Original author: Ryan Watkins Compiled by: LlamaC

In the fourth quarter of 2024, Syncracy established a large number of positions in HYPE. In the first quarter of 2025, as Hyperliquid’s story accelerated beyond expectations and our beliefs grew, Syncracy further increased its position.

We believe that Hyperliquid has a unique revenue engine that combines exchanges and smart contract platforms, which makes it promising to be the blockchain that generates the highest fees in the crypto economy. In addition, its vertically integrated design combines these two businesses through a unified interface, allowing Hyperliquid to gather users more effectively than any peer to date, providing a structural advantage to its ambition to accommodate all financial globally.

This exchange alone has the potential to disrupt Binance's position for a long time, providing superior performance over decentralized peers and has structural advantages over centralized exchanges in terms of cost, accessibility, auditability, composability, security and asset availability. Meanwhile, its smart contract platform has the potential to become one of the main application ecosystems, leveraging Hyperliquid’s exchanges and inherent trader base as the basis for growth.

We estimate the combined market size of its exchanges and smart contract platforms—what we call the "financial aggregator" opportunity—will reach tens of billions of dollars in the next few years.

Below we share our arguments.

Note: Inspired by frictionless capital

The art of progressive decentralization

Trading is by far one of the most clear killer applications of the crypto economy, but most transactions are still in centralized places. Is it possible to build a decentralized exchange similar to the origins of Bitcoin? This is Hyperliquid co-creationThe question founder Jeff Yan tried to answer when he created a new exchange from the ruins of FTX in 2022.

After having a successful career in quantitative trading at Hudson River Trading, Jeff found himself in a comfortable position to take on a bold entrepreneurial adventure, founding Hyperliquid with his Harvard classmate and co-founder Iliensinc. It is worth noting that instead of accepting any external funding from venture capitalists, the team decided to guide the entire project entirely independently. This is a key decision that allows teams to focus on creating products they believe in, free from external pressures, and ultimately allocate much of their ownership to the community.

Two years later, Hyperliquid has become one of the fastest growing projects in the crypto economy, accounting for more than 60% of the market share in the on-chain perpetual contract market. In the process, it played a key role in driving the transition to on-chain perpetual contract trading, which currently accounts for 12% of global transaction volume.

Hyperliquid What is the key to success?

It all starts with the team's product-first philosophy. Instead of prioritizing ideological purity, the team pursues maximum decentralization from the beginning, they are committed to providing the best on-chain trading experience. This strategy is best understood as incremental decentralization—a practical way to build successful projects in a crypto economy, involving teams first finding the fit between the product and the market and then gradually giving up control over time. The key insight the team understands is that while decentralized and open source software is critical to reducing counterparty risk in the long term and achieving greater product scalability, most users prefer performance and ease of use rather than strictly abide by the crypto-punk principle. Therefore, in the two years before the release of the HYPE token, the team relentlessly perfected the platform through direct interaction with traders.

This feedback loop proves to be invaluable because the Hyperliquid team often implements feature requests and fixes within a few hours, building deep trust within the community. It also facilitates the development of key product features such as providing traders with order cancellation priorities, allowing market makers to report closer spreads,and Hyperliquid vault, enabling the exchange to quickly introduce liquidity to new trading pairs. The result is a high-performance chain with built-in order book (CLOB), capable of handling throughput of 100,000 transactions per second (tps) and achieving sub-second final confirmation - an order of magnitude higher performance than peer products.

As trading volumes grow exponentially by the end of 2024, the Hyperliquid team has executed its most ambitious move to date - airdropping 31% of the token supply to its users. The airdrop was overwhelmingly successful because Hyperliquid has proven product market fit – a stark contrast to most projects that have launched their tokens on the premature listing.

Crucially, the HYPE token also has a clear intrinsic value, with an annualized fee rate of $228 million at that time. This not only provides the recipient with a strong motivation to hold rather than sell immediately, but also creates strong buying pressure for HYPE as these fees drive large-scale buybacks. Furthermore, no insider is pre-allocated except for the core team, and airdrops create a situation where any big buyer who wants to gain exposure must buy on the open market. This is a strategic trick because it not only forces these participants to log in directly to Hyperliquid and increase trading volume simultaneously, but also highlights the next evolution of Hyperliquid as more than just a simple derivatives exchange, starting with the spot market first.

Exchange is a winner-takes-all market, with liquidity network effects, scale efficiency, brand value and regulatory barriers concentrating trading activities in the hands of a few leaders. This model has shaped financial markets for centuries, cementing the dominance of leaders such as CME in derivatives, the New York Stock Exchange and Nasdaq in the stock market, and Binance in the centralized cryptocurrency market. However, despite its massive scale, no exchange has been able to completely unify the liquidity of multiple asset classes on a single global ledger - a concept we call the "Everything" exchange.

What needs to be bridged is not just a singleDominant in the market – it requires infrastructure that seamlessly integrates multiple asset classes, unify liquidity and expands globally. This is exactly what makes Hyperliquid different from traditional exchanges, providing a vertically integrated system that runs on its own high-performance blockchain while integrating liquidity in the spot and derivatives markets.

Blockchain-based exchanges provide structural advantages in auditability, efficiency, security, composability and accessibility. Instead of entrusting assets to centralized entities with opaque risk, users can keep their assets themselves and use autonomous smart contracts as intermediaries to trade in global, all-weather, near-instant settlement markets.

These benefits are not just theoretical. They are already driving the growth of current on-chain transaction volume. This trend can not only be observed from the data, but is also reflected in the strategies of the two major exchanges in the industry - Binance and Coinbase. The two exchanges have launched their own blockchains - Binance Smart Chain (BSC) and Base, respectively, in order to gain the upper hand in this transformation.

Hyperliquid recognizes this opportunity and has taken the first step by expanding into the cryptocurrency spot market. The solution first allows users to send native assets of blockchains such as Bitcoin, Ethereum, and Solana to Hyperliquid through a standardized interface. This is a first for on-chain exchanges, because all exchanges in history were either single-chain or only spot trading. Hyperliquid will become the only on-chain central limit order book exchange that provides both multi-chain spot and derivatives markets, replicating the experience of a centralized exchange on-chain for the first time.

Currently, Hyperliquid only supports two large-cap assets, HYPE and BTC, in its spot market, and it has become the top 10 DEX and top 5 chains in the world by DEX trading volume. We expect it will quickly climb the ranking as it introduces the largest assets in the crypto economy to trade, assuming spot trading volume reaches 30% of perpetual contract trading volume (a typical proportion of exchanges serving both markets simultaneously), adding 9-digit gains in the first year after launch.

Hyperliquid should continue to surpass its centralized competitors by virtue of the following advantages:

Cost-Compared with centralized exchanges such as Binance, transaction fees and operating expenses are significantly lower.

Accessibility- Due to its global licensing-free nature, users are more likely to join.

Acceptability-Easy to verify using the basic public key encryption technology inherent in blockchain.

Compositeness-Easy to third parties to develop on their basis (such as builder code)

Security- Self-hosting, increasing decentralization on the chain over time

Asset Availability- Faster and transparent asset listing process

In addition, these advantages allow Hyperliquid to eventually expand beyond blockchain native assets. As the tokenization efforts accelerate, Hyperliquid's opportunities may cover all global assets, including special markets such as currencies, stocks, bonds, commodities, real estate, and even sports betting and forecasting markets. In fact, we think this transformation is almost inevitable. As wallets become more and more popular, asset issuers will have an increasingly strong incentive to go public on public blockchains to leverage the global investor base to gain a wider distribution channel and obtain a minimum cost of capital.

Looking at a broader perspective, we estimate that the current opportunity within the crypto economy is worth more than $140 billion. Furthermore, we estimate opportunities beyond the crypto economy, including all asset classes and exchanges around the world, with a minimum value of over $500 billion. This does not include private exchanges, strange assets or large OTC markets such as forex markets. If these are included, market opportunities can easily reach trillions of dollars. Again, we believe that blockchain-based exchanges greatly expand exchange opportunities.

In its short history, Hyperliquid has achieved an annualized revenue of $577 million based on its perpetual contract exchange and the initial spot market alone. If any of the above forecasts come true in the next 12-24 months, we expect revenue to grow exponentially, which is likely to make Hyperliquid on-chainIn terms of income, it jumped to the top of the crypto economy (it was already No. 3).

The opportunity of "exchange of everything" alone provides exciting potential, with a total market of trillions of dollars. Maybe there is more to pay attention to?

In the previous section, we mentioned that Binance and Coinbase have launched BSC and Base respectively. These two chains are entities separated from the exchange and have independent equity structures and profit and loss statements. But what if Binance and BSC merge, for example? What if you essentially combine two of the most profitable businesses in crypto economic history: exchanges and smart contract platforms? What if you further make them all accessible through a single interface? This is exactly the opportunity Hyperliquid faces with its recently launched HyperEVM, an EVM-compatible virtual machine running in parallel with its order book exchange.

We believe that with its exchange as the initial killer application that directly owns user order flow, Hyperliquid has good conditions to become one of the earliest aggregators in the crypto economy. In essence, by closely integrating its interface, exchange and smart contract platform into a coherent experience, Hyperliquid can aggregate users on a large scale, creating an unparalleled influence on developers and asset issuers compared to peers.

This is a big deal, because all three have been decentralized in the crypto economy throughout history. For example, Base is Ethereum's most successful expansion solution, but it is mostly separated from the wider suite of Coinbase products and is accessed mainly through third-party interfaces. Uniswap vertically integrates wallets, interfaces, order routers, exchanges and expansion solutions, but inherits the technical debt brought about by Ethereum's chaotic modular roadmap. Solana is the most widely used blockchain in the crypto economy, but outsourcing the user experience to external developers such as Pump and Jupiter, who also partially exited and launched its own chain.

In contrast, Hyperliquid integrates the entire technology stack to only partially modularize its application and interface layer—a design choice creates potential strategic advantages. Unlike an ecosystem that relies entirely on third-party applications and interfaces, Hyperliquid’s independent exchange is both an anchor and a distribution center, strengthening its network efficiency.answer. The exchange acts as a funnel top, allowing third-party developers to build applications and issue assets that can be directly integrated with the Hyperliquid flagship interface that brings together users. This creates a powerful feedback loop. The more users there are on the exchange, the more liquidity the app is available. The more liquidity the application is available, the more useful the application becomes. The more useful the application is, the more sticky the Hyperliquid ecosystem becomes, and the more valuable it becomes over time.

In consideration of these factors, the shared state between the Hyperliquid exchange and the HyperEVM may bring a range of synergies and product innovations, such as:

Advanced Collateral Management- This is a premium brokerage application that enables traders to easily achieve maximum capital efficiency of their collateral – for example, lending liquid staking HYPE through an Aave-like agreement, selling interest through a Pendle-like earnings market, while using the position as collateral for derivative transactions

On-chain structured product- An asset management application that utilizes Hyperliquid Vaults and derivatives create on-chain structured products similar to Ethena

Social Trading- Social Trading Apps can expand their group trading strategies through Hyperliquid vaults, or allow traders to automatically obtain a portion of the copy transaction fee through the builder code

Advanced Money Market- A money market protocol that integrates Hyperliquid derivatives exchanges to hedge collateral risks and use spot transactions for liquidation, ultimately enabling it to provide borrowers with a higher loan-to-value ratio (LTV)

Privacy Trading- Similar to Tornado Cash's privacy protocol allows anonymous ordering (dark pool trading) on ​​the Hyperliquid exchange

These examples are just a drop in the ocean - the deep integration between Hyperliquid's trading interface, order book and smart contract ecosystem provides a fertile soil for a new wave of on-chain financial infrastructure.

Hyperliquid has several important levers to guide its ecosystem - a key competitive advantage in the increasingly saturated smart contract platform landscape. These levers revolve around its loyal user-owner community and its rich incentive funding.

Existing transaction user base- Unlike most emerging smart contract platforms, Hyperliquid already has a large and highly active user base. This solves the cold start problem that ecosystems outside of Ethereum, Solana and Base are generally facing, providing developers with an instant product market.

Incentive Funding Bank- In the time of creation, Hyperliquid Allocation of 39% of its supply (about $9 billion today) for community rewards and incentives, allowing it to launch a multi-billion-dollar campaign to attract users and developers

Aid Fund Repurchase- Hyperliquid announced that it will begin using its aid fund to purchase ecosystem tokens to inspire on-chain activity and support its communities

Developers in the HyperEVM ecosystem are keenly aware of these advantages and have formulated their market entry strategies accordingly. Many are inspired by Jeff and highly aligned with HYPE holders, which may lead many developers to airdrop their token supply to Hyperliquid users and HYPE Stakers. This dynamic can be understood analogically as Binance’s launchpad - which is one of BNB’s biggest demand drivers (second only to its exchange revenue), and even today, despite the nearly dead BSC, BNB still has a $90 billion valuation.

In addition, there are projects that promise to allocate some of their funds to HYPE, which may create additional demand for HYPE as they increase revenue. This may be important in the story of developing HYPE as a non-sovereign store of value similar to ETH and SOL, which are also reserve assets for their ecosystem. As HYPE’s adoption on HyperEVM scales up, its role as fuel fees, collateral and quote pairs will further advance this narrative, possibly making HYPE obtains valuations that are well beyond the MEV and execution costs alone. This will consolidateIts position as a core asset in the crypto economy that is tied with BTC, ETH and SOL.

Super financialization

As time goes by, it has become increasingly challenging to enter the exchange or smart contract platform market. Both are network effects-driven businesses, dominated by entrenched global leaders, and may gradually consolidate into a power-law market structure over time. Competing in these areas is not only difficult—but stupid, without a unique and attractive value proposition.

We believe that Hyperliquid is one of those rare new entrants who can have a meaningful impact on both markets. Its vertically integrated design, coupled with the concept of product priorities, makes it one of the fastest growing projects in the history of crypto-economics. More importantly, Hyperliquid has a unique revenue engine that is expected to become the world's highest-cost blockchain by acquiring fees from both exchanges and smart contract platforms - an advantage that no other smart contract platform or exchange can claim.

Of course, this argument is not without risks. In addition to the inherent execution risks of any early-stage startup projects, there are risks associated with:

Centralization- Hyperliquid may not be able to distribute its validator cluster globally without degrading performance, which is currently composed of 16 concurrent servers in Tokyo; in addition, its inability to decentralize may pose regulatory risks

Developer ecosystem building- Hyperliquid is mainly developed by core teams with very little external contribution; since most of the code remains closed source and HyperEVM is still in its infancy, it may take long-term efforts to build a strong ecosystem of third-party contributors

left;">Protocol Curing- Whether it is reasonable to solidify all the infrastructure required to run an order book exchange on-chain is an open question, especially when it comes to perpetual swap products. Such products require an insurance fund owned by the agreement to prevent bankruptcy - a risk not taken by Ethereum and Solana, as they outsource solvency risks to third-party exchanges built on their platforms

Bridge Hacker- If Hyperliquid fails to convincingly decentralize its bridging infrastructure, its spot market may be damaged; in addition, the lack of native stablecoin support creates unnecessary counterparty risks

Business cyclicality- Exchanges are cyclical businesses, and a decline in interest in asset classes will lead to reduced transaction volume and fee reductions

Although these risks, Hyperliquid's track record itself illustrates the problem. The team has demonstrated world-class execution time and time again, with no signs of slowing down. This is probably the most important factor considering that Hyperliquid is still in the early stages of its life cycle.

It is rare to find founders who operate at this level. Even more rare, they are building in the two largest markets of cryptocurrencies at the same time. Our experience tells us that when you encounter an opportunity of this size, it is worth it and bet bold.

The crypto economy is evolving from an old force driven by ideological dreamers to a business-oriented builder who will bring blockchain to the public.

The boundaries between financial markets are melting, integrating into a single, composable, ultra-high liquidity financial system. Over time, the old financial world's collection of isolated ledgers, intermediaries and clearinghouses will give way to a unified, real-time, programmable economic system.

We are happy to support Hyperliquid because it is moving towards this vision. The road to super financialization is fully unfolding.