Hyperliquid under pressure: Arthur Hayes warns about market risks
The co-founder of BitMEX, Arthur Hayes, has warned about potential risks for Hyperliquid, the decentralized derivatives platform that conquered the cryptocurrency market in 2023. According to Hayes, Hyperliquid's business model, based on using trading commissions to burn tokens, could expose the protocol to significant market share losses.
Quick Response
Hyperliquid is a decentralized derivatives platform that gained popularity in 2023. Arthur Hayes, co-founder of BitMEX, warned that its business model based on token burning could expose it to market share losses. Hayes liquidated his entire HYPE position, citing increasing competition and macroeconomic factors.
Hyperliquid's business model and its risks
Hyperliquid uses a portion of trading commissions to purchase its native token, HYPE, and permanently remove it from circulation. This mechanism is designed to increase the token's scarcity and support its value. However, Hayes emphasized that this approach makes the protocol vulnerable to any sudden market share loss.
"At the end of the day, this is a cash story," Hayes stated. "There will be more competition in real asset perpetuals, both from centralized exchanges like Binance and TradFi exchanges".
Hayes' liquidation and his motivations
Less than two months after predicting that the HYPE token would reach $150, Hayes liquidated his entire position. In a post on X (formerly Twitter), he explained his decision citing an expected rise in energy prices, a series of IPOs absorbing liquidity, and a change in President Trump's stance on artificial intelligence.
"It's time to take profits," Hayes added, less than two months after sharing an essay explaining why Hyperliquid's native token "will reach $150 by August 2026".
The performance of the HYPE token
The HYPE token was traded at approximately $59 on Sunday, with a 14% drop in the previous week, according to CoinGecko data. The asset had reached a new all-time high above $75 the previous week. Hayes' sudden decision sparked some criticism, but during an interview with Decrypt, he praised Hyperliquid's rise as a platform for trading otherwise illiquid markets, especially in the oil sector.
"The perennial crypto detractors have had to acknowledge that price action and price discovery for these key variables happen on the weekend on a crypto trading platform," Hayes said. "I think this is a historic moment, and that has woken people up".
Hyperliquid's expansion into real assets
Hyperliquid began supporting derivatives on real assets, including gold and silver, thanks to an October update. Tuesday, the official Hyperliquid account on X announced that the total value of open positions linked to these markets had reached $3 billion.
So far, the platform has bought back 26.6 million HYPE tokens and permanently removed 579,603 from circulation, according to a Dune dashboard. The larger figure represents about $1.56 billion of Hyperliquid's native token at current prices.
The competition from Wall Street
Hayes noted that U.S. giants are aggressively pushing into the perpetual futures sector. Unlike traditional futures, these derivatives do not expire, allowing traders to speculate indefinitely with periodic payments that keep prices anchored.
Under Hayes' leadership, BitMEX debuted the world's first perpetual futures contract in 2016, a concept established in the '90s by Nobel Prize-winning economist Robert Shiller. Today, Hayes predicts that Wall Street colossuses will eventually adopt these products to survive.
"All these traditional exchanges will be forced to launch a competing product," Hayes said. "By next year, we'll see some decently liquid TradFi products using this perpetual swap architecture".
Implications for the crypto derivatives market
The growing competition from Wall Street and centralized exchanges could erode one of Hyperliquid's main revenue sources, undermining its token-burning business model. This scenario could lead to a reduction in HYPE token scarcity and a decrease in its value.
Additionally, Hayes' decision to liquidate his position could influence market perception and lead to further sales by investors. However, Hyperliquid's rise as a platform for trading illiquid real assets represents a significant moment for the crypto derivatives sector.
The challenge for Hyperliquid
To maintain its leadership position, Hyperliquid will need to address growing competition by developing new products and improving its existing offerings. The platform could also explore strategic partnerships with traditional players to expand its user base and increase liquidity.
In an ever-evolving market, Hyperliquid's ability to adapt and respond quickly to new trends will be essential to maintaining its appeal to crypto derivatives traders.
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