Author: DCo (@Decentralisedco); Compiler: Deep Wave TechFlow

Hyperliquid’s revenue in 2025 is 15% of CME, but its market value is only 10% of CME. Behind the valuation discount is the fact that the market has no pricing for the trillion-dollar TAM opened up by HIP-3. The Iran War weekend was a stress test for this argument: on-chain oil price futures single-handedly held up real-time global pricing when CME shut down. This article uses a four-scenario DCF model to illustrate that HYPE’s current $37 has fallen below the bear market target price of $60, which means that even if HIP-3 makes almost no progress, the pricing itself has underestimated the underlying exchange business.

HYPE’s valuation framework

CME’s revenue in 2025 will be US$6.5 billion, with an average daily trading volume of 28.1 million contracts and a market value of US$114 billion. Hyperliquid will record revenue of US$960 million in 2025 on a trading volume of approximately US$3 trillion, with a market value of US$12.5 billion. Hyperliquid's current revenue is about 15% of CME's, but its market capitalization is only 10% of CME's. The key opportunity lies in the extent to which the transaction volume of traditional finance can be migrated to decentralized platforms such as Hyperliquid.

From crypto DEX to global derivatives exchange

HIP-3 will be launched in October 2025, supporting the listing of perpetual contracts without permission. Deployers who pledge 500,000 HYPE (approximately US$18.5 million at US$37 per HYPE) can issue a custom market on HyperCore. The fees on these markets are double those of Hyperliquid’s core listed perpetual contracts, with half going to the deployer and the other half going to the Hyperliquid protocol for buyback. As a result, the protocol earns the same revenue per dollar of trading volume as the core market, with deployers earning an equal amount on top of that as an incentive to list and maintain the market.

Within five months, HIP-3 trading volume reached US$100 billion, and open interest hit a record of US$1.2 billion on March 10, a sharp increase from US$260 million last month.

HIP-3 can list any asset: commodities, stock indices, foreign exchange pairs, Pre-IPO tokens, etc. In the past two weeks, HIP-3’s share of Hyperliquid’s total trading volume has increased from 8% to 23%, and nearly half of the transactions currently occur on the HIP-3 market.

The Iran war is a proof of concept

On February 28, the United States and Israel launched attacks on Iran during the closing of traditional markets. Oil-linked perpetual contracts on Hyperliquid surged 5% within hours, with traders pricing the shock into the price in real time. The following week, after WTI recorded its largest weekly increase since 1983, the 24-hour trading volume of the oil perpetual contract on Hyperliquid exceeded US$1.2 billion, with liquidations reaching US$40 million. The cumulative trading volume of CL perpetual contracts rose from US$200 million to US$6 billion in two weeks. Bitcoin is trading sideways near $68,000. The main battleground for macro trading is Hyperliquid, not the spot crypto market.

When CME reopened on Monday, it confirmed Hyperliquid's pricing direction throughout the weekend. If tokenized oil perpetual contracts can handle such volumes with an efficient price discovery mechanism, so can gold, SPX and FX perpetual contracts.

CME + 0DTE options as TAM for HIP-3

CME’s average daily trading volume across all asset classes is $3.8 trillion. Excluding interest rate products with complex structures that are difficult to migrate in the short term, as well as crypto products that Hyperliquid has dominated, CME's addressable daily average trading volume in the fields of stock indexes, energy, metals, agriculture and foreign exchange is approximately US$1.2 trillion.

In addition, we take into account the 0DTE (same day expiry) options market. SPX’s 0DTE options alone had an average daily notional value of over $1.2 trillion in May 2025. Combined with the fact that SPY 0DTE accounts for 45% of all SPY options volume, FalconX estimates the total notional value of 0DTE to be $1.5 to $2 trillion per day. From a behavioral perspective, these are perpetual traders who are trading with options infrastructure – as equity perpetuals do not currently exist in regulated markets. Perpetual contracts eliminate the complexity and cost of 0DTE options.

A key adjustment: the notional value of the 0DTE option overestimates the equivalent volume of the perpetual contract. We apply a conversion factor of 30% to the nominal value of 0DTE to estimate the actual perpetual contract equivalent that may be migrated. The total addressable market for HIP-3 is therefore approximately $1.74 trillion per day: $1.2 trillion of CME addressable volume, plus approximately $540 billion of 0DTE conversion volume.

Scenario analysis

We built four scenarios, modeled using a three-year discounted cash flow framework, based on the percentage of $1.74 trillion in daily TAM captured by Hyperliquid via HIP-3.

Each scenario assumes a gradual ramp-up of penetration: reaching 20% of the target in year 1 (2026), 50% in year 2 (2027), and 100% in year 3 (2028) to reflect the reality of gradual accumulation of market share. Baseline revenue for core crypto perpetual contracts, spot, EVM Gas, and auction fees are independently forecast by the revenue waterfall model to grow from $970 million in 2026 to $1.35 billion in 2028.

We apply a 20% discount rate and a terminal multiple of 20x Year 3 revenue - a modest premium to CME's current EV/revenue of 17.5x to reflect Hyperliquid's higher growth trajectory. The 20% discount rate reflects crypto protocol risk, but also acknowledges that Hyperliquid is a profitable business with auditable on-chain cash flow, not a pre-product token. Sensitivity tables allow stress testing at discount rates of up to 30%.

The model also takes into account expected changes in circulating supply. On the supply side, approximately 23.8% of the total supply of HYPE is allocated to core contributors, and is locked linearly for one year and then unlocked linearly over 24 months. Iliensinc confirmed that distribution (if any) occurs on the 6th of each month, adding that "unlocking does not occur linearly." The actual rhythm fluctuates greatly: about 2.6 million coins in December (of which 850,000 were re-locked), 1.2 million in January, and in February the team cut the number unlocked that month by 90% to only 1,400. As Arthur Hayes pointed out, 66.6% of contributor tokens are still locked until 2027-2028, with no investors unlocking them at all.

We do not anchor the peak or trough value, but use the monthly average since the start of distribution - about 1 million HYPE, that is, 12 million HYPE per year - as the baseline assumption. The validator's pledge emission is currently about 400 million pledged tokens and the reward rate is 2.37%, and an additional contribution of about 10 million tokens is made every year.

On the other hand, the Assistance Fund (AF) has burned a total of 42.8 million HYPE within approximately 16 months since its creation (November 2024), with an observed annualized destruction rate of approximately 32 million. AF obtains about 97% of transaction fees through the automated repurchase mechanism, and its wallet also holds an additional 42.1 million HYPE to be destroyed. Historical burn rates include periods when HYPE was in a lower price range ($10-25 for much of 2025), meaning more tokens were exited per dollar of fees.

Based on the current price of US$37 and a daily transaction fee of approximately US$2 million, the forward-looking annualized destruction rate is closer to 19 million HYPE. In the model, we use this forward-looking estimate of 19 million pieces as the forecast baseline, although the historical data of 32 million pieces shows that AF operates strongly in a low-price environment. Importantly, AF destruction and income are endogenously linked: when the market is good, higher fee income means that significantly more tokens are repurchased and burned. This creates a reflexive dynamic that static supply forecasts cannot fully capture.

The net effect is only a small increase in circulating supply. Starting from about 300 million coins today, the team unlocks about 1 million coins every month, plus the annual emission of 10 million validators, a total of about 22 million coins are added every year; and about 19 million coins are exited through AF destruction every year. We predict that there will be about 302 million coins at the end of 2026, about 305 million coins at the end of 2027, and about 308 million coins at the end of 2028 - a net increase of about 3 million coins every year. The repurchase engine almost completely hedges new issuance, with an average annual dilution rate of about 1%. HYPE implied price is calculated based on year 3 forecast supply.

Under the bear market scenario (capture rate 0.01%), HIP-3 generates $32 million in annual fees when the converted and adjusted TAM is running at full speed. Combined with the baseline revenue of $1.35 billion, DCF yields an enterprise value of approximately $18 billion, based on the terminal value of year 3 total revenue.

Corresponding to the predicted supply of 308 million coins in the third year (a slight increase from today's 300 million coins), the implied HYPE price is approximately US$60 - still a significant premium to the current US$37, which means that even if HIP-3 progress is extremely limited, the basic exchange economic logic alone is enough to support a higher price.

Under the baseline scenario (capture rate 0.10%), HIP-3 revenue in the third year reaches US$322 million, total revenue is approximately US$1.7 billion, corresponding to an enterprise value of approximately US$22 billion, and HYPE’s implied price is approximately US$72.

Under the bull market scenario (capture rate 0.50%), HIP-3 fees will reach US$1.6 billion in the third year, total revenue will be US$3 billion, enterprise value will be US$38 billion, implied price will be approximately US$124, and fully diluted valuation will be approximately US$124 billion.

Under the extreme scenario (capture rate 1.00%), the total revenue in the third year reaches US$4.6 billion, the enterprise value is US$59 billion, HYPE is close to US$190, and FDV is approximately US$190 billion.

At this level, Hyperliquid's price-to-sales ratio is about 13x, which is still lower than CME's current price-to-sales ratio of 17.5x -- suggesting that terminal multiple assumptions are conservative for a business growing so quickly.

At the default 20% discount rate and 20x multiple, the current price of $37 is well below the bear market target price of $60, indicating that the market has not yet priced in any meaningful HIP-3 contribution, and it can be argued that even the underlying crypto exchange business itself is undervalued. The base-case price target of $72 implies ~93% upside from current levels, capturing just 0.10% of addressable volume. Hayes' $150 price target falls between our bull case ($124) and extreme case ($190), requiring a capture rate of 0.50% to 1.00%. Considering that HIP-3 has already accounted for approximately 10% of fee revenue in just five months since it has been online, these three-year capture rate targets are ambitious but not unfounded.

Why Hyperliquid and not other platforms

The natural skepticism of the HIP-3 argument is that if traditional derivatives trading volume is moved on-chain, it could go anywhere. We believe this underestimates the inertia of liquidity concentration.

Let’s first look at the competitive landscape. At the end of 2025, Lighter briefly surpassed Hyperliquid in terms of 30-day perpetual contract trading volume. At that time, Lighter operated with zero handling fees and implemented one of the most aggressive incentive activities in the market. Then on December 30, the $LIT airdrop was launched, and $250 million was withdrawn within 24 hours. Within three weeks, Lighter’s trading volume collapsed, and its market share was compressed to 8.1%. Although Lighter still charges no fees, trading volume still flows back to Hyperliquid. The moat is in depth of liquidity and quality of execution, not price. The ratio of open interest to volume confirms this: 0.64 for Hyperliquid (fund retention), 0.18 for Aster and 0.12 for Lighter.

Look at centralized alternatives. Coinbase is getting ready to launch compliant perpetual contracts, but think about the users: If you want to trade stock indices or commodity exposure, you already have Robinhood, Schwab, and Interactive Brokers. Coinbase’s launch of SPX perpetual contract does not solve the pain points of its users. Hyperliquid solves different problems: 24/7 settlement, no market hour restrictions, cross-margining with crypto assets, permissionless listing. It is a complement to existing systems rather than an inferior version of what traditional institutions already have.

HYPE is underrated

Hyperliquid is at risk. HIP-3 requires stock indexes and commodity perpetual contracts to maintain volume after the novelty wears off. The 0DTE community needs a good reason to switch from options to perpetual contracts, not just lower fees. The matching engine must maintain the same performance as when it averaged US$8 billion per day at a daily average of US$50 billion. These are not existential risks. The core product is effective. The weekend of the Iran war proved that the market's need for 24/7 commodity price discovery is real.

The regulatory clarity of tokenized perpetual contracts in the United States is not a prerequisite for this argument. It's likely that the majority of Hyperliquid's volume comes from outside the United States. But U.S. recognition or approval will only accelerate the category’s growth. Every dollar moved from traditional derivatives to permissionless infrastructure expands the total addressable market, and Hyperliquid has the ability to capture a disproportionate share due to its liquidity depth, execution quality, and market maker infrastructure. HIP-4 introduces prediction markets and options contracts, and opens up a new dimension of trading volume.

HYPE currently has a price-to-sales ratio of 10 to 13 times, while CME is at 25 times, ICE is at 23 times, and CBOE is at 22 times. Those are mature single-digit growth businesses. Hyperliquid’s revenue reached US$960 million in its first full year, with no debt, no personnel burden, and a buyback mechanism to return almost all handling fees to token holders. No traditional exchange can do this. We expect HYPE to be repriced as exchange equity, with a hybrid multiple reflecting dual crypto and traditional derivatives revenue. This means that HYPE's current price of $37 is below its underlying fair value.

This article was inspired by analysis published by @FalconXGlobal.

Disclaimer: DCo holds a position in HYPE. This article does not constitute investment advice.