Hyperliquid has been very active recently. First, there was HIP-3, which allowed anyone to create a perpetual contract market, then there was the hotly debated stablecoin bidding. Now, they have put forward a major proposal - HIP-4, preparing to officially enter the prediction market.
This isn't just about adding a new feature; it reflects Hyperliquid's grand ambition to evolve from a simple perpetual contract exchange to a more fundamental and modular financial infrastructure. Let's take a closer look at what HIP-4 is, what it aims to achieve, and how it will disrupt the prediction market landscape.
Hyperliquid forms alliance with Kalshi
Hyperliquid is already the undisputed leader in the on-chain perpetual swap market, commanding nearly 80% of the market share. However, any successful project must always find new growth drivers. HIP-4 is a crucial step in this direction.
The most interesting aspect of the HIP-4 proposal is that one of its authors, John Wang, is from Kalshi , a centralized prediction market strictly regulated by the CFTC in the United States. In August 2025, Kalshi prominently hired crypto influencer John Wang as its Head of Crypto . HIP-4's inclusion of authors from both decentralized investment institutions and centralized prediction market practitioners is quite intriguing, as it's rare for traditional competitors to collaborate on proposals. As a major player in the US regulated prediction market, Kalshi's involvement in the drafting of HIP-4 suggests that the proposal isn't intended to disrupt existing players in the prediction market space, but rather reflects a strategy of collaboration or differentiated coexistence.
Hyperliquid's strengths lie in its world-class on-chain trading technology and vast user base. Its high-performance on-chain order book, processing capacity of up to 100,000 TPS, and sub-second transaction finality provide the necessary technical foundation for a qualified on-chain prediction market. Hyperliquid already has a large and active user base, many of whom are experienced traders and speculators, the target audience for prediction markets. If Hyperliquid enters the prediction market arena, it could expand its horizons, enrich its narrative, and provide new opportunities for imagination in the capital market. The crypto space has never lacked capital; what it lacks is good stories. The story of perpetual DEX has been largely told, and a successful entry into the prediction market would add a new variable to support HYPE's valuation .
Kalshi's core strengths are the opposite of Hyperliquid's: it has extensive experience in creating compliant and attractive markets, successfully navigated regulatory challenges in the US (even winning a legal battle with the CFTC), and established strong institutional credibility. Its weaknesses lie in the lack of a decentralized, crypto-native technical foundation and effective access to global, permissionless DeFi users .
The two companies hit it off immediately. Kalshi could leverage Hyperliquid's technical infrastructure to efficiently enter the decentralized world and reach a global user base. Hyperliquid, in turn, gained valuable compliance, credibility, and professional market operators through its partnership with Kalshi, avoiding the early emergence of a large number of low-quality markets.
Architectural Innovation: Why do we need a dedicated “Event Perpetual Contract”?
You might ask, since HIP-3 already allows users to create perpetual contracts “without permission,” why can’t it be used directly for prediction markets? The answer is: it’s technically impossible.
Standard perpetual contracts are not suitable for local conditions
Standard perpetual contracts have two core mechanisms that make them unsuitable for prediction markets:
Reliance on a continuous price feed : Perpetual contracts require an oracle to continuously provide external spot prices to calculate funding rates and ensure the contract price remains stable. However, prediction markets, such as "Will Team A win the game?", have instantaneous results, with probabilities jumping from a single value to 0 or 1. There's no continuously changing price to track, and therefore no need for a continuous oracle feed .
Price fluctuations are capped : To prevent drastic market fluctuations, Hyperliquid imposes a 1% cap on single price fluctuations. This safety feature becomes a fatal flaw in prediction markets. The HIP-4 proposal offers a vivid example: At the start of a football game, a team has a 50% chance of winning and the price is 0.5. At the end of the game, the price should immediately change to 1 or 0. However, with a 1% limit on price fluctuations, adjusting the price from 0.5 to 1.0 would require approximately 50 adjustments, taking nearly an hour . During this time, anyone who knows the outcome in advance can engage in risk-free arbitrage, completely undermining market fairness.
Tailor-made “Event Perpetual Contract”
To address these issues, HIP-4 introduces a new product: the “Event Perpetual Contract”, which features several key innovations:
Eliminating Continuous Oracles and Funding Rates : This is the most fundamental change. Event Perpetual Swaps completely remove the reliance on continuous oracle price feeds and funding rates , as these are completely unnecessary for predicting markets. Before the outcome of an event is known, the contract price is determined entirely by market activity , fluctuating freely within a pre-set range (e.g., 0.001 to 0.999). Only at the conclusion of the event does a single, authoritative "Resolution Oracle" publish the final result (0 or 1) for market settlement.
1x Isolated Margin : Unlike highly leveraged perpetual swaps, "Event Perpetual Swaps" disable leverage (supporting only 1x), and each market has its own independent margin. This is clearly a risk management measure, significantly reducing users' liquidation risk and strictly limiting the risk of this new experimental product to a single market, preventing risk from spilling over into users' other asset portfolios. However, the isolated margin also limits the compatibility and synergy between the prediction market and other Hyperliquid markets .
Support for Slot Reuse : HIP-4 inherits from HIP-3. Creating a market requires staking 1 million HYPE. However, prediction markets differ from perpetual markets in that they can exist indefinitely, while prediction markets cease to exist once the event results are announced. Staking so many tokens to create a one-time market is clearly uneconomical . To improve the efficiency of capital and platform resources, HIP-4's infrastructure supports market recycling. When an event market settles, the on-chain resources (slots) it occupied are immediately released and used to deploy a new event market, eliminating the need to re-enter the deployment auction.
Comparative Analysis: HIP-4 vs. Polymarket
Entering the prediction market inevitably put Hyperliquid in competition with the current leader, Polymarket. However, Hyperliquid chose not to imitate, but instead took a completely different and differentiated path.
Elite curation vs. laissez-faire
This is the most core difference between the two.
Hyperliquid's "Builder" model : Want to create a market? Yes, but the barrier to entry is extremely high—you must stake one million HYPE tokens (currently valued at over $57 million). This high financial threshold acts as a filter, ensuring that only well-funded, serious, and dedicated teams are eligible to create markets. They have a strong incentive to launch high-quality markets that demonstrate potential and attract liquidity , thereby earning commissions. Due to the high entry and transaction costs, prediction markets on Hyperliquid are expected to focus more on "financial" topics , such as macroeconomic events (interest rate decisions, inflation data), crypto industry events (major upgrades, project launches, regulatory developments), major sporting events, and other events with strong hedging demand and high correlation with asset prices. Only these markets are likely to attract institutional and high-net-worth speculators.
Polymarket's user-generated content model allows anyone to create a market on the platform. This allows for a wide range of topics, consistently staying current and vibrant. With no fees and a wealth of user-generated content, Polymarket is a haven for retail investors and enthusiasts. Polymarket hosts a variety of imaginative competitions, news headlines, gossip, and anecdotes, attracting users who may not be familiar with finance but are keen on entertainment and social discussion . These users often bet small amounts, prioritize engagement and buzz, and are sensitive to fees. Polymarket perfectly meets these needs. However, the downside is that it also creates many low-quality markets with vague and repetitive descriptions, diluting liquidity.
Protocol Capture Value vs. User Experience First
Polymarket : Implementing a zero-transaction fee policy. Its strategy exemplifies the classic Web2 growth model: leveraging VC funding to subsidize zero-fee products, rapidly capturing user minds and building an unassailable network effect, while leaving future profitability to be figured out later. This is a capital-intensive, blitzkrieg 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 serves not only as a governance tool but also as a "license to operate," directly backing its value.
Simply put, Polymarket follows the typical Web2 growth route - burning money for market , while Hyperliquid has been committed to building a crypto-native, sustainable economy from day one.
Unleash potential: 1+1+1 > 3 advanced gameplay
Placing multiple financial instruments under a single account and margin system significantly reduces operational complexity and capital friction for traders. Traders can seamlessly shift funds and risk exposure across different instruments, building more sophisticated and efficient portfolios. This composability is Hyperliquid's core advantage over specialized prediction market platforms.
Strategy 1: Hedging against event-driven volatility risk
This is one of the most intuitive application scenarios, namely using the prediction market as a precise tool to hedge the risks of specific events.
Scenario : A trader holds a long position in a perpetual contract for the XYZ token worth $100,000. They anticipate that the XYZ project will announce significant positive news at an upcoming industry conference. However, if the news doesn't pan out as expected, the token price could plummet, creating significant "event risk."
On Hyperliquid , the trader could simultaneously buy shares of a "NO" contract in the "Event Perpetual Contract" market, which asks, "Will XYZ announce a partnership with MegaCorp by the end of today?" This "NO" contract acts as insurance against this specific positive event.
Result 1 (Good News Realized) : XYZ announces a partnership, and the price of its perpetual swap contracts surges. The trader's profit on the perpetual swap far exceeds the loss (the entire principal invested) on the "No" contract in the prediction market.
Result 2 (Failed) : XYZ fails to announce the partnership, and the perpetual swap price plummets due to disappointment. At this point, the "No" contract on the prediction market will settle at $1 per contract, effectively offsetting some of the losses on the perpetual swap position.
Advantages : Compared to traditional hedging methods such as short correlated assets, this approach is more direct, precise, and capital efficient because it directly hedges the core events that drive price fluctuations.
Strategy 2: Basis Trading between Perpetual Contracts and Prediction Markets
For more sophisticated quantitative traders, the unified platform provides opportunities for cross-market arbitrage and relative value trading.
Scenario : An event perpetual swap market is asking, "Will the ETH/BTC exchange rate exceed 0.06 by the end of the month?" The current price of the "YES" contract is $0.70, implying a 70% probability of this happening. Meanwhile, the ETH/USD and BTC/USD perpetual swap markets on the platform are trading normally.
A 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%. He believes that the market's pricing in this event (70%) is too high. He can construct a relative value trade to capture this 10% "probability spread":
Short Implied Probability : Sell a “Yes” contract on the prediction market (price is $0.70).
Hedging market risk : To mitigate the impact of ETH/BTC exchange rate fluctuations, he needs to establish a delta-neutral position. He can simultaneously long an equal notional value of ETH and short an equal notional value of BTC in the perpetual swap market, thereby creating a synthetic long ETH/BTC exposure to offset his short exposure from selling the "yes" contract in the prediction market.
Profit Source : Through the above operations, the trader remains neutral to the actual ETH/BTC exchange rate movement, but short the market's "event premium," or "implied probability." He profits as long as the market price converges to what he deems a more reasonable 60% probability, or if the event ultimately fails to occur (the price returns to zero). This strategy essentially trades the discrepancy between "opinion" and "market consensus."
Singing a different tune for HIP-4
HIP-4 has a bright future, but it is not an easy journey and it still faces several key challenges.
The Fee Paradox
As mentioned earlier, Polymarket has so far waived transaction fees. This was previously explained as a "free" strategy to attract users, but there's actually a deeper rationale behind this. In prediction markets, the price of an option theoretically reflects the market's perceived probability of that option coming true. Introducing transaction fees introduces friction, causing the option price to deviate from the market's predicted probability . A key function of prediction markets is to reflect the market's predictions of the future through intuitive price signals, and the introduction of transaction fees significantly diminishes this function.
For example, ideally, the sum of the probabilities of "Yes" and "No" should be 100%. Polymarket has no transaction fees and, through an arbitrage mechanism, imposes constraints on the prices of YES and NO tokens, making this assumption true. In most cases, the sum of the prices of YES and NO tokens on Polymarket is very close to 1.
However, the prediction market in HIP-4 is a "privileged operating right" acquired by market builders through a staking of 1 million HYPE (currently valued at approximately $58 million USD) in exchange for a 50% share of transaction fees. This will inevitably influence user trading behavior, causing prices in HIP-4 to deviate from market prediction probabilities .
For example, due to transaction costs, the sum of Yes + No in Hyperliquid markets may be less than $1 (buying one Yes and one No contract incurs a double commission). While these fees are minimal, insufficient liquidity can lead to significant trading dead zones. For example, in a market with a true probability of 50%, the prices of both Yes and No options on Polymarket are close to 0.50. However, on Hyperliquid, Yes might be 0.48 and No might be 0.49, adding up to only 0.97. This 0.03 difference represents an implied 3% market maker commission . This hinders accurate price discovery and compromises the user experience.
Adding constraints to prices
As mentioned earlier, for the prediction market, the core mechanism is how to ensure that the sum of the probabilities of the two results, YES and NO, is always equal to 100%, which is equivalent to ensuring that the sum of the Yes token price and the No token price is equal to 1.
The cornerstone of Polymarket's implementation of this mechanism is through an arbitrage mechanism:
First, any participant can deposit 1 USDC into the contract and mint 1 YES token and 1 NO token. Similarly, users can return 1 YES token and 1 NO token to the contract for destruction, redeeming 1 USDC.
For example, when the YES token is trading at 0.70 and the NO token is trading at 0.40, an arbitrageur deposits 1 USDC into the contract, minting 1 YES and 1 NO share. They then immediately sell these shares on the order book at 0.70 and 0.40, respectively, earning a risk-free profit of 0.1 USDC. A large number of these transactions will increase selling pressure, driving the prices of both YES and NO down simultaneously until their combined value returns to 1 USDC.
When the market price of the YES token is 0.60 and the NO token is 0.3, an arbitrageur would first buy one YES and one NO share on the order book at 0.60 and 0.30, respectively, and then redeem them through the contract for 1 USDC, earning a risk-free profit of 0.1 USDC. A large number of such transactions would drive the prices of both shares up simultaneously until the total returns to 1 USDC.
However, the HIP-4 proposal lacks similar provisions, leaving us uncertain about how HIP-4 will regulate the prices of YES and NO tokens. Furthermore, the prediction markets in HIP-4 will likely charge fees, adding significant uncertainty to the extent to which HIP-4 option prices will reflect market expectations .
Current mechanisms limit synergistic potential
Some readers may be excited about Hyperliquid 's vision of " spot, futures, and forecasts: 1+1+1>3 " as described in the previous chapter. Unfortunately, I have to pour cold water on this: under Hyperliquid's current "margin" system, although Hyperliquid supports cross-margin within the perpetual market, the three major product lines of spot, futures, and futures forecasts are still isolated from each other, and the synergistic advantage of "1+1+1>3" mentioned above cannot be brought into play at all .
This means that although the three types of products are on the same platform on the surface, users still need to manage their positions and funds separately.
For example, if you make 1,000 USDC in the prediction market, this money will not automatically increase the margin of your contract account unless you actively transfer it.
Similarly, if the contract account margin is insufficient and the position is liquidated, but the prediction market account has a balance, it cannot be automatically diverted to replenish it.
Currently, Hyperliquid does not support the use of non-USDC assets as margin (the so-called "currency-based" model has not yet been launched). Users cannot directly use the current currency they hold to open contracts or predict positions. They need to convert it to USDC first.
While this isolation design is understandable for initial robustness, it also limits the power of cross-market collaborative strategies. Users who wish to hedge their contract positions using prediction markets must constantly and manually adjust funds between two accounts, which is cumbersome and time-consuming. This demonstrates that Hyperliquid still has a lot of fundamental functionality to improve, and until the three product lines are fully integrated, the synergies created by the prediction market business will be limited .
Low profits, few people, and lots of work
Low Profitability : Assuming HIP-4 launches, Hyperliquid will initially only capture approximately 10% of Polymarket's trading volume (considering Polymarket's current size and first-mover advantage). Polymarket's trading volume in August 2025 was $664 million, so 10% translates to approximately $66 million per month. Based on the typical 0.1% DEX fee, monthly revenue would be $66,000, of which Hyperliquid would likely receive half (the other half goes to the builders), or approximately $33,000. Compared to Hyperliquid's overall profitability, this is a drop in the bucket. Consider that Hyperliquid's profits in 2025 were once claimed to exceed Nasdaq's, with monthly revenue conservatively estimated at millions or even tens of millions of dollars. If the prediction market only adds tens of thousands of dollars in monthly revenue, it will have little direct impact on the HYPE token value or the project's finances.
Hyperliquid faces a tight development schedule due to limited resources and technical challenges in implementing HIP-4. According to community sources, the Hyperliquid core team currently consists of fewer than 20 people (including around ten developers). They are also currently working on the implementation of HIP-3, supporting the integration of the native stablecoin USDH , and upgrading platform performance. The development schedule is already quite tight. The actual coding implementation of HIP-4 requires resolving numerous underlying issues, which will take time and effort.
In short, even if HIP-4 passes, its actual launch will likely be after 2026, making it a medium- to long-term plan. For Kalshi, eager to expand on-chain, this presents a shortfall. In the short term, they will not be able to meet the needs of decentralized markets through HIP-4. Consequently, Polymarket's position remains secure for the foreseeable future, and it will face no direct threat from Hyperliquid for at least the next year. By the time HIP-4's prediction market products mature, Polymarket may have further expanded its lead or launched its own token to create a new competitive advantage.
Conclusion: A carefully planned game
In short, HIP-4 is a " powerful alliance " between the centralized prediction market giant Kalshi and the DEX giant Hyperliquid .
Kalshi hopes to leverage Hyperliquid's mature on-chain architecture to rapidly expand its business onto the blockchain and reach a global user base without permission. In August 2025, Kalshi prominently hired crypto influencer "John Wang" as its Head of Crypto, completing the first step in its " theoretical " approach. HIP-4, with John Wang's participation, represents Kalshi's first pragmatic step into the blockchain space .
Hyperliquid aims to leverage its technological advantages in high-performance trading infrastructure, coupled with its vast user base, to enter the new vertical of prediction markets, giving HYPE a new narrative. By partnering with regulated entities like Kalshi, which provides compliance and credibility, HIP-4 will focus its market positioning on institutional and high-net-worth investors , focusing on serious topics such as "finance" and "policy." This differentiates it from its main competitor, Polymarket, which pursues a permissionless, bottom-up, and entertainment-focused market approach.
The success or failure of this game will depend on whether Hyperliquid can leverage its technological advantages and premium user experience to overcome the inherent challenges of fragmented liquidity and high costs. If successful, it will not only open up a vast new market for itself but also set a precedent for the entire industry: how DeFi protocols can evolve from standalone applications to platform-based platforms, and how traditional financial institutions can integrate with the decentralized world . The market will be the ultimate judge of this experiment.
