Non-traditional public chain: How does Hyperliquid support a valuation of billions of dollars with "Perptual Futures AWS"?

Original text | Keisan.hl

Editor | Odaily Planet Daily

Translator | Ding Dong

Editor’s Note: In today’s crypto market filled with bubbles and narratives, how has Hyperliquid (HYPE) managed to join the ten billion market cap club in such a short time? Is it the result of a temporary surge in popularity, or does it stem from the long-term value of its own products and mechanisms? The author, Keisan.hl, starts from the token economic model and conducts a systematic analysis of Hyperliquid's current market performance and potential logic, in conjunction with a horizontal comparison of traditional finance and leading crypto projects, to construct a relatively complete valuation framework.

It has been about six months since I first published the valuation framework for HYPE. During this time, many things have changed, but a lot has also remained the same. My optimism towards HYPE is as strong as ever.

Let's take a look at some data.

Income Estimate (Underwriting Revenue)

One of the biggest challenges in evaluating HYPE is how to make a reassuring valuation for annual revenue (i.e., cash flow). Hyperliquid is an early-stage startup that is growing rapidly. Therefore, you might consider incorporating growth into your numbers. However, it is also in a cyclical industry, where bear market trading volumes can be about 50% lower than in bull markets. My personal view is that Hyperliquid's rapid user growth, influx of funds, and other positive catalysts will be sufficient to offset the decline in trading volume brought on by the bear market. Based on the growth over the past six months, the average daily revenue has significantly increased, which validates this.

Regarding the changes in trading volume during a bear market, I believe that even if Bitcoin enters a bear market in the short term in the future, the decline in trading volume will not be as drastic as before, due to the continuous inflow of funds from ETFs, coupled with the current more favorable attitude of U.S. policies towards cryptocurrencies. Of course, this is still a factor to consider, as revenues may decrease by about 50% over the next few years. Therefore, we will conservatively use the recent average trading volume from the bull market as our benchmark going forward (3 million dollars), which does not take growth into account.

Odaily Note: The author of this article published a valuation framework in January, and we still use the original valuation method to explain the chart data during compilation.

A valuation multiple consists of two core elements: price (valuation) and earnings (revenue/fees).

First, I have split the fee data for analysis based on different time periods.

Then, I examine the total supply of tokens from two dimensions: circulating supply and adjusted fully diluted supply.

• Circulating supply is easy to understand, it refers to the actual number of tokens currently in circulation in the market, roughly equal to the amount distributed through airdrops, minus the portion destroyed through HIP (governance proposals) and the repurchases from the assistance fund.
• The concept of fully diluted supply often confuses people, with many mistakenly believing it is a reference value that must be used when evaluating a project's valuation. In reality, HYPE's fully diluted supply is fixed (no inflation), with 38.888% reserved for future token releases and community rewards. Additionally, 3% is allocated for community funding programs, 1.2% has been repurchased by the fund, and 0.1% has been burned through HIP transaction fees.

In my calculations, I have excluded the buyback and burn portions, as well as the tokens that have not yet been issued, such as future releases/community funding. My assumption is that a significant portion of the 38.888% of tokens will be gradually released over a long period in the form of staking rewards. As for the community funding portion, I believe it is a positive expected value (+EV) investment, made as a positive expenditure to strengthen the community and ecosystem.

Of the remaining uncirculated tokens, 23.8% are reserved for the team and future members, and 6.0% are reserved for the foundation. I have fully accounted for these two portions in the adjusted supply, but in reality, this assumption is quite conservative, as it is nearly impossible for the team to sell or distribute these tokens in the short term. The release pace of these tokens is very slow, so a high discount should be applied in the valuation. It should be emphasized again that this team does not need to cash out or realize a liquidity event.

From my personal perspective, I believe that the most reasonable valuation of the base token quantity should fall between the circulating supply and the adjusted fully diluted supply.

The price-to-earnings ratio (P/E) calculated based on 7 days of data is as follows:

• The price-to-earnings ratio based on circulation is approximately 12.3 times.
• The price-to-earnings ratio based on the adjusted fully diluted supply is approximately 21.9 times.

I believe the most reasonable valuation benchmark should be between the two. We can call it the blended P/E multiple, approximately 17.1 times.

Comparisons of Public Companies (Comps)

We enter the most interesting part of the valuation: comparison with listed companies. HYPE's current price is very cheap.

If you've been following me, you should have heard me say multiple times that "no one knows how to value HYPE." Indeed, many people have not figured out the logic behind it, especially how team tokens are counted in the fully diluted total supply (FDV), and how this approach should align with traditional public companies.

Public companies typically issue a type of stock reward called "stock-based compensation" (SBC) primarily to executive teams and core employees. Many analysts tend to view these as one-time expenses and exclude them from operating costs. However, I disagree. In my opinion, treating annual recurring expenses that can amount to hundreds of millions of dollars as one-time costs is highly unreasonable.

I can confirm that the SBCs of Coinbase (COIN), Robinhood (HOOD), and Circle (CRCL) account for about 25% of their adjusted EBITDA, and this ratio has persisted for many years. These are not one-time issuances, but rather real, ongoing equity expenditures. They go directly into the pockets of executives through stock issuance while also diluting the equity of existing shareholders. This is a tangible cost.

Therefore, if we are to include these expenses in the valuation, we must exclude the stock options that have already been accounted for in the equity, as they will gradually unlock over the next few years. I made the corresponding adjustments in the "LTM multiple (excluding SBC)" column by excluding the "to be issued" SBC shares and reclassifying the SBC amount as an expense (these companies often exclude this portion when reporting EBITDA).

Why is this point crucial? Because many people assess HYPE by counting 100% of the tokens held by the team as part of the FDV, but they overlook the fact that public companies actually possess "unlimited FDV" as they can continuously grant SBC to executives every year.

So, how can we achieve a fair and comparable valuation method? My approach is as follows:

1. If you want to compare using the net cash flow received by actual shareholders, then use "LTM multiples (excluding SBC)" to compare the valuation of public companies, while accounting for 100% of Hyperliquid's team tokens in the total supply.
2. If you want to adopt the reporting standard commonly used by listed companies of "Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)" (i.e., not considering the sustainability of SBC), then use the "Hybrid Supply Multiple": circulating tokens (excluding team tokens) + team tokens accounted for at 50%. This assumes that the team has already received half of them, and the remaining half will be gradually released over the next few years, just like SBC.

It is worth mentioning that SBC has an unlimited supply, while the team tokens are limited in total supply. As you can see, no matter how you value it, HYPE appears to be extremely attractive.

Finally, let's talk about profitability. The free cash flow profit margins of Coinbase, Robinhood, and Circle are significantly lower than that of Hyperliquid. This means that when revenues decline, their EBITDA shrinks dramatically while expenditures remain substantial. In contrast, Hyperliquid's free cash flow is "cleaner", more sustainable, and has stronger defensive capabilities.

Here's an additional piece of data: Coinbase has 4,300 employees, Robinhood has 2,500 people, while the core team of Hyperliquid has only 12 people.

HYPE bull market expectations

When it comes to bull market expectations, I believe that most people seriously underestimate the potential of HYPE. They evaluate it solely based on current income and simply discount the bull market premium.

But have they considered how big the TAM (Total Addressable Market) of this market really is?

Perpetual contracts are one of the largest markets in the crypto space, second only to stablecoins. Currently, Hyperliquid accounts for about 10% of the perpetual contract market, and its share is even lower in the spot CLOB (Central Limit Order Book) market.

More importantly, HyperEVM has just started. The various new perpetual contracts that will be launched with HIP-3 and in the future will expand Hyperliquid from a "crypto perpetual contract platform" to a "perpetual trading platform for all global assets." Some of the directions I am most looking forward to include stocks, private companies before IPO, prediction markets, foreign exchange, commodities, etc.

Perpetual contracts are the finest financial products on earth, and Hyperliquid is the "AWS of perpetual contracts," boasting strong scalability, complete decentralization, and transparency.

The traditional financial sector and other non-crypto circles have yet to truly understand the power of perpetual contracts. However, once this product is discovered, its potential will be immense.

Back to the digital level. Six months ago, when I first wrote the valuation framework, Hyperliquid generated about 1 million dollars in revenue each day (this was due to a short-term surge in trading volume after the launch of TRUMP). Now, this number has stabilized between 2.5 to 3 million dollars a day, more than doubling. User and capital inflows have also increased simultaneously.

Currently, Hyperliquid accounts for about 5% of all CEX trading volume. Imagine if this number reaches 25% in the next few years, it means daily revenue could rise to 15 million dollars. Based on this calculation, the free cash flow valuation multiple of HYPE would drop to 5 times.

comparison with other cryptocurrencies

It is actually not very fair to compare HYPE with other tokens, as there are not many truly comparable projects.

Currently, the only references are several memecoin launch platforms with strong product-market fit (PMF) that can generate stable cash flow, such as BONK, GP, and PUMP.

I hold positions in BONK and GP, and I believe they are currently among the most undervalued projects, aside from HYPE.

PUMP I used to make long-term investments, but I have now reduced my positions. I believe they have been eliminated from the competition, which is understandable. Their model lacks a moat and is easily disrupted by other platforms. On the other hand, BONK's non-exploitative model is winning, as can be seen from various on-chain data.

Attention of Traditional Finance

Traditional finance is entering the crypto space. Since the launch of the ETF, Bitcoin and Ethereum have attracted between $50 billion to $100 billion in inflows, setting a historical record for ETFs.

So, what assets are traditional finance most likely to favor? Of course, it is a token that can generate substantial cash flow, has a sustainable moat, and possesses a strong defensive model.

A Bloomberg analyst once asked, "What is really behind Hyperliquid?" Although this question seems somewhat sarcastic, it reflects the core skepticism that traditional finance has held towards cryptocurrency for many years.

And now, we finally have the answer, and it's a grand slam answer.

HYPE has not yet been widely recognized in the traditional finance circle, simply because the team has not done any marketing. If it were another team, they would have already made thousands of calls to attract investment. But Jeff and the team have their own style.

However, do not be deceived by appearances. Wall Street will eventually discover HYPE.

I believe that once SONN is launched, it will become a significant turning point. SONN has a reserve fund of $300 million available to purchase HYPE and will promote HYPE comprehensively along with Paradigm and Galaxy Digital.

Odaily Note: SONN is Sonnet BioTherapeutics, which has reached a business merger agreement worth $888 million with Rorschach I LLC, transforming it into a cryptocurrency reserve company named Hyperliquid Strategies Inc. (HSI).

This purchasing power is equivalent to 48 billion dollars in Bitcoin purchasing power (this year, Bitcoin ETFs have only absorbed 15 billion dollars in inflows). It can be said to be a super catalyst.

Token Distribution

Currently, HYPE has only about 150,000 wallet addresses, a number that is lower than many memecoins on Solana (for example, the number of SOL holders has exceeded 10 million).

The problem is that the current distribution channels for HYPE are not smooth, making it difficult for ordinary users to buy. Most existing holders have already made substantial profits and may not have a strong incentive to continue increasing their positions. This could suppress price increases.

But everything is changing. Coinbase and Binance have refused to list HYPE for obvious reasons. However, many front-end and fiat gateways are being built for Hyperliquid. Phantom has launched a perpetual contract front-end based on the Hyperliquid builder code, attracting 15,000 to 20,000 users within two weeks. Leveraging this distribution network could be a huge catalyst for $HYPE, along with other distribution networks currently under construction. I believe treasury companies like SONN and HYPD will also become great distribution networks, not just for large funds in traditional finance. This may take time, and it will be more significant as they mature.

Data Performance

Hyperliquid's data performance is impressive, even among the best in all cryptocurrencies. After experiencing significant growth recently, it's astonishing to see the current price position. I'll just share a few pictures.

User growth rate has reached a new high since the TGE, with accelerated capital inflows hitting historical peaks, and open interest (OI) also reaching historical highs.

Hyperliquid and CEX Data Comparison: Trading Volume Comparison CEX is at a historical high; Open Interest Comparison CEX continues to break historical highs.

At the same time, SWPE (Relative Premium Indicator) is at its lowest point since April, suggesting that the current price is attractive.

The driving force for the next round of growth

The key factors that I believe will drive the growth of HYPE moving forward include:

• Front-end distribution: Builder code is one of Hyperliquid's best innovations. The front-end will also handle marketing, while Hyperliquid has never done any marketing to date.
• The construction of the fiat currency entrance: I heard from several different sources (not directly from Hyperliquid, but from applications or frontends related to Hyperliquid) that this is about to be launched.
• HIP-3: A new product that can only be realized on Hyperliquid, which will bring a significant token burn for HYPE.
• SONN: Will bring Wall Street funds into HYPE and inject $300 million in buying pressure for HYPE.
• Spot collateral for perpetual contract trading: Based on the deployment situation on the testnet, this seems to be in progress, and I believe this will be a huge unlock for the platform and HYPE token. We may see an increase in trading volume, and Bitcoin whales may also deposit funds into Hyperliquid.
• More spot assets are being launched. @hyperunit has been working hard and continues to list top assets. The launch of PUMP was very successful, demonstrating the strength of our team, and Hyperliquid listed perpetual contracts before the TGE, while @hyperunit launched spot trading immediately at the TGE, quickly forming the thickest order book. Both of these events have significantly attracted users, as evidenced by the influx of funds from those days.

These are just a part of the catalysts. I have been writing for over an hour and still cannot cover everything.

Summary

HYPE's current valuation is still very cheap; you don't hold enough, and you may not have truly understood its potential.

HYPE's current valuation is still very cheap; you don't hold enough, and you may not truly understand its potential yet.