Breaking Down HIP-4: Is Hyperliquid Moving into Prediction Markets? The Next Big Play for DEX Giants

On September 16, Hyperliquid proposed a new initiative, HIP-4.

Amid the buzz surrounding live-streaming tokens and buyback narratives, this proposal hasn’t sparked much discussion within the crypto community. However, upon closer examination, its content connects to another trending topic in the crypto market—prediction markets.

At the heart of the proposal is the introduction of a new trading product called "Event Perpetuals."

In simple terms, Hyperliquid aims to integrate binary prediction market functionality into its perpetual contract trading platform.

Users would be able to place bets on events such as "Will the Federal Reserve raise interest rates?" or "Will a specific token be listed on Binance this month?"

One intriguing aspect of this proposal is its authorship. Contributors include investors from Framework Ventures, team members from the prediction market platform Kalshi, as well as developers from Felix Protocol and Asula Labs.

It’s uncommon to see competitors collaborating on a proposal. Kalshi itself is one of the major players in the regulated prediction market space in the United States.

This may suggest that Hyperliquid’s approach to prediction markets isn’t about disrupting existing players but rather exploring some form of collaboration or differentiation.

As the leading player in the perpetual contracts niche, Hyperliquid’s timing with HIP-4 raises questions: Is this a move to capitalize on the immense potential of prediction markets, or is it an attempt to craft a new narrative to support the HYPE ecosystem?

Now Is the Perfect Opportunity

Polymarket made headlines during the 2024 U.S. presidential election, achieving a trading volume of over $3.6 billion.

As we step into 2025, prediction markets have become the darling of capital investors.

Polymarket recently acquired QCEX for $1.12 billion to re-enter the U.S. market, while Kalshi partnered with Robinhood to launch prediction market features, maintaining a steady monthly trading volume exceeding $800 million. Even traditional financial giants are showing growing interest in this sector.

Time Magazine previously named Polymarket one of the "100 Most Influential Companies of 2025." The rationale is clear: prediction markets are redefining how information is valued and discovered.

With such market enthusiasm, could Hyperliquid resist jumping in?

Although HIP-4 is currently just a proposal requiring community voting and technical validation, the level of detail in the proposal and the lineup of contributors suggest this is far from a fleeting idea.

More importantly, for Hyperliquid, this could be a natural fit for their business.

Firstly, the technical overlap is significant. Prediction markets and perpetual contracts share similar technical foundations. Both require order books, matching engines, and margin systems.

For Hyperliquid, the development costs to incorporate Event Perpetuals are relatively low, and the risks tied to experimentation are manageable. Even if the results do not meet expectations, this would not have a major impact on their core business.

Secondly, there is a natural overlap in user demographics. Traders involved in perpetual contracts and bettors participating in prediction markets are essentially speculators.

They are drawn to volatility, enjoy uncertainty, and are willing to place bets based on their judgments. Hyperliquid has already gathered a substantial base of such users, which makes it logical to offer them more options to engage with.

Lastly, the HYPE ecosystem is in need of a fresh narrative. Hyperliquid’s perpetual contract business, as one of the most successful DEXs of 2024, has reached a high level of maturity.

However, the capital market consistently demands growth, and the HYPE token requires additional use cases to maintain its valuation. Prediction markets are not only a potentially lucrative business but also an engaging narrative. They are appealing, imaginative, and closely aligned with current industry trends.

Rather than representing a strategic shift, this initiative could be viewed as a low-cost attempt to explore a new product line. If successful, it could create a new market. If unsuccessful, the existing foundation would remain unaffected.

HIP-4: A Strategic Product Expansion

To understand the essence of HIP-4, we must first address a key question: why can't Hyperliquid simply integrate prediction markets into its existing system?

The proposal provides an illustrative example using NFL game predictions.

Imagine the prediction is "Will the Kansas City Chiefs win the Super Bowl?" If traditional perpetual contract mechanisms were applied, it would require continuous oracle price feeds, updating every three seconds.

However, this approach faces a critical issue: the odds in sports betting do not change in a continuous manner. For instance, after a pivotal play, the odds may shift dramatically in an instant.

Under HIP-3, Hyperliquid's current market deployment standard, price changes are capped at 1% per tick. This means that if the game result is confirmed and the price needs to jump from 0.5 to 1.0, it would take approximately 50 minutes to complete the adjustment.

During this time, traders who are aware of the outcome could easily exploit arbitrage opportunities.

This is precisely why the new HIP-4 proposal introduces Event Perpetuals.

Event Perpetuals eliminate two core mechanisms of perpetual contracts: continuous oracle price feeds and funding rates. Prices are determined entirely by market trading, and the final outcome (0 or 1) is confirmed by an oracle only after the event concludes.

Some notable design features include:

• Opening auction mechanism: A 15-minute batch auction to prevent initial price chaos.

• 1x isolated margin: No leverage, reducing liquidation risks.

• Slot reuse: Markets can be settled and immediately redeployed, enhancing capital efficiency.

At first glance, this appears to be a technical innovation. At its core, however, it represents Hyperliquid's strategic attempt at business exploration.

The move from a single product to a diversified product matrix is evident. While perpetual contracts have been highly successful, they remain a singular offering. If Event Perpetuals prove viable, it would demonstrate that Hyperliquid's infrastructure can support a broader range of financial products.

Today it’s prediction markets; tomorrow it could be options, and later structured financial products.

What stands out is Hyperliquid's clever approach to expansion, which involves allowing others to create the markets.

The proposal outlines that any team aiming to establish prediction markets on Hyperliquid, referred to as "Builders" in the document, needs to stake 1 million HYPE tokens. These Builders are tasked with the following responsibilities:

• Selecting the type of market to create (e.g., "Will Donald Trump buy Bitcoin?").

• Setting market parameters (such as settlement time and oracle sources).

• Managing market operations (providing initial liquidity, promotion, etc.).

In return, Builders can earn up to 50% of the trading fee revenue generated by the market.

This design is particularly shrewd. Hyperliquid does not need to predict which markets will gain traction. Instead, the market itself makes that determination.

Teams willing to stake 1 million HYPE tokens will naturally be incentivized to choose markets with strong liquidity potential.

If a Builder creates a market that fails to attract participants, the loss is borne by the Builder in the form of opportunity costs. Conversely, if the market thrives, both Hyperliquid and the Builder benefit.

This also explains why members of the Kalshi team have contributed to drafting the HIP-4 proposal.

Kalshi likely represents the type of professional Builder Hyperliquid aims to attract. With extensive experience in market operations, Kalshi understands which prediction markets have liquidity potential. If they choose to create markets on Hyperliquid, they bring not only individual markets but also an entire operational methodology that has already been tested and validated.

For a DEX with over $2 billion in TVL, this trial-and-error model is exceptionally smart.

Challenges and Opportunities

In theory, it seems logical for a DEX to venture into prediction markets.

The technical infrastructure is highly reusable. Core components such as order books, matching engines, settlement systems, and margin management, which are essential for perpetual contract DEXs, are equally crucial for prediction markets.

However, the reality may be far more complex.

The vitality of prediction markets largely stems from the diverse range of markets created by users.

Platforms like Polymarket allow any user to create markets, fostering a user-generated content (UGC) model that keeps the platform fresh and engaging.

In contrast, Hyperliquid’s HIP-4 proposal requires market creators to stake 1 million HYPE tokens. Based on current prices, this amounts to millions of dollars in entry costs. While this ensures market quality and prevents the proliferation of low-value markets, it could also stifle innovation and diversity.

Another challenge lies in liquidity dispersion.

Perpetual contracts benefit from shared liquidity; for instance, the depth of ETH/USD trading can support all ETH-related transactions. Prediction markets, however, operate differently. Each event functions as an independent liquidity pool.

This means that even with Hyperliquid’s $2 billion TVL, dividing it among hundreds or thousands of prediction markets could result in limited depth for each market. Insufficient liquidity leads to excessive slippage, degrading the user experience.

Additionally, platforms like Polymarket and Kalshi are instantly recognizable as dedicated prediction markets. Hyperliquid, on the other hand, is still perceived as a perpetual DEX within the crypto world. If the proposal is implemented, subsequent efforts in user education and market promotion will be crucial.

So, where does Hyperliquid’s opportunity lie?

Focusing on prediction markets within crypto-specific verticals might be the most practical path forward. Examples include forecasting whether a particular token will be listed on a major CEX this month, or predicting whether Ethereum’s next major upgrade will face delays.

In these niches, Hyperliquid’s user base likely has greater expertise, interest, and willingness to participate compared to Polymarket’s audience.

Is $HYPE Benefiting from This?

In the short term, the impact might be limited.

First, this is still just a proposal and has not been officially implemented. Even if it passes the voting process, it will take at least a few months from development to launch and then to generating actual revenue. While the market may experience some speculative activity based on expectations, it is unlikely to provide sustained price support.

Second, the revenue potential of prediction markets remains uncertain. Even if Hyperliquid manages to capture 10% of Polymarket’s market share (monthly trading volume of $80 million), with the typical DEX fee rate of 0.1%, the monthly revenue would only amount to $80,000. For a project with a market cap of several billion dollars, this incremental revenue is negligible.

However, the mid-to-long-term implications could go beyond financial considerations.

First, the increase in staking demand.

If HIP-4 successfully attracts 10-20 Builders to create markets, this would mean 10 to 20 million HYPE tokens being locked up. Although this is not a significant portion relative to the total supply, it represents a tangible reduction in circulating supply.

More importantly, this demonstrates the utility of HYPE as a “license.” Holding HYPE not only enables participation in governance but also provides access to business opportunities.

Second, enhancing brand value.

If professional teams like Kalshi are willing to stake HYPE to create markets, it sends a strong signal that established prediction market brands recognize Hyperliquid’s potential. This endorsement effect could be more valuable than direct revenue contributions.

The crypto market has never lacked capital, but it often lacks compelling narratives. The story of perpetual DEXs has already been told. Successfully entering the prediction market space adds new possibilities to the valuation model with each additional opportunity.

Exploring the Boundaries of DEX

An intriguing aspect of the HIP-4 proposal is how it reflects a broader trend where DEXs are actively exploring their boundaries.

From simple token swaps to perpetual contracts, and now potentially prediction markets, successful DEXs consistently strive to expand their scope, transforming adjacent opportunities into avenues for scaling their valuation and business model.

This type of expansion is notably different from the flashy strategies often employed by other crypto projects, where every minor change is hyped to grab attention. Instead, this feels more like a cautious exploration, testing the limits of technology, gauging user acceptance, and assessing regulatory tolerance.

For those keeping an eye on Hyperliquid, the best approach might not be to overanalyze individual proposals but to focus on the underlying trends and directions they signify.

HIP-4 itself may succeed or fail, but the direction it represents, including platformization, ecosystem building, and diversification of DEXs, is likely indicative of the future. Projects that successfully push these boundaries are likely to achieve higher valuation multiples, while those that remain stagnant risk being marginalized.

As for whether Hyperliquid can carve out a niche in the prediction market with its Event Perpetuals, the market will provide the answer. This question itself is a prediction worth betting on.