HIP-3 becomes the Hyperliquid new engine: leader DEX drives trading volume to surge tenfold, ecological challenges still exist.

Author: Frank, PANews

Since the launch of the HIP-3 growth model, this flagship product has been rapidly becoming a new business growth engine for Hyperliquiid, not only driving explosive growth in market trading volume with a tenfold increase in monthly trading volume but also injecting more innovative vitality and liquidity into the Perp DEX track.

Behind the surge in trading volume is HIP-3, which aims to become the underlying trading foundation for future decentralized markets. However, this transformation journey is much more rugged than the data suggests.

The monthly trading volume has increased more than tenfold, with the growth model being the main driving force.

The full name of the HIP-3 proposal is “Builder-Deployed Perpetuals”. Its core idea is to decentralize the “market creation rights” from the protocol's core team to the community and developers. Under the HIP-3 architecture, Hyperliquid retreats to the background, becoming the underlying settlement and matching engine, while the rights for defining assets, setting risk parameters, choosing oracle, etc., are completely transferred to third-party “deployers”. Under this mechanism,

In the mechanism design of HIP-3, an important threshold is that any developer wishing to deploy a permissionless market must stake 500,000 HYPE tokens to the network. Based on the current price of $35, this portion of the stake amounts to approximately $17.5 million. Once a deployer engages in malicious behavior, validators can vote to confiscate this portion of the assets. Furthermore, even if the deployer intends to exit this market, they must go through a 7-day unlocking period.

This threshold setting, on one hand, forces deployers to be well-funded institutions or teams committed to long-term development, rather than opportunistic retail investors. On the other hand, such a staking amount serves as a significant deflationary measure for the HYPE token. It is important to note that the maximum supply of HYPE is 1 billion tokens, with a current market value of approximately $9.5 billion; under this model, each locking corresponds to 0.2% of the tokens being locked.

In addition, the HIP-3 market currently mandates the use of isolated margin mode. This means that the position risk of a user in a specific HIP-3 market is completely isolated from their BTC/USDC position on the mainnet. Even if a certain asset experiences a flash crash or oracle attack, its impact is confined to that specific market and will not affect the user's overall account funds or other mainstream asset positions.

Since its launch, the growth rate of HIP-3 has increased exponentially. As of November 28, the trading volume of HIP-3 has exceeded $3.6 billion, which is more than ten times the volume from a month ago. The single-day trading volume on November 25 even surged to $500 million. This performance is already comparable to the monthly trading volume of Uniswap V3 on Ethereum. Additionally, the number of trading users in the entire HIP-3 market has reached 18,000, while Hyperliquid has accumulated over 800,000 users to date.

Recently, the significant surge in HIP-3 data is mainly due to the launch of the growth model on November 19, which allows for the deployment of markets without permission and greatly reduces fees, thereby increasing liquidity. The new feature can reduce transaction fees for new markets by over 90%, with top traders' fees potentially as low as 0.00144%. Meanwhile, the growth model requires markets to avoid overlap with existing assets and will set a 30-day lock to maintain stability. From the changes in data, one can also intuitively feel the growth effect brought by this upgrade.

Leading applications contribute over 90% of trading activity, while US stock assets remain hot but still face liquidity challenges.

According to Nansen data monitoring, there are currently over 100 decentralized applications being built on HIP-3, generating $94 million in new revenue.

In terms of trading volume sources, the main trading activity of HIP-3 is almost entirely contributed by Trade.xyz, which maintains a share of over 95%. Trade.xyz is the first permissionless perpetual contract exchange built on the HIP-3 protocol within the Hyperliquid ecosystem, developed by the Hyperunit (Unit) team. Behind the explosive trading scale, apart from the market's high airdrop expectations for Trade.xyz, analysis by @kungfu_crypto indicates that Trade.xyz has real active trading rather than wash trading, primarily due to its provision of contract levels close to ultra-low fee rates in the U.S. stock market, offering excellent cost advantages for high-frequency light leverage trading. It can be observed that the trading group on this DEX has a small average order size but is highly active; at the same time, the underlying team Unit has been deeply engaged in Hyperliquid for a long time, establishing a trust moat.

Currently, Trade.xyz's flagship product is XYZ100, which is an on-chain index contract tracking the top 100 non-financial technology companies in the United States (benchmarking the Nasdaq 100 index). As of now, the trading volume of XYZ100 accounts for over 60% of Trade.xyz's total. In addition, it has launched perpetual contracts for popular U.S. stocks such as NVDA ( Nvidia ), TSLA ( Tesla ), MSFT ( Microsoft ), etc.

It is worth noting that the underlying assets of on-chain stock trading on Trade.xyz are not real stocks in the traditional sense, but rather an index contract that cannot be physically delivered and does not share the liquidity of U.S. stocks. The biggest advantage of this index contract is that it allows participation in the market fluctuations of U.S. stocks without KYC, and it achieves 24/7 uninterrupted trading through the introduction of a simulation mechanism. For investors who have no demand for delivery but wish to profit from the fluctuations of U.S. stocks, this simulated betting model is the most convenient way.

However, this model also exposes the issue of insufficient liquidity. According to KOL He Bi's recent revelation, three trading pairs built on another market, Ventuals, cannot close short positions and can only be shorted. This has led to an abnormal price surge. The fundamental reason is indeed the lack of liquidity.

In fact, this is not an issue unique to the HIP-3 market; the overall on-chain stock trading market is still immature, and this issue of liquidity deficiency seems to be widespread. Another crypto practitioner, @EthWiz0X, stated that purchasing $100,000 of Ondo Finance's TSLAon on Uniswap could lead to a price impact of up to 83.34%. In the HIP-3 market, currently, apart from Trade.xyz's XYZ100 and NVDA, which have relatively decent trading volumes, other markets like Felix and Ventuals maintain an average daily trading volume of only a few million dollars. The main reason is that trading pairs in markets like Felix and Ventuals generally use the Hyperliquid native stablecoin USDH. Compared to the widely adopted USDC, the market recognition of USDH is still severely lacking.

Moreover, the current on-chain stock trading services are seeing more players entering the competition. For example, on November 26, Binance Wallet announced the addition of on-chain stock trading, with transaction fees reduced to a minimum of 0%. In addition, mainstream exchanges like Bitget and Bybit have also launched similar US stock trading sections.

Of course, HIP-3, as a permissionless market, has application scenarios that are not simply limited to on-chain stock trading. Another project, TROVE, targets the direction of trendy toy trading, such as Pokémon cards, CS2 skins, and perpetual contracts for Nintendo and Pop Mart stocks. Ventuals, on the other hand, focuses on the pre-IPO market. Compared to the US stock market, these market directions currently still belong to niche markets, and therefore the insufficient trading depth of these alternative markets is also closely related to their themes.

Multiple favorable factors drive the increase in enthusiasm, but there remains a dilemma between ecological expansion and stablecoins.

The recent attention on the HIP-3 market may be attributed to the following reasons:

1. Recently, the differentiation in the cryptocurrency market has weakened. As the market enters a bear phase, the majority of tokens are influenced by Bitcoin's performance. In an environment where the entire market rises and falls together, there is a strong preference for assets that can perform independently. In contrast, the U.S. stock market is relatively unaffected by the cryptocurrency market and exhibits greater independence.

2. Expectations for the airdrop of the HIP-3 ecosystem project. Previously, the airdrop of Hyperliquid left a good impression on the market, so the market generally believes that projects in the Hyperliquid ecosystem are likely to continue replicating the success of the Hyperliquid airdrop. Currently, these projects that have not yet issued tokens are in a period of boosting their volume.

3. There is more imagination regarding the potential of HIP-3. As mentioned earlier, the potential of HIP-3 is not limited to the stock market and may explode in more alternative markets in the future. Therefore, for the currently narrative-exhausted market, such imaginative space can easily evoke optimistic sentiments. In September of this year, the Hyperliquid community also proposed the concept of HIP-4, aiming to introduce perpetual contracts for prediction markets. This roadmap aligns more closely with the current hot directions of the market.

A report from Falconx also pointed out that “we expect the incremental costs generated by the perpetual futures market deployed by HIP-3 builders to drive HYPE growth by 67% over the next year, with the stock and index markets being the main drivers.”

Despite multiple positive factors in the market, it doesn't necessarily mean that these optimistic expectations can determine the bright development prospects for the HIP-3 market. In terms of liquidity, currently, apart from Trade.xyz, the liquidity and trading volume of other markets are still pitifully low. Regarding trading currencies, the popularity of the HIP-3 market still relies on the mainstream recognition of USDC, while Hyperliquid hopes to support the native stablecoin USDH to become a mainstream trading currency. Finding a balance between the two is the biggest issue that restricts the true explosion of the HIP-3 market.