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- [00:02]
David
Multicoin provides investment advice to certain private funds that own hype tokens discussed herein and stands to gain in the event of that price of the token increasing. Multicoin's Hype valuation report discussed in the podcast can be found as a link in the show notes. The report includes important disclosures concerning the data and assumptions by Multicoin discussed today. Also, any trading discussion is for informational purposes only and is not a recommendation to engage in derivatives, leverage or any specific trading strategy. Bankless Nation I'm back with Tushar Jane. He's a partner at Multicoin and a co author on Multicoin Recent investment analysis paper on Hyper Liquid, which is going to be the subject of today's podcast. And since we have Multicoin on and since Multicoin size is size, I have to tell you that although our guest this week is a managing Partner of a registered investment advisor, nothing in this podcast should be considered an offer of Multicoin's investment advisory services or should otherwise be confused for investment tax, legal or other financial advice. Tushar, how you doing dude?
- [00:59]
Tushar Jane
I'm doing great, Bankless Nation A quick
- [01:01]
David
pause in my episode with Tushar so I can talk to you about OkX. Did you know the Intercontinental Exchange, the parent company of the New York Stock Exchange, backed OKX at a 25 billion valuation with a plan to launch tokenized New York Stock Exchange stocks and derivatives later this year on OkX. This is TradFi and Defi. In the same app trusted by over 120 million users globally, OkX is bringing products to the US market that Wall street has been talking about for years. This is the new money app from OkX. Not just a vision, but a roadmap with institutional backing to execute it. So if that got you peaked, you can get a 6% deposit match by using the link in the show notes to try out okx, but not if you are a citizen of New York or Texas. Not investment advice. Let's get back to the episode with Tushar. I think perps have just kind of captured the attention of basically almost all of crypto, I would say. Would you agree?
- [01:57]
Tushar Jane
Not just crypto, Tradfi too. I mean, you saw this announcement from the CME that they're suing the CFTC for approving onshore perps, and there's nothing that tells you you've hit product market fit more than an incumbent suing to try and protect their monopoly. So I think perps have captured more than just crypto's attention.
- [02:19]
David
Yeah, the Incumbents getting scared is definitely what you want to see. I'd also say it's a bear case, though, because comparing crypto to AI, AI doesn't have an incumbent to really go up against. And crypto, when we ran up against the incumbents, it really slowed the industry down. So while seeing the CME get scared is obviously exactly what we want, one part of me is like, oh, they're gonna, they're gonna fight us, though.
- [02:45]
Tushar Jane
Oh, the AI definitely has an incumbent to go up against, and that's human intelligence with political will behind it.
- [02:52]
David
Sure.
- [02:52]
Tushar Jane
So sure there is an incumbent. If you're building something new and disruptive, there's always, you know, some barrier to go up against and you have to welcome the challenge and want to go up and face that challenge. I'm very bullish on AI and I'm also very bullish on perps. I think the fact that there are challenges is not in any way bearish.
- [03:16]
David
In the paper that you wrote Tushar, you said at $63, we believe the market is deeply mispricing hype, viewing it too narrowly as just a fast growing perp dex. So if hyperliquid is more than just a fast growing perp dex, what is it?
- [03:30]
Tushar Jane
I think Hyperliquid has the potential to starting with its perp Dex roots and expand into being the place for the Everything exchange where anyone, anywhere can get exposure to any asset or event, contract or derivative that they want to. So at a high level, I think that's the very bullish case for hype is that it started out as a perp dex, but then it becomes the back end of a global defi mullet and powers the Everything Exchange.
- [04:10]
David
The Everything exchange is a phrase I've been hearing more and more lately. Everyone kind of wants to be the Everything Exchange. I think Robinhood maybe just spawned that idea in the first place way back when. At least the Everything Exchange for retail Coinbase wants to be the Everything Exchange. Hyperliquid is becoming a platform. Is this the same fight as some of these competitors that I just named? Or just the broad desire to be the Everything Exchange? Or is hyper liquids idea of an Everything exchange or your idea for hyperliquid as an Everything exchange? Is that different in any particular way?
- [04:45]
Tushar Jane
There are differences and similarities with Robinhood. Robinhood is a brokerage not really an exchange, so a little bit different, very US focused. I think they're doing a great job of executing on their business, but maybe
- [05:00]
David
super app might have been more apt for Robinhood.
- [05:04]
Tushar Jane
In that case yes, yes, agree. And I can imagine a future where some of Robinhood's volumes end up actually trading on hyperliquid on the back end, where Robinhood owns a customer relationship but then routes liquidity to the most liquid venue, which they already do to some extent. I think they're going to need some more regulatory clarity before they can go and route to hyperliquid. But that seems like a very plausible future state. Coinbase is more of a direct competitor. Coinbase is an exchange. However, I think the key trade off here and the thing that's at the core of this industry and part of the soul of the industry is decentralization and permissionless accessibility and censorship resistance, which you know, Defi offers and CEFI does not. And so if you're still here in the industry and you're still, and you're still listening to Bankless, like, you must truly believe in the value of these crypto ideals. So I think that's just something that you have to, you have to want to see happen in the world.
- [06:22]
David
There are a bunch of venues of hyper liquid bullishness that I want to go through with you one by one. There's so much to talk about in maybe that's kind of why multicoin is bullish. On hyper liquid, there's HIP3 permissionless markets. I kind of view HIP3 as the platformization of hyper liquid. Hyper liquid turning into rather than a first party exchange, but just more of just a platform, a back end as you kind of alluded to. There's HIP4 for prediction markets and options. There's portfolio managing, there's the Coinbase USDC deal, there's the hyper evm. There's just a growth of perps as an instrument. There's the opening of the US capital markets of all of all of these. There's a bunch of different ways to get bullish about hyper liquid. What's your number one, what's your number one reason why or your favorite reason, the one that excites you the most, why Hyper liquid is a good investment?
- [07:13]
Tushar Jane
I think it's portfolio margining actually because a lot of the value of the everything exchange is being able to go and trade Bitcoin and eth and oil and gold and event contracts on will the Fed raise rates or cut rates and options all in one place with one collateral balance, cross margining between everything. So to me portfolio margining is the most exciting because it empowers all of the other categories of products and it provides a very powerful compounding return to scale because you can then put on a pair trade of hey, I want to be long bitcoin and I want to bet to hedge. I'm going to say that the Fed is raising rates next time they meet because I think if they raise rates, Bitcoin will go down. But at least I'll make money here, losing it here. And maybe I can construct a really effective trade with that combination. And I can imagine a number of similar combinations. Maybe you want to bet on what dram prices are going to be in the future and at the same time you want to take a position on Micron stock in order to construct some sort of trade there. So to me, portfolio margining is the most bullish, exciting thing because competitors can launch the same product. And you see this right like you're going to see other exchanges, whether centralized or decentralized, launch the same markets. But I think portfolio margining and having balances on there allows for cross selling in a way that a new entrant will have a difficult time competing with.
- [09:03]
David
Now, I might need help actually understanding technically portfolio margining. So maybe you could explain that to me and the listeners. All Perpdex is all margin. It's all leverage inherently is there is portfolio margining something different than that?
- [09:17]
Tushar Jane
So what portfolio margining allows you to do is you have one collateral account and that you are trading against. So if one derivatives position moves in your favor and the other one moves against you, you don't have to take an action to post more collateral to the one that's moved against you. It nets between those for you automatically.
- [09:37]
David
And this is the latest market, right?
- [09:40]
Tushar Jane
Yeah. It's like cross margin. Yeah.
- [09:41]
David
Right, yeah. And, and perp de have had this. Correct.
- [09:46]
Tushar Jane
So some perp Dexs have, but the cross margin between these different categories of products I don't believe we've seen.
- [09:56]
David
Okay, and this is the, this is just capital efficiency.
- [10:00]
Michael Naito
Right.
- [10:00]
David
And so this is why you're saying that there's an economy of scale here, putting everything under one single roof. You know, the winner kind of winning begets winning in the world of finance. And so when you are taking one trade on one leg, you are like going to do the other trade and expressing a different idea under that same roof. Because cross margining, portfolio margin enables you to just unlock all of these potentials all in the same place. So it's kind of like just a winning begets winning idea. Is that, is that, is that true?
- [10:31]
Tushar Jane
Yeah, that it's compounding returns to having a user base, having scale, having assets on platform already just makes it marginally easier to sell the next financial product that you have. So you want to launch, you know, some new thing. You already have these users and they don't even need to take a deposit action. It's already a unified collateral account.
- [10:54]
David
I like the idea of the, these are building blocks or a fundamental building blockchain to be able to create financial trades, financial expressions of ideas. We need more building blocks however, like the, the portfolio margining, that's just capital and it's allowing the capital to kind of get like packaged up in different ways. But we need more markets to come on Hyper liquid. And I think that's what HIP3 really brings to the table. Can you talk about what HIP3 does for hyper Liquid? As in like the long term growth story for it?
- [11:26]
Tushar Jane
Hip3 is a decentralization of market creation on hyperliquid. So when hyperliquid started there was basically just hypercore. So the core team got to choose which markets get listed and choose all the parameters of those markets. And HIP3 allows for new deployers to come in. They have to, they have to post a bond of 500k hype in order to have the ability to deploy markets. But that's permissionless to do. You have to just accumulate 500k hype. Or some of these deployers have actually raised it from the community in order to go and post that bond. And then those deployers get to choose what markets they think people will trade and they get to keep half the fees earned from traders going and using that market. And so this is actually mirrored by builder codes, which has been an idea that's been around for a while on the demand side where builder codes allow you to build your own front end and then you can route to hyperliquid and get some percentage of the trading fees. So I see these as two sides of the same coin. They're both product decentralization avenues where you don't have the core team making decisions on which markets to list with what kind of parameters and how to manage the liquidity on them and all of those variables. And you also don't have the core team making the decisions on what does the user interface look like, how to localize it for specific geographies and specific user segments and how to distribute it or market it out to those segments. So I think they're both moves towards decentralization.
- [13:22]
David
Yeah, one is having hyper liquid be the backend for market producers. And this is how hyper liquid ended up with very liquid oil markets and gold markets. Right when traders wanted to Trade those things. And then on the other side of things, it's the phantom Metamask Infinix hooking their users into Hyper Liquid. So Hyper Liquid just gets to entrench itself. And, and I think this is kind of what you were getting at with like the, the crypto ethos. This is like breaking down the silo, breaking down the walls and allowing Hyperliquid to kind of just position itself as a credibly neutral hub of sorts, whereas like Coinbase or any centralized exchange just doesn't really have the same ability or incentive. Does that mean over the long term, Tushar, that you expect HIP3 and also builder codes to, to kind of be like the dominant source of both market creation and user trades? Like where do you think the equilibrium nets out over the longest term time horizon? So like five, ten years beyond between Hyper Liquid Core and people going direct to Hyper Liquid versus the builder codes and HIP three side of things.
- [14:33]
Tushar Jane
HIP three and HIP four will end up being the vast majority of volume because there's just gonna be many more markets. And you're already seeing that start to happen. Right? H I P. Three volumes went from basically nothing to I believe, about a third of total volume on hyperliquid in a matter of months. So that's really meaningful. And quite frankly, I think the hyperliquid team wants that to happen. It's a part of progressive decentralization where it started out with the team having complete control over what gets listed, how you trade it, so on. And I believe that what they want to do is become a platform for others. And they're a very opinionated platform. Right. It's not a general purpose kind of, hey, anyone can do anything kind of platform. It's a very opinionated one. But I think that opinionated platform is decentralizing the listing process and the supply side and the demand generation process, but then allowing those two to match together in one place, because that's where a lot of the economics are, is in actually matching those two sides.
- [15:57]
David
What I see, the optimistic side that I see about this construction is that it turned, it has the potential to turn a competitor into a collaborator. And so where somebody might have become a competitor to hyperliquid, they are given the option, the route to work with hyperliquid and either with builder codes or be a market deployer. Trade XYZ is like the dominant HIP3 deployer on hyperliquid. And this is kind of just like a different, it's a different entity than Hyper Liquid, but it's Highly aligned with hyperliquid. It's hyper helping Hyper liquid grow. Trade XYZ is making a ton of revenue by themselves. There's an alignment here. But Trade XYZ is brand new and it's still like a Hyper liquid native company. I think the biggest signal I would want to see as a hype bull is somebody like Coinbase using builder codes and having hyperliquid as the backend. But I don't know if that's what we see right now. We see Coinbase trying to go for its own first party perps exchange and choosing to compete. There are some, some other aspects of the Coinbase Hyper Liquid deal. That's cooperation and we'll talk about that. But with, with pumping volume into Hyper Liquid. I don't see that happening yet. At least with Coinbase. What. What would you say or respond to with that?
- [17:15]
Tushar Jane
Yeah, Coinbase is not routing order flow to Hyper Liquid just yet. Could that happen in the future? Plausibly. But I think looking at the wallets like Phantom or Metamask is the right place to look right now because they are in the business of just being a front end and routing their users activity to the best place to execute those trades. Whereas Coinbase is in the business of executing trades on their platform. Often egregious fees. Right. Like Coinbase is not routing your trades to another place even if the price is going to be better there. Wallets are much more competitive in this way. So I think wallets will come first. I would really be excited to see a regulated front end that actually takes custody of assets. The reason why these wallets are able to do this right now is they're non custodial. Right. So they're just software that is allowing you to interface with the backend protocol. A big catalyst that would get me even more excited about hyperliquid would be to see a regulated custodial front end plug in to hyperliquid's backend liquidity.
- [18:42]
David
I believe we did see Anchorage integrate hyperliquid recently and Anchorage takes in like Institutional Deposits is. It's a, it's a custodian. But now it's also hooked in with Hyper Liquid. Is that kind of like what you're talking about?
- [18:56]
Tushar Jane
I'm not very familiar with that specific integration, so I can't comment on that. I know that they have support for custody and perhaps they're allowing for routing of trading, but now I can't comment on that.
- [19:12]
David
Okay. One of the concerns or constraints that I see with Hyper Liquid is lack of on ramps. It's kind of depending on on ramps to happen elsewhere. And then that money eventually flow onto Hyper liquid one way or another, either via the wallets, as you've said, or actually depositing first party onto hyper liquid. But it seems to be that Hyper Liquid is kind of removed from direct capital flows and that really separates it from an exchange like Coinbase which has actual banking relationships. And the reason why Coinbase can charge high fees is because, well, once they are the on ramp, they are the highway, they can charge the tolls there. How would you see hyperliquid overcoming this constraint that they have of just being so disconnected from direct fiat on ramps?
- [19:59]
Tushar Jane
I think stablecoin on ramps will be sufficient as stablecoin proliferation just grows. So I don't, I don't really see that as a huge barrier. There's plenty of companies out there. You know, one in our portfolio is called Fun XYZ that provides this type of on ramp onto stablecoin service and allows users to show up with whatever form of fiat or stablecoin that they have and then very quickly and easily have that available on the platform where they want to trade. So there's a number of options to enable that type of onboarding. So I don't see that as a huge hurdle. It's already being solved and I don't see that as a huge edge for incumbents either.
- [20:50]
David
One way to look at hyperliquid is that it's got a very strong team, can execute very fast. It's kind of built for the age of AI. I believe hyperliquid has something like 14 engineers building the entire company. And so in the post AI labor age positioned very strongly. But then, so that's, that's just like, you know, investing in a startup, investing in the founder, you know. Jessiciller, I, I'll talk to you all about that. But then there's also just the perp. The perp is a brand new innovation. It's a brand new financial instrument. Perp penetration across tradfi, across finance broadly is low. And so you could say, you could argue that like, well, tradfi and finance broadly really likes is going to like the perp. They're going to love the perp once they get their hands on it. And I want exposure to the perp. And we have early indications that the CFTC is trying to figure out how to open up the US markets to the per. That's bullish even outside of the United States. Just like finance broadly is, perp penetration across finance broadly is still low. How much of this, how much of the. This decision to invest in hype is you looking for exposure to the perp as an instrument, as a growth instrument versus anything else that we would talk about this bullish about?
- [22:03]
Tushar Jane
Hyper Liquid, the contract type is really attractive, but that's not a core part of the thesis. There's. There's nothing stopping anyone else from building perps as well, right? You just saw Kalshi got approved for offer perps in the us. The CFTC approved that. Coinbase has perps. Binance has had perps for a long time. I think perps are a really effective instrument, but that's not a competitive edge that Hyperliquid has over its over the field because everyone can launch perps.
- [22:41]
David
So you were, you were like, ah, perps are bullish. How do I get exposure to perps? What are my options? Let's pick hype. You were like, let's pick hype for a few more fundamental reasons. You talked about portfolio margining, we've talked about hip3. I'm still looking for what gets you excited. Tushar portfolio margining I can wrap my head around. But really what gets you the most excited about Hyper Liquid?
- [23:03]
Tushar Jane
What gets me the most excited is anyone anywhere can get exposure to any asset that they want, right? That has been a core thesis for Defi from kind of the origins of this sector. And I think that plus the Defi mullet where you have localized front ends that handle user acquisition, that handle engagement with regulators, that handle all of the kind of user support questions and so on, those are. That combination of those two things is what gets me fundamentally the most excited. Because ultimately I think we are going to live in a world where you have localized centralized front ends and a DEFI global liquidity backend. And I'm just looking for how do you get there, right? From an investor perspective, you know, we've been doing this for almost a decade now at Multicoin and we've seen a lot of trends come and go. And I think one thing to be wary of is have like a lot of conviction on like the specific path. You have to be willing to revisit your assumptions as the market gives you information, you can have the goal in mind, right? The goal here being the everything exchange, which I think has been the goal for DEFI for a long time. But there's a lot of path dependency on how you get there. And so I think some of the worst investing mistakes you can make is say I am certain about the goal and I'm certain about the path to get there and then you're wrong. Right? Let me give you an analogy for that, right? Like imagine being really bullish on ride sharing, but then you bet on Halio or one of those other ride sharing companies because you were really betting that, oh, it's going to be regulated through the taxi medallions or you know something, right? And because you had the conviction about the path, it didn't matter that you were right about the ultimate goal. You didn't make any money. Right? And so what I have conviction in is the ultimate destination of the everything exchange of this defi vision. And what I'm willing to revisit my assumptions on is what is the path that gets us there. And right now I see hyperliquid as the most credible path to get there.
- [25:35]
David
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- [26:23]
Michael Naito
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- [27:10]
David
What's the evidence of that credibility?
- [27:13]
Tushar Jane
Cash flow. You can't argue with cash flow, right? Users want to use the product, they're willing to pay money to use the product. Users are taking actual directional risk on the platform. You see volumes on other perp dexs but quite frankly a lot of that is to put a timely incentivized volume. And you know we can get into that in more detail. On hyper liquid you are seeing people take actual directional risk, right?
- [27:42]
David
Price discovery is happening on hyperliquid Price
- [27:46]
Tushar Jane
discovery to some extent. But I think the thing that I'm most pointing to here is people holding positions, not just market makers trading with two separate accounts in order to farm points or rebates or whatever.
- [28:03]
David
You, you said that, you said other platforms are are doing this. There's Aster, there's Lighter, there's a few, a few others. As I understand it, Lighter's points program is over. They've distributed their token. I don't know about asters. So have you looked into like the nature of the volume on on these exchanges and you then you like compare to hyper liquid and it tells a different story.
- [28:25]
Tushar Jane
I do. And look volume is the easiest thing to fake on a exchange because you and I can just trade back and forth at the same exact price infinite number of times and that counts as volume. Right. So I actually don't even look at volume as that. Interesting. Here are the things that I do look at. One, I look at the net trading fees paid after you subtract any rebates or anything else because that is an actual expense that is being incurred. The second thing I look at is open interest because open interest requires you to leave capital on the platform and have some amount of leverage that you can manage against that capital. So maybe I have a hundred dollars on the platform, I'm willing to do up to 3x leverage. So at most I can create $300 of open interest with that. And you and I can't take that same finite base of capital and create infinite open interest. But if you have $100 and I have $100, we can trade back and forth and create infinite volume. So I look at open interest. But we have seen some platforms Lighter specifically comes to mind subsidize open interest. Now where what they do is they give you a rebate for funding fees that are paid. So if I have, you know, if you're long some contract and I'm short that contract and funding gets egregiously positive, right? So you as the long are having to pay me a ton of funding. If they subsidize that to you and give you a rebate on that funding, well then that incentivizes us to drive up open interest in order to receive that subsidy. So we are seeing even, you know, this incentive layer show up on open interest. So this is why I would go to the third item on my list to measure real traction and that is the amount of liquidations on your platform. Because liquidations like you lose money when, when there are liquidations, right? We can trade volume back and forth. No one needs to lose any money. If I, if you know, I have two accounts that are taking opposite sides of a trade and putting on open interest between them and collecting the, the funding rebate, then I can do that without losing any money, right? I'm perfectly hedged. Liquidations explicitly carry a liquidation penalty that cannot be faked. And so I think liquidation data is the truest source of seeing. Are there real users and are they taking directional risk on your platform?
- [31:17]
David
And what, what is the hyper liquid liquidation data look like? What story does that tell you?
- [31:23]
Tushar Jane
So hyperliquid has a much higher ratio of liquidations to trading volume compared to Aster and Lighter who are the main competitors. There's a really good source for this data. Coinglass has this. So you know, I would encourage people to go and look at the data themselves and keep that up to date. We put some of the data in our report but obviously it's a real time data feed that changes.
- [31:56]
David
There's one bit of data out there that I want to check with you. In terms of revenue, Lighter is trading at a 6.5x premium on its revenue, where Hyper Liquid is trading as an at an 18x premium on its revenue. Implying that like Hyper Hyper Liquid is trading, you know, three, roughly three times higher versus the revenue that it makes versus Lighter. How do you understand this bit of data?
- [32:19]
Tushar Jane
I'm not making a comment on the valuation multiples. I think valuation multiples are the market talking about how sustainable they think that revenue is. And I don't know what period you're annualizing from in order to get that data right like that. It's hard to compare without comparing exactly apples to apples. So what I'm looking at is the revenue earned on a trailing twelve month basis, right? That way we're looking at apples to apples. And if you see lighter trading at a lower multiple than hyper liquidity, that tells you that the market is willing to pay a lower multiple for it. Which is probably because the market either doubts the durability of it or thinks it's going to be lower margin or has some reason to want to pay a lower multiple. Or the market could just be wrong. Right, like that's always possible. The market just hasn't paid attention and is wrong. That happens all the time too. But generally for high profile projects that are getting a lot of attention, there's a reason why multiples trade with idea.
- [33:24]
David
You put out some price targets in your report. Let me just read a few of these. You say at a 20x or the paper says at a 20x multiple on $8 billion in earnings. In our bear case, we arrive at a $160 billion valuation, which on an adjusted supply of 502 million tokens implies a hype price of over $319, representing more than a 5x upside from current levels. That's the conservative assumption from the paper that you wrote. Is this, this is just nothing has to happen, you know, time passes, business as usual. Or does hyper liquid still need to, in this bear case, still need to execute on things in order to make this a reality? What is this potential price prediction based on hyper liquid actually achieving here?
- [34:15]
Tushar Jane
Yeah, so small correction. We outlined three cases here. A bear, a base and a bull. The case that you just mentioned, the $319 case, is our base case. Base case, we have a bear case which has a lower outcome. But look, I first would encourage everyone read the report and read this section. What we intend to do with these types of valuation sections is not to say this is precisely the number. I think that's false precision. What we're trying to do is give you the framework of how we think about it. And then we are presenting three scenarios of sets of variables that go into that framework that then come out with some price target. But we're not just looking at three scenarios. We're not saying, oh, this is exactly going to be the one, the right. Even internally, like we looked at many more scenarios, we decided to present these three because it's digestible to an audience to consider them as examples of the framework. But we're not saying, oh, it has to be one of these outcomes. There is clear uncertainty and it's a range of outcomes there. So that's just one clarification I want to provide upfront. But then let me talk about what needs to happen for each of these cases. So there are really four critical assumptions in this report. The first is how does total crypto derivatives volume grow? How fast does that grow? The second is what is the market share that Dexs have of the crypto derivatives market? The third is how much market share does Hyperliquid own of the Dexes. And then the fourth is how much in stablecoins will be on hyperliquid proportional to that trading volume because of that Coinbase deal where hyperliquid is getting 90% of the interest on that stablecoin balance. So those are the four core assumptions. Now let's look at some data. If you look at that first assumption, total crypto derivatives volume, it's grown at about 45% annualized for the past five years. So that's a pretty impressive growth rate. In our base case, we assume that that'll come down to 35% for the next couple of years. In our bear case, we assume it'll only grow at 10%. And in our bull case, we're expecting it's going to grow faster than that. So we expect it to grow at 50% in the bull case. Then let's go and visit the second assumption, which is how much volume or what percentage of volume goes to DEXEs versus centralized exchanges. For context, DEXEs made up basically 0% of derivatives volume in 2022 and are now up to 16% of derivatives volume. So in our base case, we assume that that's going to get to 32% and that's looking at the growth rate. That's looking at the trajectory that the market is on today. And just extrapolating that forward, in our bear case, we assume it's going to only get to 20%. So a dramatic decrease in growth of DEXs versus centralized exchanges. And in our bull case, we assume that derivatives Dexes will reach half of the overall market for crypto derivatives. You can see how these assumptions start to compound on each other in order to build these cases and why I insist that people look at this as a framework to then incorporate their own assumptions into, not just oh yeah, here's a number, I just take it at face value. We want people to actually think about these assumptions. Our third assumption in our base case is that Hyperliquid holds its percentage of Defi derivative's market share constant at 30%. I believe this actually a very conservative assumption because Hyper Liquid is currently at almost 60% of open interest. It's 59% of open interest. They're lower in terms of volume because of the farming kind of concept that we've already discussed. We think that hyperliquids percentage share will actually increase over time due to the team's execution, due to the fact that there are real organic users. Farming behavior does not last forever. It's impossible to sustain that for an extended period of time. So I think this is probably the most conservative assumption that we have here, is holding that constant in our base case, and I think it should grow from there. And then last but not least would be that stablecoin revenue that hyperliquid has. And we assume that the ratio between stablecoins to open interest to volume on hyperliquid stays constant. And what that means is we're saying that we have no reason to believe that users will be more or less levered in the future than they are today. So if you expect volume to go up by X, then you probably expect open interest to go up linearly. And then if you don't expect leverage to change, you can expect the stable coin balances to also go up linearly.
- [40:27]
David
And then that turns into the yield from the Coinbase program, which goes to buy back the Hype token. In fact, basically almost everything that we talked about ultimately buys back the Hype token. Hype, I think as a token story, is probably the greatest story that crypto's had in terms of direct relationship between value creation and value capture. Talk about the value capture story of hyperliquid and the confidence that that provides you as an investor.
- [40:55]
Tushar Jane
Yeah, it's just so simple and easy, right? Like you're not. There's no convoluted questions here of, well, is there an equity entity that's going to make money and then how is it going to route that? You know, you look at some other older protocols and like, they're just like questions, you know, it's just a governance token, like, what's going to happen here from the beginning? Like, hype is the core asset. There's no equity entity. Revenue goes to buy and burn Hype. If you want to go be a Hip 3 deployer, you have to stake Hype. If you want to pay priority fees on hyper evm, you use Hype for that. So everything is aligned around this one asset. I don't see this as remarkable. This. It's just simple and there's not a lot of ambiguity. And it doesn't, it doesn't leave like a risk open of like, well, what if this business makes a lot of money? Will I actually be able to share in that? As a token holder?
- [41:51]
David
There is one risk that you guys cited in the report, which is the Hype Unlocks. Core contributors were allocated about 24% of the total supply at Hype and that vests at around 10 million hype per month through 2028. So at $63, that's $625 million per month. Unlocking a lot, A lot. Not all of that is going to therefore be sold, but could be sold. So that, that's a lot. I'm not really worried about that risk specifically, but I am kind of a little bit worried about just like the 14 hyper liquid employees are just going to be so wealthy, they did it. You know, they achieved their goals. They, if they set off to, you know, be capitalists and build a startup and have that startup be monetized and become wealthy as a result, they did it, the job's done. And so what kind of long term incentive does the Hyper Liquid team materially have when they're locking, when they're unlocking $625 million a month?
- [42:51]
Tushar Jane
That's a good question. And there you have to go and like, talk to team members and see what motivates them. Look, I've been fortunate to have been around a lot of people who've made quite a bit of money. And I can tell you that the money feels like a really important goal when you don't have enough to feel secure. But once you have enough to feel secure, more money is not about making more money. It's about what that enables you to do. Right? It's about what influence that gives you. Right? And a lot of people who make it to this level are motivated by something more than the money. They're not motivated by consumption. They're not trying to just buy more yachts or houses or anything like that. It's. They have a vision that they want to see in the world. And I believe Jeff has a vision that he wants to see play out in the world. He's not just doing this to, you know, make enough money to retire. If that was the case, this whole team would be gone by now. Right? Like they're already there. They've been there. Right? Like it's not, it's not likely that a switch flips now almost, you know, a year and a half after they hit that type of generational wealth. If that was going to happen, I believe it would have happened already.
- [44:22]
David
Maybe I'm just not looking in the right places. But, you know, Jeff does podcasts every now and then. I don't know anything about the other Hyper Liquid team members. Everyone says that they're cracked engineers, they're very, very competent. I mean, you have to be to have 14 people build a single $60 billion fully diluted platform. What do you know about the team? And what about the team gives you confidence as an investor?
- [44:46]
Tushar Jane
The key thing that gives me confidence is one, we would have seen evidence if there was a kind of the rug pull of, oh, hey, we made it, we built a successful thing and we're leaving now. Like, we would have seen evidence of that. What we are seeing is that the pace of execution continues unabated and that's what ultimately matters. I'm not saying that none of the team members will leave. If some of them leave and you hire a new one like that, that's just normal turnover, right? Like people are living their lives. I think you have to look at the founder, who is the motivating energy, who's keeping the whole thing working. You have to look at the execution of, you know, like, are they shipping? You have to just look at the evidence out there and you have to think about how sustainable is this? Has it hit escape velocity such that you can have some amount of turnover and still be extremely durable, or is it entirely dependent on, you know, a couple of core engineers in order to, to make the thing work?
- [45:53]
David
Hey, Bankless Nation, it's David. If you're hearing this, that's because you are listening to the free Bankless podcast feed. Did you know that there is a premium Bankless RSS feed? The premium feed has extra interviews that I do for my own personal research and just deeper questions that I want answered about the crypto industry. Questions that I want to answer so I can be more informed as an investor both at Bankless Ventures and also just in my own personal, personal portfolio too. Also, there are no ads, which means if you listen to the premium feed instead of the free feed, you'll get about 20 hours of your life back every year because you choose to support Bankless directly. So if you're interested in getting extra content all while skipping the ads or you just appreciate what we do here and want us to keep doing it, we'd appreciate it if you signed up for Bankless Premium and there is a link in the show notes to get started. Cheers to a good 2026. I think one of the biggest exciting moments right now for in the story of the perp is the opening of the US Capital markets chair. CFTC Chair Mike Selig has just been very explicit about wanting to onshore perps. Hyperliquid seems to be the most offshore perp platform. Coinbase wants to do perps. Robinhood wants to do perps. Kalshi is doing perps. It is onshore. Lighter is kind of in the same position as Hyperliquid in this moment, except for the fact that the company is registered onshore. Of all the different competitors in the perp platform ecosystem, Hyper Liquid seems to be just the most offshore. And I think to hyper liquids benefit like to some degree, like you get more freedom and flexibility offshore. And so maybe that's better for hyper. Hyper Liquid. I'm not sure about Hyper Liquid's ability to really penetrate the US market. That's my understanding. Do you have an opinion on Hyper Liquid's ability to come onshore while also being the amazing thing that it's become so far?
- [47:34]
Tushar Jane
I think it's a process. You're. You cannot expect this to happen overnight. In fact, that's a frustration I have with the crypto market's expectations of regulators. Like the market thinks that this stuff just moves at the pace that crypto markets move and it doesn't. Right. The Genius bill was passed last year. It's still not in effect. It goes into effect January 2027 because they had to have a period for rulemaking and comments and public discussion and so on.
- [48:03]
Michael Naito
Right.
- [48:03]
Tushar Jane
Like this stuff is just slow and it is a series of steps. Here's a plausible series of steps that has HyperLiquid in onshore US markets. First is you see perps become legalized and regulated in the United States. We have seen the first step of that with the Kalshi approval. You should expect to see more platforms get that approval. The second is we have some sort of law, probably the Clarity act, which passes and enshrines decentralized finance as having certain protections where you don't need to register as a broker, where you don't need to comply with some rules that a custodial centralized intermediary would need to comply with because it's impossible for you to do so. The current draft of the Clarity act has some of these safe harbors. We'll see what text actually ends up in the final version, obviously. But we need something like that to pass. Then we need to see hyperliquid meet the requirements within the Clarity act, which is going to have some requirements around probably open source code or validator count or there's a number of variables in there. I have confidence that hyperliquid will be able to meet them. Even if it doesn't meet them at the moment of the bill's passing there, there can be a progressive process to then meet those requirements. And then fourth you see a regulated front end show up in the US that's compliant with all the US laws and is routing volume to this decentralized defi backend which is enshrined in U.S. law as being compliant with whatever requirements ultimately end out in a Clarity act or something like it. So it's a series of steps and it will take years. This is not a fast series of events. But I think that there is a plausible path to get there and we are seeing the early signs of progress.
- [50:25]
David
Do we know that hyperliquid even wants to become onshore and regulated? One model I have for this is Tether, for example, just does not. They don't really care. They're so big, they're so successful, they command so much of the market that they don't really need to become onshore. And the way that they are becoming onshore is they're just spinning off a mini tether that's compliant and you know, main tether just remains doing exactly what it wants to do. Do we know that hyperliquid wants to come onshore or maybe it'll follow the tether path?
- [50:55]
Tushar Jane
You know, I don't know. I'm not sure that hyperliquid needs to actually take explicit action to make that happen. I think builder codes which allow for front ends to permissionlessly like go and start aggregating users routing volume and make revenue off that will be the path. So I don't know that the hyperliquid core team needs to actually do anything
- [51:23]
David
other than the open source and node count depending on those details.
- [51:27]
Tushar Jane
Correct, yes, but I would expect that they're gonna wanna do those things anyway. I don't think that's just a, oh, we need to be onshore. In the US They've talked about open sourcing the code base in the future. They've talked about things like increasing the validator set, which they've actually done over time, progressively increasing that size. It's still pretty small, but the number is going in the right direction. So I think they're going to want to do those things anyway. And quite frankly it would be silly for them to not take advantage of the protection enshrined in U.S. law because what if we have a less friendly administration at some point in the future that you know, wants to go and target something? You want to be able to say, hey, like we're able to point to the law and say that we are following it. Even if we're not technically an onshore exchange.
- [52:23]
David
Is there anything else about Hyper Liquid that excites you that I haven't asked about? Open ended?
- [52:27]
Tushar Jane
No. I think we hit on all of the main points. It's just the relentless pace of execution. It is the fact that users are telling you and voting with their wallets that they want to use this product. And it's the huge secular tailwind of financialization in our economy, where more and more of the economy is about trading and investing in financial markets. And as we move to a world of AI, I expect that more and more human attention and energy will be put towards financial markets as opposed to labor markets. And so there's just this huge tailwind behind hyperliquid and others as well. So I'm excited to basically ride that wave.
- [53:20]
David
One last question before I let you go. Too sharp. Why doesn't Kyle Samani like hyperliquid?
- [53:26]
Tushar Jane
I will let Kyle comment on his own opinions.
- [53:29]
David
All right. All right. Tushar, thanks for coming on the show today.
- [53:32]
Tushar Jane
Absolutely. Thank you for having me.
- [53:33]
David
Bankless Nation. You guys know the deal. Crypto is risky. Definitely leverage as well. You can lose what you put in, but nonetheless, this is the frontier. It's not for everyone, but we are glad you're with us on the Bankless journey. Thanks a lot,
- [53:48]
Michael Naito
Sa.