Written by: ether.fi Ventures
Translated by: Tia, Techub News
HIP-3 quickly became one of the most popular features on HyperliquidX. Its concept is quite simple: anyone who stakes 500,000 HYPE can deploy a perpetual exchange and share trading fees with the stakers. In practice, HIP-3 turns Hyperliquid into a "exchange-as-a-service" layer, where many independent mini-exchanges will compete for traders.
But there is a key question that few have actually calculated:
Under the real fee structure, operating costs, and staking scale, how much trading volume does a HIP-3 market need to generate daily for stakers to receive attractive returns?
This article aims to answer this question with clear numbers and verifiable mechanisms—rather than relying on intuition—and to provide a clean, iterable foundation for builders, stakers, and researchers.
Before HIP-3: What HYPE Holders Can Earn Today
To understand the threshold that HIP-3 must cross, we first need to look at the earnings that HYPE holders can currently obtain—these earnings are liquid, redeemable, and the mechanisms are mature and transparent:
Pure staking (approximately 2.2% annualized) — simple operation, redeemable at any time
Hyperliquid treasury (currently about 4–5% annualized) — the treasury of hyperbeat currently offers about 4–5% annualized, and during periods of high on-chain activity, its historical returns have even reached double digits. (Full disclosure: we are investors)
Circular leverage strategy (6–14% net annualized) — lending out HYPE and reinvesting into higher-yield strategies, such as the liquidity treasury from @ether_fi (shameless plug 😁)
These basic earnings carry no risk of confiscation, no obvious lock-up, and require no exit coordination.
HIP-3 staking does not possess any of these characteristics—and this is crucial.
Why HIP-3 Should Offer a Higher "Risk Premium"
HIP-3 introduces risks that do not exist in standard staking. When you stake on the mainnet or deploy assets into a DeFi treasury, you have complete control over your funds. However, in HIP-3, you must relinquish that control. The operational structure of HIP-3 determines when you can exit, whether you can exit at a reasonable price, and whether you might lose your principal.
Any reasonable assessment of HIP-3 must consider the following four fundamental risks.
- "Failed Exit Button" (Lock-up Risk)
In normal DeFi, when you want to redeem your assets, you click "Unstake," and the protocol handles it. HIP-3 is not like that. Stakers cannot freely redeem their HYPE.
To get your money back, the "deployers" (the team operating the market) must manually execute the following actions:
Pause all market trading on the exchange
Settle everyone's positions
Wait for a 30-day lock-up period
Then wait for a 7-day exit queue
The risk is that only the deployers can press the "exit" button, and you cannot force them to do so. Whether your funds can be redeemed depends on whether the deployers are willing to shut down the entire business.
- "Discounted Exit" Problem (Net Asset Value Discount Risk)
Because you cannot redeem the HIP-3 staking certificate for real HYPE at any time, the market should price it lower (temporarily ignoring the market's own earnings, which will be discussed later).
In other words: a $100 bill locked in a glass box is worth less than a $100 bill in your wallet. If you want to sell this "locked bill," others will demand a discount.
Normal market conditions: potential loss of a few percentage points
Panic market conditions: potential loss of 30–50% or more
Real-world examples: Discounts can appear rapidly when liquidity is uncertain. kHYPE, even with real secondary liquidity and a 9-day guaranteed redemption, dropped to 88% of its face value during a brief confidence shock. Closed-end funds experience similar issues; GBTC has seen discounts exceeding 40% even when fully backed by assets.
HIP-3's LST has no guaranteed exit capability, so discounts may be even more severe during stress events.
- "Confiscation Threat" (Confiscation and Principal Loss Risk)
To operate a HIP-3 market, deployers must provide a substantial margin: 500,000 HYPE (currently about $15 million). If deployers make a technical error, such as incorrect data or downtime, the network will trigger a penalty mechanism, known as "slashing."
This penalty directly threatens your funds in three ways:
The protocol does not distinguish intent: the system does not care whether it is an attack or an engineer's mistake
Your money is collateral: LST is backed by staked HYPE, so you are effectively guaranteeing the deployers
Principal loss: you may not only see reduced earnings but also lose part of the tokens you deposited
The risk is that slashing does not just reduce future earnings; it permanently reduces your principal. Stakers are essentially betting that deployers "never make mistakes." If a mistake occurs, the cost is borne by you.
- Conflict of Interest (Principal-Agent Risk)
HIP-3 may create conflicts of interest between deployers and stakers.
You (the staker): may want to exit due to market pressure, loss of confidence in the operators, changes in personal liquidity needs, or simply wanting to get back HYPE
Deployers: may want to keep the market running for income, to preserve the business, for investors, or for team salaries, among other reasons
The risk is that once your HYPE is locked, the deployers control when it is released, not you. The incentives of both parties may diverge. If deployers keep the market running for their own benefit, your funds will remain locked, even if you are eager to exit.
Why 10–15% Annualized Is Not Enough?
Due to the structural risks mentioned above, HIP-3's staking certificates resemble "closed-end funds"—these assets often trade at a discount due to limited liquidity. You bear the risks of indefinite lock-up, principal loss due to technical errors, and the risk of deployers refusing to let you exit.
Therefore, a normal yield is insufficient. To compensate for the risks you take on by losing control, you should demand a higher "risk premium."
How HIP-3 Markets Generate Earnings and Why Competition Compresses Earnings
HIP-3 markets essentially operate as small exchanges on HyperCore. Stakers' earnings come from trading fees, but these fees have a distribution order:
Hyperliquid takes 50%
Deployers can take up to 50%, but they also need to pay oracle fees, engineering and operational costs, and investor interests
The remainder goes to HYPE stakers
If Growth Mode is activated, the taker fee rate drops by about 90%, meaning deployers' income will significantly decrease, and stakers' earnings will also decline. This is very effective for attracting traders—but terrible for stakers.
This will further amplify the impact in a competitive environment.
Multiple HIP-3 operators—Unit (@tradexyz), Ventuals (@ventuals), Kinetiq (@markets_xyz), Felix (@felixprotocol), Ethena (@hyenatrade), etc.—are competing for the same group of traders. However, Unit is the clear leader, and HIP-3 markets are structurally almost identical, so Unit's pricing essentially becomes the benchmark for everyone.
If Unit lowers fees or activates Growth Mode (which they have done multiple times), other deployers must either follow suit or lose liquidity. In other words, stakers' earnings ultimately depend on Unit's pricing decisions.
Currently, HIP-3 deployers have no competitive moat:
Liquidity is non-sticky
Switching costs are zero
Front-end experiences are extremely similar
Oracles lack differentiation
Order flow does not possess exclusivity
When there is no moat, the only competitive means is fees (or moderate incentive points), and Growth Mode is the strongest weapon.
Thus, a simple economic reality emerges:
Growth Mode benefits traders
Growth Mode destroys staker earnings
A market that requires approximately $200 million in daily trading volume to achieve competitive earnings under normal fee rates needs $2 billion in daily trading volume under Growth Mode.
And because deployers must keep up with Unit's strategies—and Unit frequently activates Growth Mode—stakers' earnings will be rapidly compressed.
Another core issue is that HIP-3's earnings depend on fee income, while competition will continuously drive fees down.
The more intense the competition, the lower the earnings for stakers.
Earnings Reality: How Much Trading Volume Is Needed?
To determine whether a HIP-3 market can truly provide competitive earnings, you must start from assumptions. We chose a "most favorable scenario for HIP-3" for modeling to make the results easier to understand.
Model Assumptions
We adopted three extremely favorable premises for HIP-3:
Only using the minimum staking amount (500,000 HYPE): We assume only the minimum staking amount is used because earnings are shared in the pool; if more HYPE enters, earnings will be diluted, so this represents the most favorable situation for stakers.
Stakers receive 20% of deployers' income (≈ about 10% of total fees): We assume stakers can receive a very generous 20% revenue share (about 10% of total fees), although most HIP-3 we have seen do not offer this much to passive participants; if the share ratio is smaller, the required trading volume will increase significantly.
Not activating Growth Mode (otherwise income would nearly disappear): We use the full HIP-3 fees to simulate earnings because Growth Mode would reduce taker fees by about 90% and effectively eliminate deployers' income; if Growth Mode is activated, the required trading volume will become unrealistically large.
No fee discounts or rebates (users pay nominal fee rates): We assume users pay the basic fees of HIP-3, excluding staking and trading volume rebates, and excluding corresponding stablecoin fee discounts. Any discounts would reduce the actual fees collected, thereby lowering deployers' income and increasing the required trading volume.
The above four core assumptions cover over 90% of the factors that determine deployer income and staker annual percentage yield (APY). They define the main mechanisms of the HIP-3 economic model: fee rates, deployer shares, staker shares, and staking scale. All other factors are secondary relative to these variables and do not have a substantial impact on the final outcome.
Earnings and Trading Volume Heatmap
After applying the above assumptions to the current market situation, the required trading volume rises rapidly. The heatmap intersects HYPE price (vertical axis) with target annualized yield (horizontal axis), showing the corresponding required daily trading volume.
For example, at a HYPE price of $30:
Base earnings (10–15% annualized): To achieve standard yield, a daily trading volume of $90 million to $140 million must be maintained.
Risk premium earnings (20–30% annualized): To justify the risk of issuing over $15 million in capital bonds, we believe the issuer must facilitate $180 million to $270 million or more in daily trading volume.
Comparative reference: To consistently maintain a daily trading volume of $270 million, a HIP-3 market would need to directly compete with third-tier centralized exchanges. This may be achievable during high volatility, but maintaining it on average throughout the year is extremely challenging.
Scale Trap
The data also reveals a structural disconnect that we call the "scale trap." Even if deployers achieve the required scale today, maintaining stable earnings will become increasingly difficult due to the following two factors:
Price Trap: If the HYPE price doubles, the required trading volume to maintain the same annualized yield will nearly double as well.
Dilution Trap: If more people participate in staking, your earnings will be diluted. To keep the annualized yield stable as the capital pool expands, daily trading volume must also grow at the same rate.
Overall, this data clearly indicates that: Sustainable HIP-3 yields require continuous stable trading performance at the exchange level, rather than occasional fluctuations. Even if the assumptions are carefully designed to make HIP-3 appear as strong as possible, the required trading volume to maintain a competitive annualized yield is still at a level that only the most efficient markets in the cryptocurrency space can sustain. In reality, factors such as fee compression, rebates, operating costs, and daily trading volume fluctuations further raise this threshold.
This is not to undermine HIP-3 but rather to reflect the ambition behind it. The HIP-3 market is not a passive income tool but a mature trading venue, whose economic operation relies on continuous liquidity, efficient execution, and excellent operations. Clarifying this point is not intended to dampen the enthusiasm of builders or stakers, but to provide everyone with an understanding of the actual operational mechanisms of the system, enabling the entire ecosystem to achieve scalable development based on a full understanding of the situation.
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