Hyperliquid: HIP-4 Proposal and Little-Known Industry Shifts

Author: Pavel Paramonov Source: hazeflow Translation: Shan Ouba, Jinse Finance

HIP-4 is often seen as an upgrade to Hyperliquid's prediction market, but this definition is not comprehensive. This update focuses primarily on options, with prediction markets being only one part.

This article will analyze: why HIP-4 remains highly popular yet its potential is still underestimated; the likely development direction of subsequent proposals; and why HIP-4 is expected to become the largest version iteration in Hyperliquid's history.

Currently, Hyperliquid is one of the few assets in the crypto space with investment value. While the overall market is fluctuating downwards, the HYPE token has maintained a stable performance. The key reasons for this are its solid project fundamentals, its continuously generating revenue-generating operating model, and the use of profits for token buybacks.

The crypto industry has undergone a transformation: various public chain projects no longer focus on purely crypto-native products, but instead align with general financial technology frameworks, using blockchain as underlying infrastructure rather than its core selling point. Today, asset management institutions, crypto users, and ordinary investors are all beginning to evaluate project value using traditional stock valuation logic, focusing on revenue generation capabilities and whether the returns can generate returns for token holders—a logic equivalent to stock dividends. Compared to pure crypto sector metrics, evaluating projects like Hyperliquid based on revenue and profit distribution is intuitive, easy to understand, and has a lower barrier to entry. After the HIP-3 proposal launched the developer perpetual contract deployment function, a clear pattern emerged in the industry: when the underlying infrastructure achieves permissionless operation and matures, market liquidity will converge towards high-quality teams, and whether a project can obtain additional ecosystem support is no longer a decisive factor. This pattern also applies to HIP-4. Hyperliquid has already outperformed Aevo in the pre-sale market, surpassed dYdX in the perpetual contract decentralized exchange arena, and outperformed Lighter and Aster in the competition among emerging contract platforms. The project has completed its initial phase from 0 to 1 and is now embarking on a new growth journey. Google initially focused solely on its search engine, gradually expanding its business scope after eroding market share. Once a company achieves a monopoly in a niche market, its growth will be limited if the overall industry growth slows down. To meet investor demands, Google has expanded into advertising, text and image news, email, maps, video, and office documents, while also considering shareholder returns. Hyperliquid, however, is not bound by external investors and its development follows only its own vision—to build a comprehensive financial services platform. The project is embarking on its unique path from 1 to infinity, unhindered by any parties, allowing users to freely join, trade, and purchase HYPE tokens. Currently, Hyperliquid has overcome the challenge of user growth, with a solid product reputation and operational performance; its order book depth is ample, liquidity is plentiful, and trading volume is steadily increasing. The core objective at this stage is to further boost these key metrics. This HIP-4 upgrade revolves around outcome trading, adding prediction markets and special options categories. These derivatives exhibit non-linear return curves and do not carry the risk of liquidation or margin calls. A review of existing market analyses reveals that the vast majority focus on prediction markets, with little discussion of the options sector. However, in my view, options also possess significant value and development potential, warranting in-depth research. This article will clarify three core questions: Why is the market generally optimistic about HIP-4, but its potential value is still underestimated? Does Hyperliquid have a need to enter the prediction market? How can options trading help projects seize market share in traditional finance? The development logic behind HIP-4. After the launch of HIP-3, a significant change occurred: users who previously only traded on traditional financial exchanges began logging into Hyperliquid to trade on weekends. With traditional markets closed on weekends, crypto platforms filled this trading gap, precisely addressing the pain point of liquidity shortages and successfully attracting a large number of ordinary investors. The platform's users are no longer limited to cryptocurrency traders, but rather encompass a diverse range of professional trading groups worldwide. With its business categories expanding beyond a single crypto asset, crypto traders have shed their niche image and become general trading users. As Hyperliquid founder Jeff said, Hyperliquid is not a crypto company. HIP-4 continues this development strategy, simultaneously launching prediction markets and options trading. These two types of derivatives are widely used in traditional finance, reaching both the general public and professional traders. For a project to continue growing, it cannot rely solely on its existing crypto user base, but must subtly attract people from outside the crypto sphere. De-emphasizing crypto attributes and facilitating cross-industry trading has always been the industry's ultimate development direction, and this vision is gradually becoming a reality. Users who trade precious metals and US stocks on weekends are introduced to cryptocurrencies; users participating in contract trading will also gradually try options, creating a cross-platform flow of users. HIP-3 brought two new types of users to the platform: users migrating from centralized exchanges and traditional financial traders. HIP-4 further attracts options traders from both the crypto and traditional markets, and existing users can also leverage the new categories to build diversified trading strategies. New users who joined through HIP-3 can now trade non-crypto assets on permissionless trading platforms using options instruments. Even with higher fees, Tradexyz, a trading application developed based on HIP-3, has already caught up with or even surpassed the Lighter platform in trading volume. Ample market liquidity, instant clearing mechanisms, and automatic settlement of funding fees are core advantages that traders are willing to pay for. Many people question whether a decentralized exchange that focuses on perpetual contracts is deviating from its development path by venturing into the prediction market. Faced with competitors like Polymarket and Kalshi, which have very different positioning, can Hyperliquid stand out? In reality, projects can both compete on the same stage and complement each other's business models. When HIP-4 officially announced the inclusion of prediction market functionality, the industry questioned its business compatibility. Hyperliquid has long been deeply involved in the perpetual contract sector, while the profit model of prediction markets is closer to options, belonging to completely different financial categories. Polymarket and Kalshi lean towards a mass-market trading experience, while Hyperliquid focuses on professional, hardcore trading scenarios, with significantly different positioning. Expanding into derivatives categories has strategic rationale, but the outside world has always questioned the project's competitive advantage. From a technical perspective, Polymarket has weak decentralized composability and a fragmented user interface; Kalshi is constrained by compliance regulations, adopts a centralized model, and cannot connect to the on-chain ecosystem. Both can only independently complete prediction transactions, making it difficult to link with other categories to build composite trading strategies. Hyperliquid, leveraging its intelligent trading and settlement system, can create diverse combination trading models. Prediction contracts can be flexibly combined with liquidity mining, perpetual contracts, spot trading, and other categories. For example, a user can open an Ethereum short contract while simultaneously betting on the price of a coin breaking through a specified level in the prediction market, with multiple trades linked and hedging each other. This cross-category combination strategy cannot be implemented on Polymarket and Kalshi platforms. All trading positions on Hyperliquid are uniformly deposited into a margin account, with profits and losses automatically offset and settled; traditional prediction market trading accounts are isolated and cannot be linked. While the advantages of combination trading are significant, Hyperliquid is currently struggling to capture the mass market in terms of user experience. Polymarket boasts a massive user base outside the crypto space, and most Kalshi users have never even been exposed to the crypto field. Ordinary users prefer easy-to-use trading platforms and are unlikely to specifically come to Hyperliquid to participate in fun event prediction betting. Hyperliquid employs a differentiated strategy in response: its platform features a native prediction market focusing on economic trends, asset prices, company valuations, and geopolitical events related to precious metals, deeply aligning with the needs of trading strategy development. It also provides open developer interfaces, allowing third parties to build independent interfaces tailored to ordinary users, enriching application scenarios. Projects do not need to directly compete with Polymarket for mass users; third-party protocols joining the ecosystem can participate in market competition. The founder of Kalshi also participated in drafting the HIP-4 proposal. In the future, prediction trading on Kalshi and Polymarket may directly rely on the Hyperliquid underlying network for clearing and settlement, leveraging the platform's existing user base to optimize the trading experience. In addition to its trading portfolio advantages, HIP-4 features a low-latency execution system and a cancellation priority mechanism, enabling real-time adjustment of market liquidity. In the event of sudden and extreme market conditions, prediction markets require rapid order cancellation and repricing to mitigate the impact of malicious orders. Hyperliquid's mature trading execution system perfectly meets this need, ensuring high-frequency trading and instant settlement, with profits being quickly paid out. Prediction markets are only one part of HIP-4; another core highlight of this upgrade is options trading. While the value and hype surrounding options trading have been overshadowed by prediction markets, it is expected to bring hundreds of thousands of new traders to the platform. The core logic behind the perpetual contract platform's foray into options trading: Perpetual contracts and options are completely contradictory financial products, like a grocery store selling both snacks and steaks—their product categories are vastly different. Hyperliquid has already solidified its advantage in the contract market, and expanding into options trading is a necessary choice to break through existing market boundaries. This time, binary options and range options are launched first, gradually expanding the product portfolio. Options are popular in traditional financial markets, but their adoption rate in the crypto space is relatively low. Perpetual contracts have a simple trading logic; traders only need to predict the direction of price movement, and profits and losses change linearly, making the outcome easily predictable. Crypto assets are highly volatile, and with leverage, short-term gains and losses can be extremely large, giving perpetual contracts a high-risk, high-reward nature. Furthermore, a single currency corresponds to a single perpetual contract order book, resulting in concentrated liquidity, low slippage, high execution efficiency, and a lower barrier to entry. Options trading is significantly more complex. Traders must also analyze price sensitivity, time decay, and implied volatility changes. Even if the directional prediction is correct, losses can still occur due to the pace of market fluctuations and volatility contraction. Hundreds of option contracts derived from the same underlying asset, with different strike prices and expiration dates corresponding to independent order books, can easily lead to liquidity fragmentation, further compressing actual returns due to bid-ask spreads. Crypto traders operate in highly volatile markets driven by emotions, and their mindset is easily influenced by unrealized losses and herd mentality. Options, with their time decay property, mean that even if market movements align with predictions, the value of a position will continue to decline, significantly increasing the difficulty of position management. Perpetual contracts, excluding funding fees, can theoretically be held indefinitely, a characteristic absent in options. Perpetual contracts fill a gap in traditional financial trading. Traditional markets rely on quarterly contracts for long-term holding, operating smoothly in stable volatility environments, but struggling to adapt to the volatile market conditions of crypto. Now, Hyperliquid is no longer limited to a crypto decentralized exchange, transforming into a multi-asset trading platform. The trading logic for assets such as precious metals, stock indices, and commodities differs significantly, necessitating complementary trading tools like options. The Development Opportunity for Options Business In the early days, most projects focused on blockchain underlying adaptation, neglecting the user trading experience. Frequent signature operations significantly reduced the smoothness of perpetual contract transactions. The industry has been slow to develop mature permissionless options products, with technical complexity being the main obstacle. In fact, binary options and prediction markets are essentially the same. If the event is confirmed, the prediction market pays out $1; if the underlying asset price reaches the target, binary options also pay out $1. Their profit rules and pricing logic are completely identical; the only difference lies in the underlying asset. Polymarket cleverly downplays the product concept, allowing users to participate in options trading unconsciously, thus practicing the core idea of ​​the crypto industry's expansion into the mainstream. HIP-3 has attracted a large number of traditional traders. Currently, the platform's mainstream trading volume comes from precious metals, crude oil, and the S&P 500 index, while the proportion of crypto asset trading is declining. New users are more familiar with options instruments, and launching this category aligns with their trading habits. Stock options were originally designed to solve the problem of short selling individual stocks. Short selling with securities is cumbersome and faces the risk of shortages and pressure from securities shortages. Buying put options provides a convenient way to establish a short position. Industry Competitive Landscape: Many projects have attempted to enter the crypto options market, but Hegic, Ribbon Finance, and Lyra have all failed to create a large-scale, mature ecosystem. Aevo was once a strong competitor, but its order book still operates off-chain, and it has consistently struggled with industry-wide problems such as fragmented liquidity, trading delays, and adverse selection by market makers. HIP-4's binary options and range options are compatible with all asset classes, including forex, stocks, indices, commodities, and cryptocurrencies. Crypto traders can add high-risk-reward ratio trading categories to their existing contract trading, enriching their hedging and portfolio strategies; commodity traders can continue to use familiar trading tools and enjoy 24/7 permissionless trading services. With the launch of the S&P 500 index contract, the platform's trading scenarios continue to expand, attracting more traders and resulting in a simultaneous increase in market liquidity and trading volume. Hyperliquid is expected to divert options users from leading centralized exchanges and traditional brokerages, dominating the niche options market. Compared to Nasdaq and the New York Stock Exchange, Hyperliquid boasts the advantage of 24/7 uninterrupted trading. Leveraging its permissionless nature, it offers numerous advantages, including low fees, instant clearing, unlimited trading volume, low margin costs, high capital utilization, self-custody of assets, and no geographical restrictions. The project is free from investor pressure, allowing for flexible and autonomous operational decisions. Its development model aligns with Telegram platforms, relying on natural user acquisition through product strength, eliminating the need for extensive marketing campaigns. Whether migrating existing assets or building innovative portfolio strategies, the platform possesses strong appeal. It is estimated that within a year, Hyperliquid's binary and range options trading volume will surpass the options business volume of all centralized exchanges. Vanilla Options Planning: Vanilla options and perpetual options are not yet available in this HIP-4 update, and regular call and put options are not included. Vanilla options have no profit cap, a stark contrast to the current design where the profit cap is fixed at 1 USDH. There are three reasons why vanilla options are not being launched yet: The product complexity far exceeds that of binary and range options, making them unsuitable as one of the first categories to be launched. The core of this iteration is to natively integrate options functionality into the perpetual contract margin system. Binary options trading logic is closer to that of perpetual contracts, with a lower learning curve. Based on the development pace, vanilla options are highly likely to be launched in HIP-5 and HIP-6, aligning with the product complexity iteration pattern. The core work of the Hyperliquid Labs consists of two main areas: expanding the trading market and enriching trading categories. Currently, the platform lacks sufficient stock trading instruments, and vanilla options heavily rely on individual stock markets, making large-scale launch unsuitable. It's necessary to first enrich the range of simple options, complete market testing, and build a user base before pushing for the implementation of advanced options. Furthermore, vanilla options have low compatibility with crypto assets. Stocks have fixed influencing events such as dividends and financial reports, while crypto assets lack relevant cyclical patterns; moreover, the sheer number of vanilla option contracts makes them prone to liquidity depletion. At present, Hyperliquid remains focused on crypto assets while also developing traditional financial products. Binary options can cater to both types of users and are compatible with various trading instruments. Launching vanilla options will only have real value once the stock, index, and commodity markets have matured. Prediction markets circumvent the complex rules of options, retain non-linear returns and downside risk mitigation features, filling the functional gap left by perpetual contracts. For years, the industry has failed to build a complete crypto options ecosystem, and Hyperliquid is seizing this opportunity to enter the market. Leveraging its permissionless mechanism and cost advantages, it can also carve out a share of the traditional binary and range options market.

Development Opportunities in a Bear Market

The industry generally believes that the market is at the bottom of the cycle. Bitcoin prices have fallen sharply, and various projects have shut down and gone bankrupt one after another. From 2024 to 2025, venture capital projects frequently failed, investment institutions' confidence was shaken, and the proliferation of meme coins led to a generally gloomy industry atmosphere.

A bear market is precisely the golden period for projects to cultivate and develop their strategies. After the market heat cools down, remaining developers can focus on refining their products, accumulating innovative ideas, and avoiding the homogenization and involution that occurred during the frenzy. Teams can solidify their underlying architecture, and investment institutions can rationally assess the value of projects.

Launched in Q1 2023, Hyperliquid, building on its solid foundation, is poised for further growth in the current market. HIP-4 introduces new trading instruments, and the upcoming World Cup in the US this summer will drive increased activity in the prediction market. Sports-related trading demands extremely high settlement efficiency, allowing the platform's technological advantages to be fully utilized. Industry Trends and Changes: The native crypto community is gradually shrinking, and the boundaries between crypto and traditional finance are blurring. Project teams have realized that relying solely on existing users within the crypto community is insufficient for long-term development. True success in the industry lies in making crypto products seamlessly accessible to users outside the crypto sphere. The Hyperliquid Policy Center was created to address this need, directly connecting on-chain products to mature traditional financial systems, significantly lowering the barrier to entry for the general public. HIP-4 grants developers deployment permissions, allowing enterprises to independently join the ecosystem, import their existing user base, and collectively contribute liquidity to the underlying network. A clear industry divide has emerged: projects grounded in real-world scenarios and using encryption technology as their underlying infrastructure will ultimately prevail; those clinging to niche approaches and attempting to force external compliance with encryption rules will be eliminated by the market.