A 10,000-Word Deep Dive into Hyperliquid HIP-4: Leveraging Prediction Markets and Options Trading to Encroach on Traditional Finance

Compiled by｜Odaily; Translator｜Azuma（@azuma_eth）

Currently, Hyperliquid is regarded as one of the few still “investable” assets in the криптовалютаcurrency market.

The overall market is in a downtrend, while HYPE has demonstrated remarkable stability. There are many reasons for this, but one is undoubtedly Hyperliquid’s strong fundamentals, its focus on revenue generation, and its continuous use of profits to repurchase HYPE.

The криптовалюта industry has matured relatively, and some shifts are still occurring — protocols are trying to move away from pushing “crypto-first” products and are shifting towards more general fintech models where cryptocurrency is just part of the infrastructure, not a deliberately emphasized selling point.

Today, whether it’s asset management institutions, native crypto users, or the broader general public, they increasingly evaluate protocols using logic similar to traditional equity valuation — focusing on revenue and how that revenue will create value for token holders (similar to the relationship between equity and dividends).

Ultimately, protocols like Hyperliquid are easier to evaluate through revenue and distribution mechanisms, and easier for the market to “understand,” compared to relying solely on crypto-native metrics.

HIP-3 (the perpetual futures market deployed by builders) has already shown a clear pattern: when infrastructure is permissionless and market-proven, liquidity tends to flow to stronger teams, regardless of whether they receive additional ecosystem support.

The same logic will apply to HIP-4. Hyperliquid has already beaten Aevo in the pre-market trading arena, surpassed dYdX in the Perp DEX battle, and outcompeted Lighter and Aster in the new wave of Perp DEX competition. Hyperliquid has completed the leap from 0 to 1, so what’s left?

Google was initially just a search engine until it almost swallowed the entire market. When a company becomes a monopolist in its own field, its growth potential becomes quite limited unless the global market and demand are still growing rapidly. To meet investor demands, Google had to explore new markets, entering advertising, images, news, email, maps, video, documents, and other businesses. Beyond Google’s own ambition, it also had to respond to shareholder expectations.

But in Hyperliquid’s case, there are no investors that need to be satisfied — only its own ambition and goal, which is to “accommodate the entire financial system.” Hyperliquid is moving from 1 to ∞ in its own way; it owes nothing to anyone, and anyone is free to come to this platform to start trading or buy HYPE.

Hyperliquid has already solved the user acquisition problem (excellent product and proven track record), liquidity depth problem (near-perfect order book), and trading volume problem (a result of the first two). Now, it’s time to push these metrics even higher.

The next update (HIP-4) focuses on “outcome trading,” which will introduce prediction markets and certain types of options to Hyperliquid — products that can provide non-linear payoff outcomes without liquidation risk.

I’ve read many articles, predictions, and various analyses about HIP-4, and most of them focus on prediction markets, with hardly any real discussion of the options side. In my view, options are also very interesting and full of potential, but they currently receive far less attention.

This article aims to clarify three key questions:

• Why do people still underestimate HIP-4’s potential even though many praise it?
• Does Hyperliquid really need prediction markets?
• Why might Hyperliquid use options to capture a large chunk of the traditional financial market?

The Philosophy Behind HIP-4

HIP-3 brought some changes: people who wouldn’t use cryptocurrency exchanges before started using Hyperliquid on weekends — times when traditional markets are typically closed. Hyperliquid was able to bring “ordinary people” into the crypto world because it did something crypto protocols usually don’t do for some reason — it precisely filled a clear pain point and solved the real problem of insufficient weekend market liquidity.

People using Hyperliquid are no longer just “crypto traders,” but traders using the best tool available today.

After HIP-3, crypto traders on Hyperliquid dropped the “crypto” prefix because the platform is no longer limited to a single asset class. As Hyperliquid founder Jeff said: “Hyperliquid is not a crypto company.“

HIP-4 continues this philosophy and direction. As I mentioned earlier, this update includes two parts (prediction markets and options), and both types of tools are already widely used outside the crypto world by both ordinary users and professional traders.

If Hyperliquid wants to continue growing, it cannot rely solely on the limited pool of crypto users. It needs to expand, to bring new people into the crypto world even before they realize it themselves.

This has always been seen as a kind of endgame — hiding the “crypto” layer — and now it seems to be gradually becoming a reality. Those trading precious metals and stocks on weekends will eventually encounter crypto tokens; those coming to trade perps will discover options, and vice versa.

In addition to the mature users already on Hyperliquid, HIP-3 brought two new types of users: those from centralized exchanges and traditional traders.

HIP-4 has the opportunity to attract options traders from both crypto exchanges and traditional exchanges, while also allowing existing users to build more customized trading strategies using options and prediction markets.

Those new traders who came because of HIP-3 will also gain new tools — namely options — allowing them to trade non-crypto assets on a permissionless exchange.

HIP-3 deployers like trade.xyz, even while charging higher fees, now achieve trading volumes comparable to or even higher than Lighter. Traders are willing to pay for deep liquidity markets, atomic liquidation mechanisms, and automatic funding rate distribution.

That said, prediction markets seem like a business that might not fit Hyperliquid perfectly. How can a Perp DEX platform compete with platforms like Polymarket or Kalshi that target completely different audiences?

I believe it can both compete with them and become a very close ally.

Why Does a Perp DEX Need Prediction Рынокs?

When HIP-4 was first proposed and widely seen as introducing prediction markets to Hyperliquid, I had some questions: Is this (prediction markets) really suitable for this platform?

Hyperliquid has always focused on perpetual contracts, while prediction markets operate more like options — they share the same payoff structure, so they are fundamentally different tools. Hyperliquid has always been a more “hardcore trading” platform; while Polymarket and Kalshi can also be seen as trading venues, their user experience is less technical and more user-friendly for the average person.

Overall, I certainly agree that expanding into more trading tools is obviously reasonable; but at the time, I didn’t understand how Hyperliquid would compete with Polymarket, or if there was even a real competitive relationship between them.

Without delving too much into technical details, Polymarket’s DeFi composability is quite limited, and its user experience is siloed from other platforms. Kalshi is a regulated, centralized platform with no on-chain integration capabilities. They are both great as standalone prediction platforms, but integrating them into larger strategic systems is almost impossible.

“Agentic payments” integrated with Hyperliquid, serving multiple trading strategies, will likely develop into an independent vertical.

“Outcome contracts” (i.e., prediction markets) can be combined with various different trading tools, such as providing liquidity, trading perps, spot trading, etc. You could even open a short ETH perpetual position while betting on a prediction market that pays out “if the ETH price rises above a certain level.”

This is just a very simple example, but it’s enough to understand the composability HIP-4 brings within the same architecture. This is almost impossible to replicate on Kalshi or Polymarket because on Hyperliquid, these two types of positions can be held in the same margin account and automatically hedge each other. Traditional prediction market platforms are isolated, but Hyperliquid is not.

However, even with this clear advantage, I still don’t think Hyperliquid can beat Polymarket or Kalshi head-on based on this alone, for a simple reason — user experience (UX).

Polymarket serves a large number of users outside the crypto industry, and the vast majority of Kalshi users may have never even touched cryptocurrency. I don’t think the average user will go to Hyperliquid and accept a more trading-terminal-like experience just to buy a “yes” share on “whether Trump will say something outrageous,” but the key is that Hyperliquid isn’t competing with them in that direction.

Hyperliquid’s native UX for prediction markets will likely only be used for markets centered around themes like economics, prices, equity valuations, geopolitical events related to precious metals, etc. There are certainly more scenarios, but these will be the core type because they can directly influence trading strategy direction to some extent.

As for other types of markets, different UIs will cater to different content, making them more suitable for ordinary users. With builder codes (independent applications natively running on Hyperliquid), the possibilities at this layer are almost limitless.

Yes, Hyperliquid itself may not be able to beat Polymarket in direct competition, but independent protocols built on Hyperliquid at least have a chance to fight or pose a substantive challenge. Moreover, even John Wang, Kalshi’s head of crypto, was a contributor to the initial HIP-4 proposal. Therefore, it wouldn’t be surprising if Kalshi’s prediction markets settled directly on Hyperliquid in the future, or even if Polymarket did the same. They could leverage Hyperliquid’s existing user base to make the overall experience smoother.

In addition to composability, HIP-4 also introduces mechanisms like low-latency execution and cancellation priority, enabling real-time liquidity adjustments. In highly asymmetric events, prediction markets can easily be pierced by toxic order flow if they cannot quickly cancel and reprice orders.

This is precisely why prediction markets are naturally suited for Hyperliquid — they inherit the ecosystem’s unified execution standard. Many micro-moments require underlying technology to be adapted for high-frequency trading and near-real-time settlement. Winners need to be paid quickly, and outcomes need to be settled quickly.

However, prediction markets are only one part of HIP-4. The other part of this update is options trading.

The significance of HIP-4 on the options side is almost completely overshadowed by the current narrative around prediction markets, and options trading could very likely bring hundreds of thousands of new traders to Hyperliquid. Before explaining this, we must first answer a question — why would a Perp DEX need a completely different trading tool like options?

Why Does a Perp DEX Need Options?

It doesn’t! The answer is actually in the name: perps are perpetual futures, which are the exact opposite tool of options. It’s like the candy store downstairs suddenly starting to sell steaks — both are food, both can be eaten, but they are completely different things.

As I mentioned at the beginning, Hyperliquid has already won the local candy store war, so now it’s time to aim for something new. To continue growing, Hyperliquid must capture new markets. And this expansion will start with several types of options products — such as binary options and bounded options — but it won’t cover all option types in one step.

As some readers may know, options trading is a very popular tool outside of crypto, but it’s not popular in the crypto world (at least compared to options trading in the stock market). Why? Because perpetual contracts are much simpler.

When trading perpetual contracts, you really only need to judge one variable — direction. You know the chart will always go to the right, so all you have to judge is whether it will go up or down. Its profit and loss curve is linear, predictable, and the logic is very simple.

Besides being extremely easy to understand, perpetual contracts also fit the natural properties of the crypto market. The crypto market is highly volatile, so you can make a lot of money in a very short time, or lose a lot of money in a very short time. The higher the leverage, the more both risk and reward are amplified. Many people say crypto is like a casino, and this “casino feel” is partly reflected in perpetual trading — often, leverage above 5x already looks close to gambling addiction.

Furthermore, there is only one contract per perpetual instrument. If you trade HYPE-PERP, both buyers and sellers are in the same order book — deep liquidity, low slippage, continuous order matching, and price movement. Again, this makes it easier to trade.

Options are completely different. You not only have to judge price direction, but also price sensitivity, time decay, and sensitivity to changes in implied volatility. Often, even if you are right on direction, you can still lose money trading options: maybe because the move is too slow, too fast, or simply because implied volatility (IV) is compressed.

A single asset often corresponds to hundreds or thousands of options contracts. Each combination of strike price and expiration date forms an independent order book, leading to liquidity fragmentation — precisely the problem the crypto industry has been trying to solve for years. Wide bid-ask spreads act like a direct tax on traders; often, you are already at a significant unrealized loss relative to fair value as soon as you enter a position.

Crypto traders are already engaged in a constant psychological battle in this high-volatility, sentiment-driven market, staring at unrealized losses, repeatedly doubting their entry points, and constantly being swept up by FOMO. Adding a countdown mechanism that continuously erodes position value makes a position difficult to hold even if you are “nominally right” on direction. A leveraged perpetual long can theoretically be held indefinitely (ignoring funding fees for now), but this simply doesn’t exist with options.

In a sense, perpetuals solve a problem that doesn’t really exist in traditional finance. In traditional markets, the closest thing to perpetual contracts is continuously rolled quarterly futures — you hold a futures contract and roll the position to the next expiration cycle before it settles. This mechanism works fine when market volatility is relatively mild; but in our industry, volatility is never “mild.”

Hyperliquid is no longer just a decentralized crypto exchange; it’s more like a decentralized exchange with multiple tradable assets. Other assets are not the same as crypto assets; they have different operating logics and require different trading tools.

Options Have Always Пчелаn There

There are many reasons why Hyperliquid won the Perp DEX war, and one key factor is undoubtedly UX — on this platform, you don’t need to sign for every order placed, every trade executed, or every operation. Frequent signing creates a lot of friction, while most teams in the industry optimize for “blockchain consistency” rather than user experience.

If the entire industry struggles to create a truly sustainable, permissionless perpetual trading product, it’s not surprising that no one has managed to create a good enough permissionless options trading protocol. It’s too complex, so complex that people can hardly even conceive of it. But I’m being slightly inaccurate here, because in a sense, everyone has been trading options for the past few years — options are prediction markets (more accurately, binary options).

Because structurally, binary options and prediction markets are exactly the same: if an event is ultimately judged true, the prediction market pays $1; if not, it pays $0. If the underlying asset price is above a certain strike price at expiration, the binary option pays $1; if not, it pays $0.

They are essentially the same: same payoff structure, same pricing mechanism. The only difference is in expression and applicable scenarios (after all, you can’t buy an option with an underlying like “whether Trump will say a certain word in his next speech”).

Polymarket did something very genius: it allowed people to trade options without realizing they were trading options. Prediction markets thus achieved something every crypto practitioner talks about — getting people to use cryptocurrency without realizing they are using cryptocurrency. This is actually a direct solution to the problem.

HIP-3 attracted a large number of non-crypto trading users. In fact, most of the trading volume on Hyperliquid today comes from precious metals, oil, and the S&P 500, not crypto assets. Since the platform already has a brand new user base, it’s obviously very reasonable to introduce more tools they are already familiar with.

Historically, one of the initial important reasons stock options became popular was that stocks themselves were difficult to short. You needed to borrow shares, pay borrowing fees, have your broker lend them, and risk a short squeeze if borrowing demand exceeded supply. Instead of going through this whole complex process, it was much easier to just buy a put option.

Hyperliquid Has No Competitors

In the past, no protocol was good enough to truly bring sustainable options trading into the crypto world. Hegic, Ribbon Finance, Lyra, etc., didn’t achieve it. Aevo was quite successful and was even seen as a strong competitor to Hyperliquid in 2024, but their order book remains off-chain. As for the reasons, I won’t go into detail here; you are all familiar with them — liquidity fragmentation, latency issues, LP adverse selection, etc.

HIP-4 introduces binary options and bounded options, and these two product types are applicable to almost all major asset classes: forex, stocks, indices, commodities, and our familiar cryptocurrencies.

Crypto traders will continue trading perpetual contracts while gaining a new tool with high risk-reward ratios. This can lead to more trading strategies and new ways to hedge positions.

Users trading commodities on Hyperliquid will get a tool they were already familiar with on other exchanges, except now it’s permissionless and

Эта статья взята из интернета: A 10,000-Word Deep Dive into Hyperliquid HIP-4: Leveraging Prediction Markets and Options Trading to Encroach on Traditional Finance

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