Hyperliquid: HIP-4 and Outcomes Nobody Talks About
HIP-4 is often viewed as a prediction markets update for Hyperliquid, but that’s not entirely accurate. It’s an “options” update, not just a “prediction markets” update.
This essay shows why HIP-4 despite its popularity among the masses is still an underrated update, what next HIPs will highly likely be about and why HIP-4 will probably become the biggest update in Hyperliquid’s history.
Currently, Hyperliquid is viewed as one of the only “investable” options available at the moment.
The market experiences a general downtrend, while HYPE shows strong stability. There are many reasons for that, but one of them is certainly strong fundamentals, a focus on revenue generation, and the circulation of profits into HYPE buybacks.
The crypto industry has matured and changed: protocols try to avoid promoting “crypto-first products,” moving instead toward general fintech models with crypto as part of the infrastructure, not the highlight of it.
Asset managers, native crypto users, and people in general are now evaluating protocols based on what most equity valuation methods base on — revenue and how this revenue gives value to token holders (similar to equity and dividends).
In the end, protocols like Hyperliquid are easier and more “understandable” to evaluate based on revenue and distribution rather than purely crypto metrics.
HIP-3 (builder-deployed perps) showed a clear pattern: when infrastructure is permissionless and proven, liquidity tends to concentrate around strong teams, regardless of whether they receive additional support from the ecosystem or not.
The same dynamic will apply to HIP-4. Hyperliquid won the pre-markets war against Aevo, the perp dex war against dYdX, and the new perp dex war against Lighter and Aster. Hyperliquid has already moved from 0 to 1, so what’s left?
Google first was only a search engine until it had almost completely eaten up the whole market. When companies become monopolists in their respective fields, their growth options are limited unless the global market and demand are growing very fast. To satisfy investors’ needs, Google needed to capture new markets, so they went into ads, images, news, email, maps, videos, docs, etc. Besides Google’s ambitions, there are also shareholders to satisfy.
In Hyperliquid’s case, there are no investors to satisfy — only their own ambitions and goals, which is to “house finance as a whole.” Hyperliquid is already moving from 1 to ∞ in their own style of doing things: they don’t owe anything to anyone, and everyone is free to come and start trading on the platform or buy HYPE tokens.
Hyperliquid has solved user acquisition (good product and proven history), deep liquidity (near-perfect orderbook), and volume (a consequence of the previous two). It’s time to increase these metrics!
The next update (HIP-4) is about outcome trading, which brings prediction markets and certain types of options that give nonlinear outcomes with no liquidation risk.
I’ve read multiple articles, predictions, and generally a lot of research on HIP-4, and most of them are focused on prediction markets, but none of them focus on the options side of the market, which, in my opinion, is very interesting and promising as well, but not covered enough.
This is my attempt to bring clarity to 3 things:
Why people praising HIP-4 still underrate its potential
Whether Hyperliquid needs prediction markets at all
Why Hyperliquid can start capturing a significant chunk of traditional finance with options
Philosophy behind HIP-4
Something changed with HIP-3: people who used to trade on non-crypto exchanges started trading on Hyperliquid on weekends (when markets are usually closed). The platform managed to onboard “normies” to crypto because it did something that crypto protocols usually don’t do for some reason — filling an exact pain point and addressing a problem: illiquid weekends.
People using Hyperliquid are no longer crypto traders, they’re traders using the best tool available.
After HIP-3, crypto traders turned into “just traders” because the platform is no longer limited to a single asset class. As Jeff (founder of Hyperliquid) said: “Hyperliquid is not a crypto company.”
HIP-4 continues this philosophy and direction. As I said before, the update consists of 2 things: prediction markets and options, both of which are heavily used outside of crypto, either by regular people or traders.
In order to grow, Hyperliquid does not need to rely on a limited pool of crypto users, it needs to expand and onboard new people to crypto without them realizing it.
It has always been seen as the end-game (hiding the crypto aspect), and it seems like it’s coming to life. People coming to trade precious metals and stocks on weekends eventually discover crypto tokens. People coming to trade perps discover options and vice versa.
Besides already experienced users on Hyperliquid, HIP-3 brought two new categories: users from CEXes and traditional traders.
HIP-4 can bring options traders from both crypto and traditional exchanges and allow old users to create customized strategies with options and prediction markets.
New traders who came because of HIP-3 will have new tools (options) to trade non-crypto assets on a permissionless exchange.
HIP-3 deployers like @tradexyz now do the same or even more volume than Lighter despite charging higher fees. Traders are willing to pay for deep liquidity markets, atomic liquidations, and automatic distribution of funding.
With all of that said, prediction markets might seem like something counterproductive to Hyperliquid. How can a perpetual futures DEX platform compete with something like Polymarket or Kalshi, which target a completely different audience?
I think it can both compete and be a close ally. How?
Why does perp DEX need prediction markets?
When HIP-4 was initially introduced and it was mentioned that this update essentially brings prediction markets to Hyperliquid, I had some questions about whether it was suitable for the platform or not.
Hyperliquid was always focused on perpetual futures, while prediction markets function similarly to options (the same payoff profile), which is a completely different instrument. Hyperliquid was always a platform for raw trading: while Polymarket and Kalshi can be called trading venues as well, the experience is less technical and more average-person friendly.
Generally speaking, I agreed that expanding to more instruments obviously makes sense, but I didn’t understand how Hyperliquid would compete with Polymarket or if they compete at all.
If we don’t dive into technicalities too much, Polymarket has limited DeFi composability and a separated UX from other platforms. Kalshi is regulated and centralized and doesn’t have any onchain integrations. They are good platforms to make predictions on their own, but integrating them and creating broader strategies is almost impossible.
Agentic payments integrated with Hyperliquid for a variety of trading strategies will very likely become their own vertical.
Outcome contracts (prediction markets) can be combined with a bunch of different trading instruments: LPing, perps trading, spot trading, etc. You can open a short ETH perp and make a bet on the prediction market that pays out if the ETH price goes above a certain price.
This is a very simple example, but it gives you an idea of the composability within a single architecture that HIP-4 can bring.
It’s impossible to replicate that on Kalshi or Polymarket. Both positions reside in the same margin account and automatically offset each other. Traditional prediction market venues are isolated, Hyperliquid is not.
Nevertheless, despite this big advantage, I don’t think Hyperliquid can compete with Polymarket or Kalshi simply because of UX.
Polymarket targets a lot of users outside of crypto, and there is a vast majority of people using Kalshi who have never heard of crypto. I don’t think normies will go on Hyperliquid and prefer the UX of trading venues to buy “yes” shares on a market that predicts whether Trump will say something wild or not. But the thing is, Hyperliquid doesn’t really compete in this direction.
The native UX of Hyperliquid for prediction markets will very likely only be used with prediction markets focused on economics, prices, equity valuations, geopolitical events related to precious metals, and similar stuff. There is more to that, but these are the core ones that can influence trading strategy in one direction or another.
For other markets, there will be different UIs focused on different stuff that are more average-person friendly. Thanks to builder codes (separate applications working natively on Hyperliquid), the possibilities are endless.
Yes, Hyperliquid itself may not win against Polymarket, but a separate protocol on Hyperliquid will at least give it a battle or test. Well, even @j0hnwang from Kalshi was a contributor to the original HIP-4 proposal, so it will be no surprise if Kalshi’s prediction markets settle directly on Hyperliquid, and the same applies to Polymarket. They can use the already existing user base to make the experience even better and smoother.
Besides composability, HIP-4 also brings low-latency execution and cancel prioritization to adjust liquidity in real time. Prediction markets break down in pretty asymmetric events where markets should cancel and reprice fast to avoid toxic order flow.
This is basically why prediction markets fit naturally on Hyperliquid, they inherit the same execution standards as anywhere in the ecosystem. Micro moments require tech suitable for HFT and near real-time settlement, and winners must be paid quickly and settled quickly.
Prediction markets is only one part of HIP-4.
Another part of the update is options trading.
Options aspect of HIP-4 was completely eclipsed by current prediction markets narrative. Options trading will highly likely onboard hundreds of thousands new traders on Hyperliquid. But first, why does perp platform need options, a completely different trading instrument?
Why does perp DEX need options?
It doesn’t! The answer is in the name itself: perps are perpetual futures, which are completely the opposite instrument from options. It’s the same as your local candy shop starting to sell steaks together with sweets: yes, both are food and edible, but completely different at the same time.
As I mentioned at the beginning, Hyperliquid won the local candy shop battle, so it’s time to target something new. In order for Hyperliquid to grow, it needs to capture new markets. And this expansion starts with multiple types of options (binary and bounded), but not all of them.
As some readers probably know, options trading is a very popular instrument outside of crypto and very unpopular in crypto (compared to the stocks trading market). Why? Perps are just way easier to trade.
There is only one variable that you have to form a view on when trading perps: direction. You certainly know that the chart is going right, so what’s left to decide is whether it goes up or down. The P&L is linear and predictable, it’s very simple.
Besides perps trading being really simple, perps reflect the nature of crypto. Crypto is volatile, so you can either make a lot of money or lose a lot of money in a short period of time. Add leverage to that, and the stakes are even higher. A lot of people say crypto is a casino, and the casino concept can be partially applied to perps as well, anything over 5x leverage sometimes looks like gambling addiction.
Moreover, a perp has one contract per asset. If you trade HYPE-PERP, both buyers and sellers are in the same orderbook — liquidity is deep, slippage is minimized, orders are constantly filled, and price moves accordingly. Again, it’s easier to trade.
Options are completely different. You have to have a view on sensitivity to price, time decay, and sensitivity to implied volatility changes. There is a good chance of you getting the direction right on an option and still losing money: either because the move happened too slowly or too fast, or implied volatility (IV) compressed.
Options have hundreds of contracts per asset. Every combination of strike price and expiry date creates an independent orderbook, which in turn creates fragmentation — the problem the crypto industry has been fixing for years. Wide spreads are a direct tax on the trader: the moment you enter a position, you’re already significantly underwater relative to fair value.
Crypto traders are already fighting a psychological battle in this volatile and sentiment-driven market: watching unrealized losses, second-guessing entries, catching FOMO. Adding a ticking clock that erodes your position value even when you’re nominally “right” about the direction is genuinely difficult to hold through. A leveraged long on a perp can theoretically be held forever (funding costs aside). That doesn’t exist with options.
Perps solved a problem that didn’t exist in traditional finance. In traditional markets, the closest equivalent to perps is a rolling quarterly futures position: you hold a futures contract and roll it to the next expiry before it settles. It works alright when volatility is moderate, but in our industry, volatility is not moderate :(
Hyperliquid is no longer a decentralized crypto exchange, it’s just a decentralized exchange having wide variety of assets to trade. Other assets are different from crypto assets, they function differently, they need other tools.
Options were always there
Hyperliquid won the perp dex wars due to a variety of reasons, but one of them was certainly UX, where you don’t have to sign a transaction every time you place a trade, fill an order, or do something else. It created a lot of friction, and majority teams optimized for “blockchain alignment” instead of user experience.
If the industry struggled to create a lasting permissionless product to trade perps, it is no surprise that a good protocol to trade options wasn’t created either. It’s too complex to even think about. I’m lying here a little bit, because everyone has been trading options for the past couple of years. Options are prediction markets (binary options, to be precise). Structurally, binary options and prediction markets are identical:
A prediction market pays $1 if an event resolves true and $0 if it doesn’t.
A binary option pays $1 if the underlying asset is above a strike price at expiry and $0 if it isn’t.
They’re identical: payoffs are the same, pricing mechanics are the same. The only difference is the approach and applicable markets (you can’t buy an option with an underlying asset called “will Trump say a certain word during the next speech”).
Polymarket did a genius thing: they made people trade options without even realizing they’re trading options. Prediction markets did something every crypto-related person was talking about: make people use crypto without realizing it. It’s a direct solution to this problem.
HIP-3 onboarded a lot of non-crypto traders. In fact, the majority of trading volume on Hyperliquid right now is precious metals, oil, and the S&P 500, not crypto assets. With a whole new user base, it absolutely makes sense to bring more tools familiar to them, which are options.
The original historical reason why equity options became popular is that equities are hard to short: borrowing shares (paying a borrow rate), telling your broker to lend, being exposed to a squeeze if demand for borrowing exceeds supply. Instead of doing all of that, you can just put on a put option and be happy.
Hyperliquid doesn’t have any competition
No protocol was good enough to introduce lasting options to crypto: Hegic, Ribbon Finance, Lyra, and more. Aevo was quite successful and was even considered a serious competitor to Hyperliquid in 2024, but their orderbook still stayed offchain. I don’t want to discuss the reasons in depth, but you’re all familiar with them: liquidity fragmentation, latency problems, LP adverse selection, etc.
HIP-4 is about binary and bounded options, which suit almost all types of assets: forex, stocks, indices, commodities, and our beloved crypto currencies.
Crypto traders will continue trading perps and will have a new instrument with a high risk/reward ratio. There can be more trading strategies created and new ways to hedge positions.
Commodity traders on Hyperliquid will have a familiar instrument that they used before on other exchanges, but now it’s permissionless and 24/7.
More markets will be deployed, more traders will come thanks to the introduction of S&P 500 perps, more liquidity will flow, and volume will increase.
Hyperliquid has the opportunity to continue attracting crypto traders from Binance, Bybit, OKX, and commodity traders from traditional exchanges and completely dominate this side of the options market.
It should be clear why crypto traders choose Hyperliquid, and migrations will be even more frequent, but why should non-crypto option traders move to Hyperliquid from NASDAQ or NYSE?
NASDAQ is considering opening 24/5 trading hours, but Hyperliquid already has 24/7. It’s the nature of permissionlessness. Lower fees, instant settlement, no size restrictions, less margin cost, more capital efficiency, non-custodial, and no geographic restrictions.
Hyperliquid’s style of doing things is different from everyone else’s. The platform doesn’t have investors, they’re not pressured by anyone, and Jeff is free to do whatever he wants with the company. Hyperliquid is very similar to Telegram in this way: no need to spend on marketing and conviction. If the product is good, people will use it sooner or later.
There are endless reasons not only to switch from traditional exchanges to Hyperliquid for the same assets, but also to have new abilities to create trading strategies with actually good composability.
I predict that Hyperliquid’s binary and bounded options volume will be higher than the options volume of any CEX within a year.
What about Vanilla Options?
An important note to make here is that HIP-4 doesn’t support vanilla options and perpetual options (perpetual options are not perps, perpetual futures are perps).
There are no calls or puts. Vanilla options have uncapped payoffs above the strike price (the higher the price, the more profit you get). HIP-4’s current design is the opposite of this — the payoff is capped at 1 USDH. The absence of vanilla options in HIP-4 means 3 things:
They’re significantly more complex instruments than binary and bounded options to introduce as the first options instrument.
Prediction markets are the first attempt to integrate some kind of options natively into a perp DEX’s margin engine (not the first attempt to bring permissionless options to crypto, though).
Binary options sit closer to perps in terms of complexity than vanilla options do.
I’m 99% sure that the next HIP-5 or HIP-6 update will introduce vanilla options, because it is the next logical step on the complexity spectrum. The whole job of Hyperliquid Labs can be roughly divided into two activities:
Introducing new markets
Introducing new trading instruments
Currently, there are not enough markets to trade vanilla perps, it is mostly an equity instrument.
There are not enough equity markets on Hyperliquid yet to introduce vanilla options, or simply put, “people who need it exist, but not enough.” In order for vanilla options to show their best potential, more markets are needed, and more simple options (binary and bounded) must be tested first, otherwise, it wouldn’t make a lot of sense.
Nevertheless, I believe there is another reason why vanilla options weren’t introduced in HIP-4 — they’re not best suited for crypto assets.
Despite commodities outrunning crypto in volume, Hyperliquid is still a crypto-first exchange, and by most people it’s associated with crypto. HIP-4 is aimed at both audiences: crypto and traditional traders, where binary options are suitable and in demand for crypto, commodities, and equities.
It gives new tools for each group. You may argue that vanilla options are much more suitable for trading equities, indices, and commodities. Crypto does not fit in there: there’s no natural events calendar (dividends, earnings, etc), and vanilla options markets quickly become illiquid (because each combination of strike price and expiry date is a separate orderbook).
Hyperliquid has not yet established itself as a global venue for non-crypto trading, even though it’s rapidly moving toward its goal. When more equities, indices, and commodities are traded on Hyperliquid, it makes sense to move with vanilla options. The move could be done right now, but it wouldn’t make a lot of sense.
Prediction markets may succeed where vanilla options have struggled precisely because they strip away all the complexity from options while still offering a nonlinear, capped-downside payoff structure that perps can’t provide.
Hyperliquid can eat the whole options market in crypto because no protocol was good enough to do that during multiple years.
Hyperliquid can eat a significant chunk of binary and bounded options in equities, indices, and commodities because no major exchange tech is comparable to Hyperliquid in terms of permissionlessness and costs.
Current sentiment couldn’t be worse
Everyone more or less agrees that we’re approximately at the bottom of the market right now.
Bitcoin went deeper than its previous 2021 ATH (which happened only once and was a previous bottom at the end of 2022). Every day some protocol shuts down, VCs are quiet and very disappointed with their investments in 2024-2025, where scammers raised a lot of money. Trump launched his own memecoin: it couldn’t be any worse (unless a major CEX goes insolvent).
Bear markets are the best for VC investments. Yes, there are fewer builders, but almost all of them are committed and have a lot of time to brainstorm ideas and make multiple pivots before high competition and fights for attention.
Builders have the opportunity to build a solid foundation, and VCs have the opportunity to finally think clearly and not catch the fear of missing out. Even though Hyperliquid is not this cycle’s product (it was launched in Q1 2023), it has even more opportunities right now thanks to the solid foundation built in 2022-2023. There are more milestones to bet on via HIP-4. Especially the FIFA World Cup in the summer of this year in America will bring a lot of people to prediction markets in general. Fast resolutions will be the highest priority for these events.
Crypto is dead
As pointed out by @DougieDeLuca in one of his essays, the crypto-native industry is dying, and the line between “crypto” and “everything else” is dissolving.
Protocols finally started to realize that the same group of onchain farmers is not going to make them successful (as it was not obvious from the beginning).
Success is people outside crypto using crypto products without realizing it. That takes time. That’s also one of the reasons why Hyperliquid Policy Center (HPC) was established: it’s tough for millions to just go and start using onchain products, but it’s easy if those onchain products are integrated into something that millions of people already use: legacy financial systems.
The builder code model for HIP-4 means that any company can deploy on Hyperliquid, and each of them can bring their existing audience while all contributing liquidity to the same underlying engine.
Winners build real-world products that embed crypto as an implementation detail. Losers cling to crypto-for-crypto metas and expect the world to adapt.
Thanks for reading! Hyperliquid.