Executive Summary
The HIP-3 protocol has successfully launched on the mainnet, marking a significant advancement in the decentralized finance (DeFi) sector by enabling equity perpetuals within the cryptocurrency ecosystem. This development has been met with early adoption from builders, most notably through UNIT’s new HIP-3 DEX and its XYZ100 index product, which has demonstrated strong initial trading volumes. Ventuals also opened deposits for vHYPE, offering synthetic perpetual futures on private company valuations.
The Event in Detail
HIP-3's transition from testnet to mainnet in October 2025 has introduced a framework for permissionless deployment of perpetual futures markets. Immediately following this launch, UNIT introduced its HIP-3 DEX. Its flagship product, XYZ100, an index tracking the top 100 companies, recorded substantial trading volumes, reaching $24.1 million, $21.6 million, and $20.7 million over its first three days, respectively. This performance significantly surpasses typical weekly spot volumes for tokenized equities, which generally range between $8 million and $12 million.
Early builder distribution has played a critical role in XYZ100's initial success. Major crypto wallets such as Phantom (54,000 users) and BasedApp (28,000 users) have integrated XYZ100 perpetuals via their frontends. This highlights the dependency of HIP-3 markets on builders for distribution, as they are not natively listed on Hyperliquid's frontend. While builders currently account for 3.5% of Hyperliquid's total volume, they represent a significant 37% of Hyperliquid's user base trading through these platforms. Some builders, like Axiom, chose not to list XYZ100, demonstrating the optionality within the system.
Concurrently, Ventuals is utilizing HIP-3 to offer synthetic perpetual futures on the valuations of private companies, including entities such as OpenAI, SpaceX, and Cursor. To facilitate its HIP-3 deployment, Ventuals opened deposits for vHYPE on October 16 at 11 a.m. ET. Deploying a HIP-3 market requires staking 500,000 HYPE tokens. vHYPE holders are incentivized with a 25% share of exchange revenue and earn Ventuals points toward future protocol stakes, with early participants receiving up to a 10x boost. However, depositors face liquidity risk, as withdrawals are paused if total deposits fall to the minimum 500,000 HYPE threshold. Ventuals employs a hybrid oracle system for pricing illiquid private assets, balancing off-chain secondary market data and an 8-hour Exponential Moving Average (EMA) of mark price.
Deconstructing the Financial Mechanics
HIP-3 fundamentally alters the deployment of perpetual futures by replacing gatekeepers with a code-based, permissionless system. This system mandates that deployers, or builders, stake 500,000 HYPE tokens—approximately $20 million at current market prices—as collateral. This stake serves as an economic deterrent against malicious activities such as feeding manipulated prices or operating a market recklessly. Validators within the network possess the authority to slash part or all of this stake for violations, with slashed HYPE tokens being burned to prevent incentives for false accusations. The collateral remains vulnerable to slashing even during a seven-day unstaking period.
The protocol addresses the "oracle problem" by allowing builders to control their market's price oracle and update logic. This flexibility permits the listing of virtually any asset, yet it introduces manipulation risks, as seen in past exploits like the Mango Markets incident. HIP-3 mitigates this through substantial staking requirements, robust price indices for sanity checks, and continuous validator oversight. A halt function is also available for builders to settle positions at fair value and freeze trading if a market's feed fails.
Crucially, each builder-deployed market on HIP-3 operates as an isolated perpetual exchange, featuring independent order books, margining, and risk parameters. Cross-margining with other assets is explicitly prohibited to prevent volatility in one market from affecting others. The protocol also enforces two types of open interest caps: notional caps limiting total dollar value and size caps restricting absolute position sizes. This architecture transforms Hyperliquid into a financial infrastructure where each new market functions as a mini-exchange secured by the network, combining economic deterrence with technical constraints.
The broader tokenization of equities, as highlighted by Anthony DeMartino of Sentora, is poised to disrupt traditional financial models. Tokenized equities, digital versions of stocks on blockchains, offer 24/7 trading, fractional ownership, instant settlement, and integration with DeFi. Their use as collateral could unlock significant liquidity in the $120 trillion global equity market. While traditional finance typically uses only 10-15% of institutional equity assets as collateral, tokenized equities could democratize this access.
Perpetual futures, with an existing $5 trillion annual trading volume in cryptocurrencies, are extending to equities. Unlike traditional futures, they have no expiration and allow leveraged long or short positions without needing to borrow underlying stocks. This shift could redirect a substantial portion of the $1 trillion short-selling market from traditional prime brokers to perp platforms, potentially reducing prime brokerage lending revenue by 50-70%, or $25-70 billion annually. The price alignment between tokenized equities and their perps is maintained by a basis funding mechanism, where traders pay a funding rate to keep the perp price close to the spot price, creating a potential $25-100 billion funding fee ecosystem in a $10 trillion equity perp market by 2030.
Business Strategy & Market Positioning
HIP-3's launch positions Hyperliquid as a foundational layer for a new generation of decentralized financial instruments. According to QuickNode's analysis, HIP-3 "replaces gatekeepers with code while keeping quality and user safety intact through on-chain rules and incentives." This model, by enabling permissionless market deployment, fosters innovation and broadens the scope of tradable assets in DeFi.
Ventuals exemplifies this innovative energy by focusing on synthetic perpetual futures for private pre-IPO companies. Their strategy involves eschewing traditional venture capital funding in favor of community-based fundraising through NFT minting, aiming for a decentralized and community-driven approach. This directly addresses a market niche previously inaccessible to retail investors, providing up to 10x leverage on valuations of private firms like OpenAI and SpaceX. Their hybrid oracle system is a strategic response to the challenge of accurately pricing illiquid private assets, crucial for the integrity of their offerings.
UNIT's strategy involves launching a HIP-3 DEX focused on creating liquid markets for a diverse range of assets, starting with the XYZ100 index. Their intent to launch perpetual contract markets related to major US stocks like Tesla and Google via HIP-3 demonstrates a broader ambition to bridge traditional financial assets onto the blockchain. This complements the ecosystem by providing native spot liquidity for HIP-3 perpetual contracts.
The reliance on builder distribution is a key element of HIP-3's market penetration strategy. While it allows for flexibility and innovation, it also means that the widespread adoption of HIP-3 markets is contingent on independent platforms and wallets integrating them. The early actions of Phantom and BasedApp indicate a viable path for user acquisition, though the degree of curation by builders remains an open question. This approach mirrors elements of permissionless innovation seen in other Web3 ecosystems but places a premium on interoperability and developer incentives.
It is critical to note that the broader Hyperliquid ecosystem has faced scrutiny regarding risk management. In March 2025, Hyperliquid experienced significant market manipulation events, including a $307 million Ethereum long position that led to a $4 million loss for its liquidity pool and a $1.86 million profit for the trader. A subsequent manipulation involving the Jelly memecoin resulted in a nearly $13 million unrealized loss. These incidents prompted Hyperliquid to implement stricter risk controls, such as lowering leverage limits for major cryptocurrencies, increasing maintenance margin requirements, and restricting collateral withdrawals. These past events underscore the ongoing need for robust risk management in DeFi platforms dealing with high-leverage products and illiquid assets, a lesson HIP-3's design attempts to incorporate through staking and isolation.
Market Implications
The launch of HIP-3 and the subsequent activity by UNIT and Ventuals represent a pivotal moment for the DeFi sector, particularly for derivatives. In the short term, this is expected to significantly increase interest and liquidity in decentralized perpetuals for real-world assets, driving innovation in how traditional financial instruments are accessed and traded within crypto. The impressive initial volumes for XYZ100 suggest a strong market appetite for these new financial primitives.
Longer term, HIP-3 could catalyze a broader integration of traditional financial assets into the crypto ecosystem. This integration has the potential to attract new users and capital, expanding the overall market size for DeFi. The ability for retail investors to directly trade synthetic perpetual futures on pre-IPO company valuations, or gain exposure to equity indices via DeFi, democratizes access to financial opportunities previously reserved for institutional or accredited investors. This democratization, alongside the self-custody benefits of tokenized equities, which eliminate custodial fees and allow for cross-collateralization, could fundamentally reshape the $120 trillion global equity market.
However, these innovations are not without risks. The challenge of accurately pricing illiquid assets, as addressed by Ventuals' hybrid oracle system, remains a critical concern. User education is paramount, given the complexity and inherent volatility of perpetual products, especially those linked to less transparent private markets. Furthermore, the liquidity risk for depositors in systems like vHYPE, where withdrawals can be paused, highlights the need for users to understand the underlying mechanics and potential constraints. Despite these considerations, the market sentiment surrounding these developments is largely bullish for DeFi derivatives, indicating a belief that these new financial instruments will contribute to the maturity and expansion of the Web3 economy. The architecture effectively transforms Hyperliquid into a financial infrastructure, enabling composability and potentially disrupting traditional prime brokerage models by offering more efficient and accessible means of shorting and leveraging assets.
Broader Context
The ongoing evolution of DeFi continually pushes the boundaries of what is possible within financial markets. The tokenization of equities and the expansion of perpetual futures into traditional asset classes are at the forefront of this disruption. Anthony DeMartino of Sentora describes this as a "multi-trillion dollar disruption" that could redefine wealth creation and dismantle long-standing revenue models for equity prime brokers. The potential shift of a significant portion of the $1 trillion global short-selling market to perp platforms, combined with the creation of a substantial funding fee ecosystem, indicates a profound re-allocation of financial activity and revenue streams.
The development of HIP-3 also takes place in a landscape where decentralized exchanges are continuously refining their risk management protocols. Lessons from past exploits, such as the market manipulation incidents on Hyperliquid in March 2025, have informed the design principles of newer protocols. The emphasis on isolated markets, staking mechanisms, and validator oversight within HIP-3 reflects an industry-wide effort to build more resilient and secure DeFi infrastructure. This continuous improvement is essential for building trust and attracting mainstream adoption, especially as DeFi ventures into more complex and high-value traditional asset classes. The ultimate success of HIP-3 and similar protocols will depend on their ability to balance innovative financial engineering with robust risk mitigation and user protection.
Edgen Crypto·Oct 16 2025, 16:17
