Original | Keisan.hl

Editor | Odaily Planet Daily

Translator | Dingdang

Editor's Note: In today's crypto market filled with bubbles and narratives, why has Hyperliquid (HYPE) been able to join the ten billion market cap club in such a short time? Is it the result of temporary hype, or does it stem from the long-term value of its own products and mechanisms? The author, Keisan.hl, starts from the token economic model and combines a horizontal comparison of traditional finance and leading crypto projects to systematically sort out Hyperliquid's current market performance and potential logic, constructing a relatively complete valuation framework.

It has been about six months since I first published a valuation framework for HYPE. During this time, many things have changed, but many things have also remained the same. My optimism about HYPE remains unchanged.

Let’s take a look at some data.

Revenue Estimation (Underwriting Revenue)

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

As for the changes in trading volume during bear markets, I believe that even if Bitcoin enters a bear market in the short term, the decline in trading volume will not be as severe as before, due to the continuous inflow of ETF funds and the current more favorable U.S. policy towards cryptocurrencies. Of course, this is still a factor to consider, and revenue may decrease by about 50% over the next few years, so we will conservatively use the recent average trading volume from the bull market as our baseline (3 million dollars), not accounting for growth.

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

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

First, I have broken down the fee data for different time periods.

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

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

In my calculations, I have excluded the repurchased and destroyed portions, as well as tokens that have not yet been distributed, such as future releases/community funding. My assumption is that a large portion of the 38.888% of tokens will be gradually released over a long time in the form of staking rewards. As for the community funding portion, I believe it is a positive expected value (+EV) investment aimed at strengthening the community and ecosystem.

Among the remaining uncirculated tokens, 23.8% are reserved for the team and future members, and 6.0% are reserved for the foundation. I have fully accounted for these two portions in the adjusted supply, but this assumption is somewhat 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, so they should be given a high discount in the valuation. It is important to emphasize again that this team does not need to cash out or realize liquidity events.

Personally, I believe the most reasonable valuation base token quantity should lie between the circulating supply and the adjusted fully diluted supply.

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

• The P/E ratio based on circulating supply is approximately 12.3 times.
• The P/E ratio based on adjusted fully diluted supply is approximately 21.9 times.

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

Public Company Comparisons (Comps)

Now we enter the most interesting part of the valuation: comparing with public companies. HYPE's current price is very cheap.

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

Public companies typically issue a type of stock reward called "stock-based compensation" (SBC) primarily to the executive team and core employees. Many analysts tend to view these as one-time expenses and do not include them in the company's operating expenses. But I do not see it that way. In my view, treating recurring annual expenditures amounting to hundreds of millions of dollars as one-time expenses is extremely unreasonable.

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

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

Why is this crucial? Because many people evaluating HYPE account for 100% of the tokens held by the team in the FDV but overlook that public companies actually have "infinite FDV," as they can continuously issue SBC to executives every year.

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

1. If you want to compare using the net cash flow received by actual shareholders, then use "LTM multiples (excluding SBC)" to compare public company valuations while accounting for 100% of Hyperliquid's team tokens in the total supply.
2. If you want to adopt the public companies' common "adjusted EBITDA" reporting standard (i.e., not considering the continuity of SBC), then use the "blended supply multiple": circulating tokens (excluding team tokens) + team tokens accounted for at 50%. This assumes that the team has already received half of them, and the remaining half will be gradually released over the next few years, just like SBC.

It is worth mentioning that SBC is infinitely issued, while team tokens have a limited total supply. You can see that regardless of the valuation method used, HYPE appears extremely attractive.

Finally, let’s talk about profitability. Coinbase, Robinhood, and Circle have significantly lower free cash flow profit margins than Hyperliquid. This means that when their revenues decline, EBITDA will shrink significantly while expenses remain large. In contrast, Hyperliquid's free cash flow is cleaner, more sustainable, and has stronger defensive capabilities.

Additionally, one more data point: Coinbase has 4,300 employees, Robinhood has 2,500, while Hyperliquid's core team consists of only 12 people.

HYPE's Bull Market Expectations

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

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

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

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

Perpetual contracts are the best financial products on Earth, and Hyperliquid is the "AWS of perpetual contracts," with strong scalability, completely decentralized and transparent.

The traditional financial world and other non-crypto circles have not yet truly understood the power of perpetual contracts. But once this product is discovered, its potential will be enormous.

Back to the numbers. Six months ago, when I first wrote the valuation framework, Hyperliquid generated about $1 million in daily revenue (at that time, due to the short-term surge in trading volume after TRUMP's launch). Now, this number has stabilized between $2.5 million and $3 million daily, more than doubling. User and capital inflow have also grown in tandem.

Currently, Hyperliquid accounts for about 5% of all CEX trading volume. Imagine if this number reaches 25% in the coming years, which could mean daily revenue might rise to $15 million. Based on this estimate, HYPE's free cash flow valuation multiple would drop to 5 times.

Comparison with Other Crypto Tokens

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

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

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

I previously made a long-term investment in PUMP, but I have now reduced my position. I believe they have been outcompeted, which is understandable. Their model lacks a competitive moat and is easily disrupted by other platforms. In contrast, BONK's non-exploitative model is winning, as evidenced by data across various chains.

Attention from Traditional Finance

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

So, what assets are traditional finance most likely to favor? Of course, those that can generate substantial cash flow, have a sustainable competitive moat, and possess a strong defensive model.

A Bloomberg analyst once asked, "What exactly is behind Hyperliquid?" While this question may seem sarcastic, it reflects the core doubt that traditional finance has had about crypto for years.

Now, we finally have an answer, and it’s a comprehensive one.

HYPE has not yet been widely discovered in traditional finance circles, simply because the team has not engaged in 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 misled by appearances. Wall Street will eventually discover HYPE.

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

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

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

Token Distribution

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

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

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

Data Performance

Hyperliquid's data performance is impressive, even among all cryptocurrencies. After experiencing tremendous growth recently, it is astonishing to see the current price position. I will just share a few images.

User growth has reached a new high since the TGE, capital inflow has accelerated to historical highs, and open interest (OI) has also reached historical peaks.

Comparison of Hyperliquid and CEX data: Trading volume compared to CEX is at a historical high; open positions compared to CEX continue to break historical highs.

At the same time, the SWPE (relative premium indicator) is at its lowest point since April, suggesting that the current price is attractive.

Drivers for the Next Growth Phase

The key factors I believe will drive HYPE's growth include:

• Front-end distribution: The builder code is one of Hyperliquid's best innovations. The front-end will also engage in marketing, while Hyperliquid has never done any marketing to date.
• Construction of fiat entry points: I have heard from several different sources (not directly from Hyperliquid, but from applications or front-ends related to Hyperliquid) that this is about to launch.
• HIP-3: A new product that may only be realized on Hyperliquid, which will bring significant token burns for HYPE.
• SONN: Will bring Wall Street funds into HYPE and inject $300 million in buying pressure for HYPE.
• Spot collateral for perpetual contract trading: Based on the deployment status of the testnet, this seems to be in progress, and I believe it will be a huge unlock for the platform and HYPE tokens. We may see an increase in trading volume, and BTC whales may also deposit funds into Hyperliquid as a result.
• More spot assets going live. @hyperunit has been working hard and continues to list top assets. The launch of PUMP was very successful, proving the strength of our team. Hyperliquid listed perpetual contracts before the TGE, and @hyperunit launched spot trading immediately at the TGE, quickly forming the thickest order book. Both events were significant user acquisitions, as evidenced by the capital inflow from those days.

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

Conclusion

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

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

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