HIP-3 Innovation: Hyperliquid's Agile Approach to Competing

In May 2025, the HIP-3 improvement proposal launched by Hyperliquid has attracted widespread attention in the DeFi field, and the most minimal viable product (MVP) has been launched on the Testnet. This is not just a simple protocol upgrade, but a key step in Hyperliquid's development blueprint that may have a profound impact on the future of on-chain derivatives trading.

To truly understand the importance of HIP-3, we need to first grasp the overall design philosophy of Hyperliquid, which starts with its three core proposals (HIPs).

Hyperliquid Trilogy

The development path of Hyperliquid is clear and coherent, building a comprehensive financial ecosystem through three key improvement proposals.

HIP-1: Breaking the Listing Barriers of CEX

Industry Pain Points: For a long time, new projects have faced a common dilemma: the process of listing on mainstream CEXs is opaque, costly, and often accompanied by stringent terms. Project teams need to undergo lengthy negotiations and may have to pay high fees or relinquish a large number of tokens.

Solution: HIP-1 provides another option for crypto project teams. It allows anyone to create new tokens on Hyperliquid without permission, just like the ERC-20 standard. Project teams only need to pay a certain fee (paid with HYPE tokens) to create their own tokens and automatically open a spot order book market. This greatly lowers the barrier for assets to enter the public market, providing a fairer and more transparent issuance platform for project parties.

HIP-2: Automated Market Making for the Spot Market

Industry Pain Point: A new token, even if successfully launched, cannot demonstrate its value if it is ignored and lacks trading depth. This is known as the "liquidity cold start" problem.

Solution: HIP-2, also known as "Hyperliquidity", is the native automated liquidity strategy of the Hyperliquid protocol. After a new token is created through HIP-1, HIP-2 acts as a market-making bot, automatically placing buy and sell orders on the order book to provide basic, tradable liquidity for this new market. It effectively addresses the cold start challenge during the early stages of a new asset's launch.

HIP-3: Permissionless Creation of Perpetual Markets

Industry Pain Points: Perpetual contracts are the largest area of trading volume in the crypto market, but prior to HIP-3, only the Hyperliquid core team had the authority to decide which assets' perpetual contracts could be launched, limiting the platform's development potential and asset diversity.

Solution: HIP-3, also known as "Builder-Deployed Perpetuals", completely opens up the creation rights of the perpetual contract market. Any "builder" can deploy customized perpetual contracts on Hyperliquid by staking 1 million HYPE.

The Builder has complete control over the market it deploys, allowing it to independently define various key parameters, including the choice of which assets to use as collateral, which price oracle to utilize, setting leverage limits, and margin parameters. Additionally, the Builder enjoys 50% of the trading fees from the market (this is the current figure, and the revenue share may be adjusted after the official launch), which is quite a substantial return.

After completing these three steps, Hyperliquid has transformed from a purely user-oriented DEX into a "financial infrastructure layer", far surpassing other DEX competitors in narrative, and also giving rise to new business ecosystems and gameplay.

Impact 1: PMF Aligns with RWA Trend

HIP-3 has a very high barrier to entry: builders must stake 1 million HYPE tokens as collateral. At the current price of approximately $42 per HYPE, this staking amount is about $42 million. This design is actually a filtering mechanism to ensure that only well-capitalized and serious players are capable of participating.

Institutional capital certainly qualifies as this type of qualified player. These institutions will not spend tens of millions of dollars to launch small-cap, quickly declining trading volume Meme coins; they will target those markets in traditional finance that have huge and stable trading volumes and deep value, which is precisely where RWA comes into play. Major global stock indices (such as the S&P 500), commodities (such as gold), and major foreign exchange currency pairs (such as EUR/USD) are all potential targets.

Taking the world's major S&P 500 index futures contract as an example. The CME E-mini S&P 500 futures (code: ES) has a daily trading volume of approximately 1.6 million contracts in 2025. Each contract has a nominal value of $50 multiplied by the index points for the day. In July 2025, the E-mini S&P 500 futures price is around $6,400/point, so the nominal value of each contract is approximately $320,000 (6,400 × 50). Based on this calculation, the total nominal amount of daily trading for SP500 futures is approximately: 1,600,000 contracts × $320,000/contract ≈ $512 billion.

If a perpetual contract for the SP 500 index is deployed on Hyperliquid, even if it only captures 0.1% of the CME trading volume, assuming a fee rate of 0.1%, the daily transaction fee for this contract market would reach $512 billion × 0.1% × 0.1% = $512,000, and the Builder can share 50% of this fee, meaning the Builder's daily income is $256,000. It would only take about 164 days to recover its staking cost of over $42 million, after which it would be pure profit. This is undoubtedly very attractive for institutions pursuing stable returns.

Additionally, before HIP-3, Hyperliquid, like many Decentralized Finance protocols, was tailored for Crypto Native assets, and its architecture and parameters may not be suitable for RWA assets. With the introduction of HIP-3, Hyperliquid's core engine provides unified trading and settlement capabilities, while each RWA market has risk parameters, staking assets, and liquidation logic customized for specific assets (such as U.S. Treasuries and real estate). This modular design is essential for securely and efficiently bringing RWA with different attributes on-chain, similar to the Hub+Spoke architecture of Aave V4 and the Core+SubDAO architecture of Sky.

Impact Two: Creating a New Token Ecosystem

Although HIP-3 is good, there are still two problems that have not been solved:

1. After creating a perpetual contract market, you can enjoy a 50% share of the transaction fees, which is a quite attractive return. However, the initial investment is huge, the staking cost of 1 million HYPE will exclude most retail investors. Do retail investors really have no way out?
2. HIP-3 is somewhat similar to HIP-1, but it has delegated the power to create trading markets. However, where does the liquidity for this newly created market come from? HIP-2 solved the cold start liquidity problem of HIP-1, but who will provide the initial liquidity for HIP-3?

Regarding the above two issues, although HIP-3 is still in the Testnet phase, there may be better solutions in the future. The author believes that even after the official launch, if Hyperliquid does not provide an official solution, the community can leverage the advantages of "composability" in DeFi protocols to offer third-party solutions.

Assuming the community has invented a new Decentralized Finance protocol, HLAggregator, solving the staking problem of 1 million HYPE. HLAggregator allows retail investors to deposit their HYPE tokens into a public pool, crowdfunding to gather 1 million HYPE, thereby qualifying for the deployment of perpetual contracts. In return, users will receive a staking certificate (which is the LST) that represents their share, thus having the right to share in the future transaction fee income generated by that contract market. This allows ordinary users to participate in the earnings of HIP-3.

In addition to LST, HLAggregator will also issue its own governance token, referred to as HLA. When deciding which token's perpetual contract market to establish with the raised HYPE, having more HLA means greater influence. To this end, project teams wishing to create their own token's perpetual contract market on Hyperliquid must 'bribe' HLA holders, for example, by conducting airdrops targeting HLA holders, thereby increasing the demand for HLA and boosting its price.

In this way, the liquidity problem of the new contract market can also be solved. HLAggregator can incentivize users to provide initial liquidity for the new market by distributing its own project token HLA or by partnering with project parties that wish to launch perpetual contracts to distribute that project's tokens through "token incentives".

With the success of HLAggregator, other teams have followed suit and developed other "liquidity aggregators", leading to a "Hyperliquid War" over user HYPE deposits, project partnerships, and the allocation of real yield distribution rights. Readers familiar with the history of DeFi development will realize that this is a rehash of the "Curve War" from back in the day.

In summary, staking 1 million HYPE to create deflation is just the first step. The second step is to create new ecosystems and business models around HYPE. After these two steps, the application scenarios and market demand for HYPE will be greatly expanded, thereby establishing a solid support for the price of HYPE.

Impact Three: Meet Pre-IPO Trading Demand

Recently, retail investors have shown increasing interest in private equity stocks (Pre-IPO) of unlisted companies. Star companies like OpenAI and SpaceX are not yet listed, but many people want to "get on board" early. Robinhood once issued a small amount of tokenized stocks for OpenAI and SpaceX, which sparked significant controversy but also proved the strong investment demand for Pre-IPO stocks in the market.

Hyperliquid has a natural advantage in meeting this market demand. First of all, Hyperliquid has a cool feature called Hyperps, which solves the problem of providing futures trading for assets that have not yet officially launched or lack reliable price sources. Unlike traditional perpetual contracts that rely on external spot price oracles, Hyperps's funding rate is not calculated based on the divergence between futures prices and spot prices, but rather on the difference between the current price of the futures and its own exponential moving average (EMA) over a past period (e.g., 8 hours). When bullish sentiment is strong, and the futures price in Hyperps is significantly higher than its own moving average price, the funding rate will become extremely high, strongly incentivizing short positions to enter, and vice versa.

The combination of HIP-3 and Hyperps allows anyone (as long as they can afford the 1 million HYPE staking fee) to "self-service" deploy perpetual contracts for popular private stocks like OpenAI and SpaceX. HIP-3 addresses the question of "can it be done", while Hyperps tackles the issue of "price unanchored, severe volatility".

Although HIP-3 + Hyperps launched futures contracts instead of real stocks, it is not suitable for value investors, but it provides retail investors with an opportunity to benefit from the price fluctuations of these companies. More importantly, this mechanism provides a price discovery function. When these companies actually go public, the market already has a reference price, which prevents unreasonable pricing that could exploit retail investors.

Impact Four: Agile Response to CEX Competition

Recently, compliant exchanges such as Coinbase and Kraken have begun to offer futures trading services for U.S. users. Their biggest advantage is compliance, which is highly attractive to some institutional funds with high security and compliance requirements. The disadvantage is that traditional CEXs are quite cautious when launching products; for example, the contract products currently offered by Coinbase are limited to BTC and ETH, with a lower leverage limit (such as 10x). Launching new products on a CEX requires a complex approval process, which may take several months, making it impossible to quickly respond to market demand for new product trading.

The disadvantages of CEX are precisely the advantages of Hyperliquid. Before HIP-3, Hyperliquid was already very quick in responding to market demands. For example, when the NFT market was booming, Hyperliquid launched NFT index contracts, allowing traders to go long or short on the entire leading NFT market directly; and during the popularity of SocialFi, Hyperliquid also launched the friend.tech social account index, enabling direct long or short positions on the Key prices of top users in the friend.tech ecosystem. Now, with HIP-3 creating a "permissionless" contract market, the speed of response to market demand will be elevated to a new level, a level of agility that CEX cannot match.

Therefore, Hyperliquid continuously innovates by launching new features such as HIP-3 and Hyperps, responding to the compliance advantages of CEX giants with its own agility, and reinforcing its differentiated characteristics in the fierce market competition.

Conclusion: A More Open On-Chain Financial Future

In summary, HIP-3 is an important leap in the development of Hyperliquid. It is not just a technical upgrade, but a strategic choice aimed at establishing itself as a core financial infrastructure that connects real-world assets, innovates around the HYPE ecosystem, and agilely responds to market demands, driving the deep integration of DeFi and TradFi.

Of course, the road ahead is also filled with challenges. How to effectively guide the liquidity of new markets and how to cope with the complex global regulatory environment will be key to determining its ultimate success or failure. Nevertheless, HIP-3 has already painted a picture of a more open, composable, and imaginative on-chain financial future for us.