As Hyperliquid’s HIP-3 perpetual markets have continued to drive significant volumes this year, HYPE has outperformed the crypto majors with a 125 percent year-to-date gain. Although 99 percent of protocol fees already flow into open-market buybacks, the explosive growth of the prediction market sector has now raised expectations that HIP-4 will be the next major growth catalyst for Hyperliquid this year.
HYPE vs. Bitcoin, Ethereum and Solana – year-to-date performance
Source: CoinMarketCap
The broader crypto market has been slow to recover from the October liquidation cascade, with macro and geopolitical instability weighing on sentiment and flows into high-beta AI and tech equities absorbing most of the risk-on appetite that would otherwise have rotated into crypto.
However, HIP-3, which lets third-party builders launch their own standalone futures markets on Hyperliquid, now accounts for over 40 percent of the exchange’s total daily perpetual volumes, with much of that exposure in tokenized commodities (such as oil and precious metals), equity indices, stocks, and more recently, pre-IPO contracts like the SpaceX-USDC market on Trade.xyz.
The launch of HIP-4 earlier this month provides Hyperliquid with yet another opportunity to further diversify its protocol fee generation from the broader crypto market cycle. For HYPE, strong HIP-4 demand could push the token closer to net-deflationary territory (where net issuance falls below zero), as monthly unlocks currently outpace total buybacks and burns.
What are HIP-4 outcome markets?
HIP-4 outcome markets allow traders to take direct positions on the probability of a specific event. Each contract is a fully collateralised binary instrument with a fixed expiry that settles at either 0 or 1 depending on the outcome.
Traders buy YES or NO contracts at prices between 0 and 1 USDC, and the price represents the market’s implied probability that the event will occur. A YES contract at 0.55, for instance, means the market is pricing the outcome at a 55 percent likelihood.
If we take a market on whether “Bitcoin will trade above 88k by the end of the month,” a bullish trader putting USD 10,000 into YES contracts at 0.55 acquires 18,181 contracts. If Bitcoin closes above 88k at expiry, those contracts pay out USD 18,181, leaving the trader with USD 8,181 in profit, or a return of roughly 82 percent. If not, the contracts settle at zero and the full USD 10,000 is lost.
A bearish trader on the other side could buy NO contracts at 0.45, which would pay out if Bitcoin does not close above 88k.
The first market to launch on Outcome.xyz (first HIP-4 deployer) is a recurring daily binary on Bitcoin’s mark price. However, markets are still in their initial testing phase, which means the Hyperliquid team is still approving each new market individually before going live. Politics, sports, macroeconomic data releases and broader crypto events are all likely to follow once full permissionless deployment launches, which is expected from mid-June onwards (new: May CPI year-over-year market debuted on May 25)
Additionally, HIP-4 contracts work very differently from HIP-3 perpetuals. HIP-3 supports leverage up to 50x along with funding rates and liquidation risk, while HIP-4 contracts are fully collateralised with no leverage since the payoff is binary.
Creating a HIP-4 market is also more capital intensive because deployers must stake twice the amount needed for HIP-3 – 1 million HYPE tokens, worth around USD 60m at current prices.
Competition with market leaders
The prediction market boom has seen an impressive USD 68bn traded last quarter, with Polymarket and Kalshi reporting combined volumes of USD 24bn in April alone, and Kalshi the larger of the two holding 62 percent market share (due to its dominance in sports betting).
The first HIP-4 BTC outcome market debuted relatively well, with more than USD 6m in notional volume, but this was only around 0.7 percent of the total prediction market volume that day. Once fully permissionless HIP-4 markets launch, this should put Hyperliquid in direct competition with both prediction market platforms, and the market anticipates HIP-4 will eventually catch up to these volumes.
But both Polymarket and Kalshi are also expanding into derivatives, with Polymarket launching perpetual futures in April and filing for leveraged contracts on crypto, US stocks and commodities, and Kalshi preparing its own crypto perps offering. Meanwhile, Coinbase and Robinhood are distributing prediction market contracts through Kalshi, and Kraken plans to launch its own prediction market this year.
Matching the volumes of Polymarket and Kalshi is quite a big ask, especially given that both platforms gathered most of their users from the 2024 US election cycle and subsequent partnerships with major sport leagues, such as the NHL and MLB. But prediction market volume today is mostly retail and crypto-native, and these is exactly the kind of fee flows HIP-4 is built to capture once permissionless markets launch.
Prediction market notional volume vs. fees (monthly)
Source: Dune Analytics, May 26 MTD
HIP-4 currently charges no fees on opening positions, with 7 bps taker / 4 bps maker on close or settlement only, compared to Polymarket’s taker fees of 0.75 to 1.8 percent and Kalshi’s probability-weighted trading fee of up to 1.75 percent at even odds. Hyperliquid, however, will likely add an opening fee once traders and volumes pick up.
Meanwhile, the sector’s growing institutional credibility may also benefit HIP-4 indirectly, with the CFTC formally classifying event contracts as derivatives, Jane Street and Susquehanna acting as market makers on Polymarket, and ICE (NYSE’s parent company) committing up to USD 2bn in Polymarket at an USD 8bn pre-money valuation.
Other tailwinds for HYPE
A few other developments may also provide fresh tailwinds. The new HYPE ETFs now open up institutional flows, while the new Coinbase USDC treasury deal, under which Coinbase becomes the official deployer of the 5bn USDC held on Hyperliquid, redirects an estimated USD 150-180m (approximately 90 percent) in annual reserve yield back to the protocol – a substantial new revenue stream feeding directly into buybacks.
Most other Layer 1 protocols never developed this kind of fee-based model, relying instead on token emissions paid to validators and stakers to mask the absence of on-chain activity. And while DEX competitors do generate trading fees, most have failed to convert them into consistent buybacks or burns.
Many of these projects are now rushing to overhaul their tokenomics as their tokens trade near all-time lows. For “inflation-only” Layer 1s and DEXs in particular, this is unlikely to lift demand for these tokens as buyback flows remain tied to weak and declining crypto trading volumes.
HIP-3 markets do not have this problem, with most of volume tied to non-crypto exposures like commodities, equity indices and stocks. HIP-4 outcome markets should follow the same dynamic as they expand into sports and politics.
Outlook
Permissionless HIP-4 markets are expected to launch around the time of the 2026 FIFA World Cup. This will be a key test of HIP-4’s ability to compete with Kalshi’s dominance in sports betting, not to mention Polymarket’s World Cup Winner market, which has already generated USD 1bn in trading volume.
We expect HIP-4 to capture share in the short to medium term, however, the bigger question is whether opening fees come in fast enough to offset monthly token unlocks and push HYPE closer to net-deflationary territory.
ENDS
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