Hyperliquid: How does the new force of Perptual Futures support a valuation of 10 billion dollars?

It has been more than half a year since the initial release of the HYPE valuation framework. During this time, the market has undergone significant changes, but my optimism about HYPE remains unchanged. Let's take a look at some of the latest data.

Income Estimate

The biggest challenge in evaluating HYPE lies in how to reasonably value its annualized income. As a rapidly growing early-stage startup, Hyperliquid's growth rate is remarkable. However, the industry it operates in is cyclical, and trading volume may drop by around 50% during a bear market compared to a bull market.

I personally believe that Hyperliquid's rapidly growing user base and continuous inflow of funds are sufficient to offset the potential impact of a bear market in the future. Data from the past six months also confirms this, as the average daily revenue has significantly increased.

Even if Bitcoin enters a bear market in the short term, considering the continuous inflow of ETF funds and the increasingly friendly attitude of U.S. policies towards cryptocurrencies, the decline in trading volume may not be as severe as in the past. However, to be cautious, we will still use the average trading volume of the recent bull market, which is (300 million USD ), as a benchmark, not taking into account growth factors.

In terms of valuation multiples, I examined the total supply of tokens from two dimensions: circulating supply and adjusted fully diluted supply.

Circulation is relatively easy to understand, roughly equal to the number of airdrop distributions minus the amounts that have been destroyed and repurchased. However, fully diluted supply can easily cause confusion, as many mistakenly believe it is the only reference for evaluating project valuation. In reality, the fully diluted supply of HYPE is fixed, with nearly 39% reserved for future releases and community rewards, 3% for community funding, 1.2% having been repurchased, and 0.1% having been destroyed through governance proposals.

In my calculations, I excluded the repurchase and destruction parts, as well as the yet-to-be-released future release/community funding tokens. I assume that a large portion of these tokens will be gradually released over a longer period in the form of staking rewards. As for the community funding part, I believe it represents a positive expected value investment, which is beneficial for strengthening the community and ecosystem.

Among the remaining uncirculated tokens, 23.8% is reserved for the team and future members, and 6% is reserved for the foundation. I fully account for these two parts in the adjusted supply, but this assumption is actually conservative, as the team is unlikely to sell or distribute these tokens in the short term. The release pace of these tokens is very slow, and a higher discount should be applied when valuing them. It needs to be emphasized again that this team does not need to rush to cash out or achieve liquidity.

In my opinion, the most reasonable valuation of the base token quantity should be between the circulating supply and the adjusted fully diluted supply.

Based on the data from the past 7 days, the price-to-earnings ratio calculated by circulating volume is approximately 12.3 times, while that calculated by the adjusted fully diluted supply is about 21.9 times. I believe the most reasonable valuation benchmark should fall between the two, which I call the hybrid price-to-earnings ratio, approximately 17.1 times.

compared to listed companies

The current valuation of HYPE is relatively low. Many people are confused about how to value HYPE, especially regarding how to handle team tokens and alignment with traditional public company valuation methods.

Public companies usually issue equity incentives, primarily to executives and key employees. Many analysts tend to view this as a one-time expense, not included in the company’s operating expenses. However, I disagree with this approach. It is unreasonable to treat recurring annual expenses amounting to hundreds of millions of dollars as a one-time expense.

From my understanding, the equity incentive expenses of Coinbase, Robinhood, and Circle account for about 25% of their adjusted EBITDA, and this proportion has been consistent for many years. This is not a one-time issuance, but rather a real and ongoing equity expense. They directly put money into executives' pockets through stock issuance, while also diluting the interests of existing shareholders. This is a real cost.

Therefore, if we want to include these expenses in the valuation, we must exclude the stock options that have already been counted in the equity, as they will gradually unlock over the next few years. I made the corresponding adjustments in the "LTM multiple ( minus SBC )" column, excluding the "to be issued" equity incentive stocks and reclassifying the equity incentive amounts as expenses.

This point is crucial because many people assess HYPE by counting 100% of the tokens held by the team in the fully diluted supply, but overlook the fact that publicly traded companies actually have an "unlimited fully diluted supply", as they can continuously issue equity incentives to executives every year.

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

1. If you want to compare using the net cash flow received by actual shareholders, use "LTM multiple ( minus SBC )" to compare the valuation of listed companies, while accounting for 100% of Hyperliquid's team tokens in the total supply.

2. If we adopt the "adjusted EBITDA" reporting standard commonly used by listed companies (, which does not take into account the continuity of equity incentives ), then we use the "hybrid supply multiple": circulating tokens ( excluding team tokens ) + team tokens accounted for at 50%. This is equivalent to assuming that the team has already received half of it, and the remaining half will be gradually released over the next few years, similar to the way equity incentives work.

It is worth mentioning that equity incentives are issued infinitely, while team tokens have a limited total supply. Regardless of the valuation method used, HYPE appears to be very attractive.

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

Here is an additional piece of information: Coinbase has 4,300 employees, Robinhood has 2,500, while the core team of Hyperliquid has only 12 members.

HYPE's bullish expectations

I believe that most people seriously underestimate the potential of HYPE. They only value it based on current revenue and simply discount the bull market premium.

But have they considered how large the total addressable market (TAM) of this market really is?

Perptual Futures is one of the largest markets in the crypto space, second only to stablecoins. Currently, Hyperliquid accounts for about 10% of the Perptual Futures market, and its share in the spot centralized limit order book market is even lower.

More importantly, HyperEVM has just started. The various new types of Perptual Futures that will be launched with HIP-3 and in the future will expand Hyperliquid from a "cryptocurrency 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, and commodities.

Perptual Futures are the best financial products on Earth, and Hyperliquid is the "AWS of the Perptual Futures world", with strong scalability, completely decentralized and transparent.

The traditional financial sector and other non-crypto circles have not truly understood the power of Perptual Futures. 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 in daily revenue ( at that time due to a short-term surge in trading volume after TRUMP was launched ). Now, this number has stabilized between $2.5 million and $3 million per day, more than doubling. User and capital inflow have also increased simultaneously.

Currently, Hyperliquid accounts for about 5% of the trading volume of all centralized exchanges. Imagine if this number reaches 25% in the coming years, it could mean a daily revenue increase to 15 million dollars. Based on this estimation, the free cash flow valuation multiple of HYPE would decrease to 5 times.

compared to other cryptocurrencies

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

Currently, the only references are several meme coin launch platforms with strong product-market fit 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 one of the most undervalued projects aside from HYPE.

PUMP I used to do long-term investments, but I have already reduced my position. I believe they have been eliminated from the competition, which is understandable. Their model lacks a moat and is easily disrupted by other platforms. The non-exploitative model of BONK is winning, as can be seen from the data across various chains.

Traditional finance's focus

Traditional finance is entering the crypto space. Since the launch of the ETF, Bitcoin and Ethereum have attracted $50 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 is somewhat sarcastic, it reflects the core doubt that traditional finance has posed to cryptocurrency for many years.

And now, we finally have the answer, and it is a perfect answer for the entire event.

HYPE has not been widely discovered in the traditional financial 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 fooled by appearances. Wall Street will eventually discover the HYPE.

I believe that once SONN goes live, it will become a huge turning point. SONN has $300 million in reserve funds available to purchase HYPE and will comprehensively promote HYPE together with Paradigm and Galaxy Digital.

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

Token Distribution

Currently, HYPE only has about 150,000 holding addresses, a number lower than many meme coins on Solana. For example, the number of holders for SOL 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 in. Most existing holders have made significant profits and may not have a strong incentive to continue increasing their positions. This will suppress the price increase.

But everything is changing. Some large exchanges refuse to list HYPE for obvious reasons. However, many frontend and fiat gateways are being built for Hyperliquid. Phantom has launched a Perptual Futures frontend based on Hyperliquid builder code, attracting 15,000 to 20,000 users in just two weeks. Leveraging this distribution network could be a huge catalyst for HYPE, along with other distribution networks that are under construction. Treasury companies like SONN and HYPD, I believe, will also become great distribution networks, not just for large funds in traditional finance. This may take time and will become more significant as they mature.

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