Hyperliquid HIP-3: The Beginning of a New Era in On-Chain Finance

In May 2025, an improvement proposal named HIP-3 sparked widespread discussion in the DeFi field, with its minimum viable version already launched on the Testnet. This is not just a simple protocol upgrade, but a key step in the overall development blueprint that could have a profound impact on the future of on-chain derivatives trading.

To fully understand the importance of HIP-3, we need to first grasp its overall design philosophy, which begins with three core proposals.

Hyperliquid Trilogy

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

HIP-1: Breakthrough on Listing Restrictions

For a long time, new projects have faced high barriers to listing tokens on mainstream trading platforms. The process is opaque, costly, and often accompanied by stringent terms. Project teams must endure long negotiations, which may require them to pay high fees or relinquish a large number of tokens.

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

HIP-2: Automated Market Making

Even if the new token successfully launches, its value is difficult to reflect if there is a lack of buying and selling depth. This is the so-called "liquidity cold start" problem.

HIP-2, also known as "Hyperliquidity", is a native automated liquidity strategy. 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 foundational and tradable liquidity for the new market. It effectively addresses the cold start problem during the initial launch of new assets.

HIP-3: Permissionless Creation of Perpetual Markets

Perpetual contracts are the largest area of trading volume in the crypto market, but before HIP-3, only the core team had the authority to decide which assets' perpetual contracts would go live, limiting the platform's development potential and asset diversity.

HIP-3, also known as "Builder-Deployed Perpetuals", completely opens up the creation rights of the perpetual contract market. Any "builder" can deploy custom perpetual contracts on the platform by staking 1,000,000 HYPE.

The builders have complete control over the markets they deploy, allowing them to independently define key parameters, including selecting collateral, using price oracles, setting leverage limits, and margin parameters. Additionally, builders enjoy 50% of the trading fees from the market (this sharing ratio may be adjusted after the official launch), which is quite a substantial return on investment.

After completing these three steps, Hyperliquid has transformed from a decentralized trading platform aimed solely at end users into a "financial infrastructure layer," significantly surpassing other competitors in terms of narrative, and also giving rise to new business ecosystems and gameplay.

Impact 1: Aligning with the physical asset boom

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

Institutional capital can naturally be considered qualified players in this category. These institutions will not spend tens of millions of dollars to launch small-cap cryptocurrencies with rapidly declining trading volumes; instead, they will target those markets in traditional finance that have large and stable trading volumes and substantial value, which is precisely where physical assets come into play. Major global stock indices, commodities, and major foreign exchange currency pairs are all potential targets.

Taking the world's most important S&P 500 index futures contract as an example. In 2025, the daily trading volume of contracts is around 1.6 million. Each contract has a nominal value of 50 dollars multiplied by the index points of the day. In July 2025, the E-mini S&P 500 futures price is around 6,400 dollars/point, so the nominal value of each contract is approximately 320,000 dollars. Based on this calculation, the total nominal amount of daily trading in SP500 futures is approximately 512 billion dollars.

For example, if a perpetual contract for the SP 500 index is deployed on the platform, even with just a 0.1% trading volume and assuming a 0.1% fee rate, the market for this contract would generate a daily fee of $512,000, and the builder could share 50% of this fee, resulting in a daily income of $256,000. It would take about 164 days to recover the staked cost of over $42 million, after which it would be pure profit. This is undoubtedly hugely attractive for institutions seeking stable returns.

Additionally, before HIP-3, Hyperliquid, like many DeFi protocols, was designed specifically for crypto native assets, and its architecture and parameters may not be suitable for physical assets. With the introduction of HIP-3, the core engine provides unified trading and settlement capabilities, while each physical asset market has risk parameters, collateral assets, and liquidation logic tailored for specific assets. This modular design is essential for safely and efficiently bringing physical assets with different attributes on-chain.

Impact Two: Create a New Token Ecosystem

Although HIP-3 is good, there are still two unresolved issues:

1. After creating a perpetual contract market, you can enjoy a 50% fee sharing, which is a quite attractive business return. However, the initial investment is huge, and 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, except that it delegates the power to create trading markets. But where does the liquidity for this new market come from? HIP-2 addressed the cold start liquidity issue of HIP-1, but who will provide the initial liquidity for HIP-3?

For the above two issues, although HIP-3 is currently still in the Testnet phase, there may be better solutions in the future. Even after the official launch, if the platform does not provide an official solution, the community can leverage the advantages of "composability" in DeFi protocols to offer third-party solutions.

Suppose the community invents a new Decentralized Finance protocol that solves the staking problem of 1 million HYPE. This protocol allows retail investors to deposit their HYPE tokens into a public pool and raise 1 million HYPE through crowdfunding, thus gaining the qualification to deploy perpetual contracts. In return, users will receive staking certificates representing their shares, thereby having the right to share in the fee income generated by the contract market in the future. This allows ordinary users to also participate in the returns of HIP-3.

In addition to staking certificates, the protocol will also issue its own governance tokens. When deciding which token's perpetual contract market to establish with the crowdfunded HYPE, having more governance tokens means greater influence. To this end, project teams that want to create their own token's perpetual contract market on the platform must seek the support of governance token holders, such as conducting airdrops for holders, thereby increasing the demand for governance tokens and raising their price.

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

As the protocol succeeds, other teams follow up by developing other "liquidity aggregators", and a "Hyperliquid war" begins, competing for user HYPE deposits, project cooperation, and the rights to real yield distribution.

In summary, staking 1 million HYPE to create deflation is the first step, and 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 its coin price.

Impact Three: Meet the demand for trading unlisted stocks

Recently, retail investors' interest in private stocks of unlisted companies has been growing. Some well-known companies are not yet listed, but many people want to participate in investments in advance. A certain trading platform has issued a small amount of tokenized stocks for a few companies, which, although controversial, has also demonstrated the strong investment demand in the market for unlisted stocks.

Hyperliquid has a natural advantage in meeting this market demand. First, it has a feature called Hyperps, which addresses the challenge 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, the funding rate of Hyperps is not calculated based on the deviation between futures prices and spot prices, but rather on the difference between the current price of the futures and its own moving average over a past period. When bullish sentiment is strong and the futures price in Hyperps is significantly higher than its own moving average, the funding rate becomes extremely high, strongly incentivizing shorts to enter, and vice versa.

The combination of HIP-3 and Hyperps allows anyone (as long as they can afford the 1,000,000 HYPE staking fee) to "self-service" deploy perpetual contracts for popular private placement stocks. HIP-3 addresses the question of "can it be done," while Hyperps resolves the issue of "price unanchored and extreme volatility."

Although HIP-3 + Hyperps launched futures contracts rather than actual stocks, it is not suitable for value investors. However, it does provide retail investors with an opportunity to gain from the price fluctuations of these companies. More importantly, this mechanism offers a price discovery function. When these companies actually IPO, the market will already have a reference price, preventing excessively outrageous pricing that could exploit retail investors.

Impact Four: Responding Agilely to Competition from Centralized Exchanges

Recently, some compliant exchanges have also begun to offer futures trading services for U.S. users. Their biggest advantage is compliance, which is very attractive to institutional funds that have high requirements for security and compliance. The disadvantage is that traditional centralized exchanges are cautious when launching products; for example, the contract products currently offered are limited to a few mainstream currencies, and the leverage cap is relatively low. Centralized exchanges need to go through a complex approval process to launch new products, which can take several months, making it impossible to quickly respond to market demand for new product trading.

The disadvantages of centralized exchanges are precisely the advantages of Hyperliquid. Before HIP-3, Hyperliquid had already been very quick in responding to market demands. For example, when the NFT market was booming, it launched NFT index contracts that allowed traders to directly long or short the entire top NFT market; and when social finance was popular, it also launched social account indices that allowed direct long or short positions on the Key prices of top users in a certain social ecosystem. Now, HIP-3 will make the contract market "permissionless," further enhancing the agility in responding to market demands, a level of agility that centralized exchanges cannot match.

Therefore, Hyperliquid continues to innovate by launching new features such as HIP-3 and Hyperps, responding to the compliance advantages of centralized exchange giants with its own agility, and strengthening 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 positioning itself as a core financial infrastructure that connects real-world assets, fosters an innovative ecosystem around HYPE, and agilely responds to market demands, driving the deep integration of decentralized finance and traditional finance.

Of course, the road ahead is also full of 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. However, HIP-3 has already painted a picture for us of a more open, composable, and imaginative on-chain financial future.