Recently, Hyperliquid has been quite active, first with HIP-3 allowing anyone to create perpetual contract markets, followed by the heated discussions around stablecoin bidding, and now they have launched a significant proposal—HIP-4, preparing to officially enter the prediction market.
This is not just about adding a new feature; it reflects Hyperliquid's grand ambition to evolve from a simple perpetual contract exchange into a more foundational and modular financial infrastructure. Let's take a closer look at what HIP-4 is, what it aims to achieve, and how it will shake up the landscape of prediction markets.
Hyperliquid Partners with Kalshi
Hyperliquid is already the absolute leader in the on-chain perpetual contract space, holding nearly 80% of the market share. However, for any successful project, there is always a need to seek new growth points. HIP-4 is a key step they are taking.
One of the most interesting aspects of the HIP-4 proposal is that one of its authors, John Wang, comes from Kalshi—a centralized prediction market in the U.S. that is strictly regulated by the CFTC. In August 2025, Kalshi prominently hired Crypto KOL John Wang as its Head of Crypto. The author lineup of HIP-4, which spans decentralized investment institutions and centralized prediction market practitioners, is quite intriguing, as it is rare for traditional competitors to collaborate on a proposal. As an important player in the compliant prediction market in the U.S., Kalshi's involvement in drafting HIP-4 suggests that the proposal is not intended to "disrupt" existing players in the prediction market but rather reflects a mindset of cooperation or differentiated coexistence:
Hyperliquid's advantage lies in its world-class on-chain trading technology and large user base. Its high-performance on-chain order book, processing capacity of up to 100,000 TPS, and sub-second trade finality are also the technical foundations required for a qualified on-chain prediction market. Hyperliquid already has a large and active user base, most of whom are experienced traders and speculators, who are also the target users of prediction markets. If Hyperliquid enters the "prediction market" space, it can expand boundaries, enrich narratives, and provide new imaginative space for capital markets. The crypto space has never lacked funding; what it lacks is good stories. The story of perpetual DEX has been told almost to completion, and if it can successfully enter the prediction market space, it could add a new variable to support HYPE valuation.
Kalshi's core advantage is quite the opposite of Hyperliquid: it has rich experience in creating compliant and attractive markets, successfully navigating regulatory challenges in the U.S. (even winning a lawsuit against the CFTC), and establishing strong institutional credibility. Its shortcoming lies in the lack of a decentralized, crypto-native technical foundation and effective channels to reach global permissionless DeFi users.
The two are a perfect match. Kalshi can leverage Hyperliquid's technical infrastructure to efficiently enter the decentralized world and reach global users; while Hyperliquid, through its collaboration with Kalshi, gains valuable compliance, credibility endorsement, and professional market operators, avoiding the early emergence of numerous low-quality markets.
Structural Innovation: Why a Dedicated "Event Perpetual Contract"?
You might ask, since HIP-3 already allows users to create perpetual contracts "without permission," why not use it directly for prediction markets? The answer is: it is technically unfeasible.
The "Incompatibility" of Standard Perpetual Contracts
Standard perpetual contracts have two core mechanisms that make them unsuitable for prediction markets:
Reliance on Continuous Price Feeds: Perpetual contracts require an oracle to continuously provide external spot prices to calculate funding rates, ensuring that contract prices do not deviate. However, the topics of prediction markets, such as "Will Team A win the match?", have results that occur instantaneously, with probabilities jumping directly from one value to 0 or 1, leaving no continuous price to track, thus eliminating the need for a continuous oracle feed.
Price Movement Has an Upper Limit: To prevent severe market fluctuations, Hyperliquid has set a 1% cap on single price movements. This safety design becomes a fatal flaw in prediction markets. The HIP-4 proposal provides a vivid example: at the start of a game, a team's winning probability is 50%, with a price of 0.5. The moment the game ends, the price should immediately change to 1 or 0. However, under the 1% single movement limit, adjusting the price from 0.5 to 1.0 would require about 50 adjustments, taking nearly an hour. During this time, anyone who knows the result in advance can engage in risk-free arbitrage, completely undermining market fairness.
Tailored "Event Perpetual Contracts"
To address these issues, HIP-4 introduces a brand new product: "Event Perpetual Contracts," which incorporates several key innovations:
Elimination of Continuous Oracles and Funding Rates: This is the most fundamental change. "Event Perpetual Contracts" completely remove the reliance on continuous oracle feeds and funding rate mechanisms, as these are entirely unnecessary for prediction markets. Before the event result is revealed, the contract price is entirely determined by the trading behavior of market buyers and sellers, freely fluctuating within a preset range (e.g., 0.001 to 0.999). Only at the end of the event will a single, authoritative "Result Resolution Oracle" publish the final result (0 or 1) for market settlement.
1x Independent Margin: Unlike high-leverage perpetual contracts, "Event Perpetual Contracts" disable leverage (only supporting 1x), and the margin for each market is independent. This is clearly for risk control purposes, significantly reducing users' liquidation risks and strictly limiting the risk of this new experimental product within a single market, preventing risk spillover to users' other asset portfolios. However, Isolated Margin also limits the combinability and synergistic advantages of prediction markets with other Hyperliquid markets.
Support for Slot Reuse: HIP-4 inherits from HIP-3, requiring a stake of 1 million HYPE to create a market. However, prediction markets differ from perpetual markets in that perpetual markets can exist long-term, while prediction markets lose their significance once the event result is announced. Staking such a large number of tokens to create a one-time market is clearly an unwise investment. To improve the efficiency of capital and platform resource utilization, HIP-4's infrastructure supports market "recycling." Once an event market settles, its occupied on-chain resources (trading slots) can be immediately released and used to deploy a new event market without re-entering the deployment auction.
Comparative Analysis: HIP-4 vs. Polymarket
As Hyperliquid enters the prediction market, it inevitably has to compete with the current leader, Polymarket. However, Hyperliquid has chosen not to imitate but to carve out a distinctly different path of differentiation.
Elite Curation vs. Laissez-Faire
This is the core difference between the two.
Hyperliquid's "Builder" Model: Want to create a market? You can, but the threshold is extremely high—you must stake 1 million HYPE tokens (currently worth over $57 million). This high economic barrier acts as a filter, ensuring that only well-funded, serious professional teams are qualified to create markets. They have a strong incentive to launch high-quality markets with potential that can attract liquidity to earn transaction fee returns. Due to the high entry and trading costs, prediction markets on Hyperliquid are expected to focus more on "financially oriented" topics, such as macroeconomic events (interest rate decisions, inflation data), crypto industry events (major upgrades, project launches, regulatory dynamics), and large sports events that have strong hedging demand and high correlation with asset prices. Only these markets can attract institutions and high-net-worth speculators.
Polymarket's UGC Model: Anyone can create a market on Polymarket. This allows for a wide range of topics on the platform, always keeping up with current events and full of vitality. Polymarket, with its zero transaction fees and UGC content, is a paradise for retail investors and enthusiasts. Various imaginative bets, news hot topics, and life anecdotes appear on Polymarket, attracting users who may not be well-versed in finance but are keen on entertainment and social discussions. They often bet small amounts, valuing participation and topicality, and are sensitive to transaction fees, which Polymarket perfectly meets. However, the downside is that it also generates many vague, repetitive low-quality markets, diluting liquidity.
Protocol Value Capture vs. User Experience First
Polymarket: Implements a zero transaction fee policy. Its strategy is a typical Web2 growth model: using VC funding to subsidize zero-fee products to quickly capture user mindshare and build an unassailable network effect, leaving future profit models to be resolved later. This is a capital-intensive, lightning-fast expansion.
HIP-4: In contrast, Hyperliquid has been committed to building a crypto-native, sustainable on-chain economic cycle from day one. Builders stake HYPE, create markets, and share up to 50% of transaction fees. The HYPE token here is not just a governance tool but more like a "business operating license," with its value directly supported.
In simple terms, Polymarket follows a typical Web2 growth route—burning money for market share, while Hyperliquid has been dedicated to creating a crypto-native, sustainable economy from day one.
Unlocking Potential: 1+1+1 > 3 Advanced Play
Placing multiple financial tools under the same account and margin system greatly reduces the operational complexity and capital friction for traders. Traders can seamlessly move funds and risk exposures between different products, allowing for the construction of more refined and efficient investment portfolios. This combinability is Hyperliquid's core advantage over specialized prediction market platforms.
Strategy One: Hedging Event-Driven Volatility Risks
This is one of the most intuitive application scenarios, using prediction markets as a precise tool to hedge specific event risks.
Scenario: A trader holds a long position in XYZ token perpetual contracts worth $100,000. He anticipates that the XYZ project team will announce significant positive news at an upcoming industry conference. However, if the news falls short of expectations, the token price may face a substantial decline, posing a significant "event risk."
Strategy on Hyperliquid: The trader can simultaneously buy shares of the "NO" contract in the "Event Perpetual Contract" market, which is themed: "Will XYZ announce a partnership with MegaCorp before the market closes today?" This "NO" contract functions like insurance against this specific positive event.
Outcome One (Positive News Materializes): XYZ announces the partnership, and its perpetual contract price surges. The trader's profits on the perpetual contract far exceed his losses on the "NO" contract in the prediction market (the entire principal invested).
Outcome Two (Positive News Fails to Materialize): XYZ does not announce the partnership, and the perpetual contract price plummets due to disappointment. At this point, the "NO" contract in the prediction market will settle at $1 per share, effectively compensating for part of the losses on the perpetual contract position.
Advantages: Compared to traditional hedging methods like shorting correlated assets, this approach is more direct, precise, and capital-efficient, as it directly hedges the core event driving price volatility.
Strategy Two: Basis Trading Between Perpetual Contracts and Prediction Markets
For more seasoned quantitative traders, a unified platform provides opportunities for cross-market arbitrage and relative value trading.
Scenario: The theme of an event perpetual contract market is: "Will the ETH/BTC exchange rate be above 0.06 by the end of the month?" The current price of the "YES" contract is $0.70, implying a 70% probability of occurrence. Meanwhile, the ETH/USD and BTC/USD perpetual contract markets are also trading normally on the platform.
Strategy on Hyperliquid: A quantitative analyst uses his model to determine that the true probability of the ETH/BTC exchange rate being above 0.06 by the end of the month is only 60%, believing that the market pricing (70%) is too high. He can construct a relative value trade to capture this 10% "probability spread":
Short the Implied Probability: Sell the "YES" contract in the prediction market (price at $0.70).
Hedge Market Risk: To isolate the impact of ETH/BTC exchange rate fluctuations, he needs to construct a delta-neutral position. He can simultaneously go long an equivalent nominal value of ETH in the perpetual contract market and short an equivalent nominal value of BTC, thereby synthesizing a long exposure to ETH/BTC to hedge the short exposure created by selling the "YES" contract in the prediction market.
Profit Source: Through the above actions, the trader maintains neutrality regarding the actual ETH/BTC exchange rate movements, but he has shorted the market's "event premium" or "implied probability." As long as the prediction market price eventually converges to what he considers a more reasonable 60% probability, or the event does not occur (price goes to zero), he can profit from this. The essence of this strategy is trading the difference between "opinions" and "market consensus."
Countering HIP-4
The prospects for HIP-4 are bright, but it is not without challenges, as it still faces several key hurdles.
Transaction Fee Paradox
As mentioned earlier, Polymarket currently charges no transaction fees. This was previously explained as Polymarket's strategy to attract users through a "free" model, but there are deeper considerations behind this. In prediction markets, the price of an option theoretically reflects the market's belief in the probability of that option ultimately being realized. Introducing transaction fees creates trading friction, leading to a divergence between option prices and market predicted probabilities. One of the main functions of prediction markets is to reflect market predictions about the future through intuitive prices, and the introduction of transaction fees significantly weakens this function.
For example, ideally, the sum of the probabilities of Yes and No should equal 100%. Polymarket has no transaction fees and introduces constraints on the prices of YES and NO tokens through an arbitrage mechanism, ensuring this conclusion holds. In most cases, the sum of the prices of YES and NO tokens on Polymarket can be very close to 1.
However, in the prediction market of HIP-4, the "privileged operating rights" are obtained by market builders through staking 1 million HYPE (currently valued at about $58 million), with the aim of earning 50% of the transaction fee revenue. This will inevitably affect user trading behavior, causing prices in HIP-4 to deviate from market predicted probabilities.
For instance, considering transaction costs, the sum of Yes and No in the Hyperliquid market may be less than $1 (buying one Yes and one No incurs double transaction fees). Although the fees are small, significant trading dead zones may occur in times of low liquidity. For example, if the true probability of a market is 50%, the prices of YES and NO options on Polymarket align closely at 0.50, but on Hyperliquid, it might be Yes=0.48 and No=0.49, summing to only 0.97, which implies a 3% house cut. This is detrimental to the accuracy of price discovery and harms user experience.
Adding Constraints to Prices
As mentioned earlier, for prediction markets, the core mechanism is how to ensure that the probabilities of the YES and NO outcomes always sum to 100%, equivalent to ensuring that the sum of the prices of Yes tokens and No tokens equals 1.
Polymarket achieves this mechanism through a set of arbitrage mechanisms:
First, it stipulates that any participant can deposit 1 USDC into the contract to mint 1 YES token and 1 NO token. Similarly, users can return 1 YES token and 1 NO token to the contract for destruction and redeem 1 USDC.
For example, when the market price of YES tokens is 0.70 and NO tokens is 0.40, an arbitrageur deposits 1 USDC into the contract, mints 1 YES and 1 NO share, and then immediately sells them on the order book at prices of 0.7 and 0.4, respectively, earning a risk-free profit of 0.1 USDC. A large number of such actions will increase selling pressure, driving the prices of YES and NO down until their sum returns to 1 USDC.
When the market price of YES tokens is 0.60 and NO tokens is 0.30, the arbitrageur will first buy 1 YES and 1 NO share at prices of 0.6 and 0.3 on the order book, then redeem them with the contract for 1 USDC, earning a risk-free profit of 0.1 USDC. A large number of such actions will drive the prices of both shares up until their sum returns to 1 USDC.
However, in the HIP-4 proposal, there is no similar content, and we cannot ascertain how HIP-4 will constrain the prices of YES and NO tokens. Coupled with the likelihood that the prediction market in HIP-4 will charge transaction fees, this adds many uncertainties regarding the extent to which option prices in HIP-4 can reflect market expectations.
Current Mechanism Limits Synergistic Potential
Some readers may feel excited about the beautiful vision of Hyperliquid's "Spot, Futures, Prediction: 1+1+1>3" described in the previous chapter, but unfortunately, I must pour a bucket of cold water on this: under the current Hyperliquid "margin" system, although Hyperliquid supports Cross-Margin within the perpetual market, the three major product lines of spot, futures, and future predictions remain isolated from each other, preventing the aforementioned "1+1+1>3" synergistic advantage from being realized.
This means that although the three types of products are superficially on the same platform, users still need to manage positions and funds separately.
For example, if you profit 1000 USDC in the prediction market, this money will not automatically increase the margin of the contract account unless you actively transfer it.
Similarly, if the margin in the contract account is insufficient and leads to liquidation, the balance in the prediction market account cannot be automatically used to supplement it.
Currently, Hyperliquid does not support using non-USDC assets as margin (i.e., the so-called "coin-based" model has not yet been launched), meaning that the spot currencies held by users cannot be directly used to open contract or prediction positions and must first be converted to USDC.
Such an isolation design is understandable in the early stages for stability reasons, but it also limits the power of cross-market synergistic strategies. If users want to hedge contract positions using prediction markets, they must constantly manually adjust the funds in both accounts, which is cumbersome and delayed. Thus, it is evident that Hyperliquid still has many foundational functions that need improvement, and before fully realizing the integration of the three major product lines, the synergistic effects brought by the prediction market business will be discounted.
Thin Margins, Few People, Many Tasks
Thin Margins: Assuming HIP-4 goes live, Hyperliquid can initially capture only about 10% of Polymarket's trading volume (considering Polymarket's current large scale and first-mover advantage). Polymarket's trading volume in August 2025 is $664 million, so 10% is approximately $66 million per month. With a common DEX fee of 0.1%, the monthly revenue would be $66,000, of which Hyperliquid itself might receive half (the other half goes to builders), around $33,000. Compared to Hyperliquid's overall profitability, this is just a drop in the bucket. It is worth noting that Hyperliquid's profits in 2025 were once claimed to exceed those of Nasdaq, with monthly revenues conservatively estimated in the millions or even tens of millions of dollars. If the prediction market can only add a few tens of thousands of dollars in revenue each month, it will have almost no direct uplifting effect on the value of the HYPE token or the project's finances.
Few People, Many Tasks: Hyperliquid's push to implement HIP-4 is also limited by its own resources and technical challenges. According to community news, the core team of Hyperliquid consists of fewer than 20 people (with about ten developers). Recently, they have been advancing the specific implementation of HIP-3, supporting the integration of the native stablecoin USDH, and upgrading platform performance, among other tasks. It can be said that the development schedule is already quite tight. When HIP-4 is actually coded and implemented, many underlying issues need to be resolved, and this work is not something that can be accomplished overnight.
In summary, even if HIP-4 is approved, its actual launch time is likely to be after 2026, falling into the medium to long-term planning category. For Kalshi, which is eager to expand onto the chain, this is akin to "distant water not quenching immediate thirst," as they still cannot meet the demand for decentralized markets through HIP-4 in the short term. Correspondingly, Polymarket's position remains solid in the foreseeable future, and it will not feel a direct threat from Hyperliquid at least for the next year. By the time the prediction market product of HIP-4 matures, Polymarket may have further expanded its leading advantage or launched its own token to create a new moat.
Conclusion: A Carefully Planned Game
In conclusion, HIP-4 represents a "strong alliance" between centralized prediction market giant Kalshi and DEX giant Hyperliquid.
Kalshi aims to leverage Hyperliquid's already mature on-chain architecture to quickly expand its business onto the chain, reaching global users without permission. In August 2025, Kalshi made headlines by hiring crypto KOL "John Wang" as its Head of Crypto, marking the completion of the first step in its "theoretical" approach. The HIP-4 initiative, involving John Wang, can be seen as the first practical step for Kalshi's entry into the chain.
Hyperliquid intends to utilize its technological advantages in high-performance trading infrastructure, combined with a large user base, to enter the new vertical of prediction markets and provide a new narrative for HYPE. By collaborating with regulated entities like Kalshi, which provides compliance and credibility, HIP-4 will focus its market positioning on institutions and high-net-worth investors, with market themes primarily centered around "finance" and "policy," distinguishing itself from its main competitor Polymarket, which pursues a permissionless, bottom-up, and entertainment-oriented market positioning.
The success or failure of this game will depend on whether Hyperliquid can leverage its technological advantages and quality experience to overcome the inherent challenges of liquidity fragmentation and high costs. If successful, it will not only open up a huge new market for itself but also set an example for the entire industry: how DeFi protocols can transition from single applications to platforms, and how traditional financial institutions can integrate with the decentralized world. The market will ultimately be the judge of this experiment.
This article is based on publicly available information and does not constitute investment advice. Cryptocurrency investments carry significant risks; please make decisions cautiously and do your own research (DYOR).
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