

→ Final FDV for HL Perp DEX is $2.54B.

2. Layer 1

In terms of TVL, HyperLiquid already ranks as the 11th highest, even without its TGE. Since HyperLiquid’s Layer 1 dApps have not yet been launched, dApp metrics won’t be considered for valuation. Comparing TVL and DAUs, similar blockchains that are reasonable to use as peers are Arbitrum, Sui, Aptos, and Polygon.

Given that Sui is considered overhyped and manipulated recently, we apply a 50% discount for conservatism. Then, we calculate the average FDV/TVL multiples of all peers for valuation.

→ Final FDV for HL Layer 1 is $9.42B.

III. Valuation on Scenarios

1. Base Case

As mentioned earlier, in a balanced scenario, a reasonable valuation should reflect an average of the Perp DEX and Layer 1. However, in the long term, HyperLiquid will lean more toward operating as a Perp DEX rather than a Layer 1.

When a blockchain ecosystem grows, the most visible metric is TVL, and the leading sector is typically AMMs. AMMs serve as the foundational liquidity providers for the ecosystem, enabling native tokens and stablecoins for others to function well. It supports the basic needs of a network, like swapping and adding LP.

Looking at HyperLiquid’s Spot TVL, we observe that while the Perp DEX TVL is growing rapidly, Spot TVL remains stagnant, barely increasing. Currently, Spot TVL accounts for only 16% of Perp TVL, with just $4M in daily volume out of $220M TVL.

→ This means money doesn’t find HL ecosystem attractive, they come for the Perp, not others.

Moreover, you can see that most of the biggest Dapps on HL Layer 1 now are all Perp DEX supporters:

• Hypurr Fun: tele bot for HL
• PVP Trade: tele copy trading bot for HL
• Insilico Terminal: HL trading managing system
• HyBridge: Bridge focuses on USDC (obvious for Perp)

Overall, HyperLiquid’s Perp DEX has a dominant influence on the HL ecosystem and its valuation. Using a 70% Perp DEX + 30% Layer 1 weighting, we calculate the valuation as:

→ Base case FDV = 4.60B

2. Bull Case

HyperLiquid’s team is building two major narratives:

1. Positioning HL as the “AWS of liquidity” in the crypto space.
2. Establishing HL as a competitor to CEX like Binance.

We see the chance for HL to become AWS in crypto liquidity is really low, and it’s not a clear vision, and the market is not paying attention to it either. However, for the latter, a lot of analyses have compared HL to Binance. Most of the time, you will see HL in nowhere compared to Binance, but it has a pretty clear narrative, which can be the same as Binance and raise speculation:

• Founders with backgrounds in top-tier financial institutions and HFT firms.
• A rich team that values community engagement.
• Advanced trading infrastructure surpassing many competitors.
• Ownership of both CEX and DEX, and a blockchain.
• Top 1 in their sector

In the most bullish scenario, we think HyperLiquid can be compared to Binance and, therefore, have the same FDV/ TVL multiple, with data in table above → HL Layer 1 FDV ~ 20.88B.

In bull case, our valuation model = HL Perp + HL Layer 1

→ Bull case FDV = 23.42B

3. Bear Case

As the valuation model above, easily got HL valuation = Perp DEX Valuation

→ Bear case FDV = 2.54B

IV. Tokenomics Update

Hype Foundation just announced their tokenomics yesterday:

Total Supply: 1,000,000,000

The circulating token at TGE shall be 37.3%, which means 1.34B marketcap at the current pre-market price.

Use case:

• Staked to secure HL L1
• Use as gas

Overall, this is solid tokenomics, with over 70% allocated to the community, aligning well with HL’s north star and the market’s preferences this cycle. The core contributors have a 1-year cliff, with the majority of their tokens vesting in 2027–2028, ensuring minimal price impact over the next 6 months. Only concern might be the huge airdrop at TGE, so we take this as normal case and therefore, our FDV valuation scenarios would still be:

• Bear case: 2.5B — $2.5
• Base case: 4.6B — $4.6
• Bull case: 23.4B — $23.4

Concerns:

31% airdrop would be 310k tokens ~ $1.1B at market price. While the current average daily HL spot volume is $6M, and ATH was $28M (source: CoinGecko)

→ It would take 40 days to absorb this dump, even at ATH volume.

However, HYPE/ USDC is totally different than other HL spot pairs currently, which are all low-cap memes. Additionally, CEX has to accumulate tokens for its listing, so this would not be that risky. But still, volume & airdrop claiming metrics are the 2 most important stats to watchover.

Research conducted by Monolith team. Thanks for reading this far and DYOR!

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