Hyperliquid Airdrop Speculation and Whale Update

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Everyone is talking about the Hyperliquid whale who traded several billion dollar Bitcoin futures positions over the holiday weekend. As we predicted in our Friday post for paid subscribers only there were several low risk ways to make money on the exchange by taking advantage of his liquidation orders (or his position in the PEPE memecoin). What we didn’t forsee was that we’d get these opportunity three times in three days, as Mr Wynn appears to have gone “on tilt”. We look forward to hearing execution reports from those who crushed this opportunity in our next Q&A!

As far as the update, what started as a billion dollar bet that Bitcoin would go up flipped to an equal sized bet that Bitcoin would fall. Both positions were closed for a loss, and Wynn returned the following day to bet on upside again. His current position is long half a billion dollars of Bitcoin futures and his change in P&L over the holiday weekend is a loss of some $70 million dollars. A great reminder not to trade on leverage, it’s one of the few ways a rich person can lose everything quickly.

You can follow his trades in real time here.

On that note, let’s talk about the recent speculation around a Hyperliquid points “season 3”.

One of crypto’s unique features is the airdrop - a highly asymmetric proposition from new, growing protocols that can yield outsized returns under the right circumstances.

Sidebar: ‘airdrops refer’ to protocols handing out free tokens to early users of their products. This is the main way for crypto participants with only $10-50k capital (but lots of time and research skills) to get ahead. Aggressive airdrop ‘farming’ is probably the best odds of running a low 5 figure portfolio into 6 figures in a single cycle without taking on insane risk.

The value proposition of airdrops was best demonstrated by the Hyperliquid airdrop that occurred in November 2024, where over $1 billion was given out (at the time of launch) to the earliest users and strongest believers.

Although this was a record breaking airdrop, previous years have featured generous token giveaways worth hundreds of millions to early users of exchanges (dYdX, Jupiter) and owners of NFTs (Bored Ape Yacht Club, Pudgy Penguins).

Fast forward to today, Hyperliquid is one of the highest revenue generating protocols in the entire crypto industry. Make no mistake, the airdrop is not the sole value driver here. Hyperliquid is the most liquid onchain perpetual futures exchange and directly competes with centralized exchanges. Hyperliquid’s success is in line with one of our long held beliefs here at DeFi Education — the best DeFi protocols will compete not with each other, but with their centralized counterparts. The two crypto products which have demonstrated product-market fit and the ability to compete at huge scale are blockchains and exchanges.

The topic on everyone’s mind this week is the prospect of another airdrop for Hyperliquid’s users. Why now? Thursday May 29th represents the one year anniversary of Hyperliquid points season 2, and 6 months from the date of the airdrop. If there is to be a season 3 for points in the near term, now would be a logical time for it to start. It’s also possible this would come with a retroactive airdrop to reward organic usage of the protocol to date (as was done last year - May points were awarded retroactively for users who traded between the official seasons 1 and 2).

The likelihood of some form of token distribution program is highly likely as the team needs to further decentralize the supply (there are legal and regulatory reasons to do so). If the supply has to be distributed anyway, it makes sense to do so via a program that incentivizes usage and generates revenue for the protocol.

We believe that trading perps and spot on Hyperliquid will be rewarded at some point. Trading is still the “cash cow” and an airdrop to traders eventually makes its way back to the protocol since users will continue to trade and most traders lose money between fees and bad trades. Note that Hyperliquid charges fees which are in line with other large crypto exchanges, but which are over 50 times higher than charged by established futures exchanges in traditional finance. They can do this because opportunities in crypto are larger and participants are less sophisticated and so less fee sensitive.

Even high volume traders (Tier 2 and above, so > $50 million in trading value per month) who stake a meaningful value of HYPE tokens (~$40,000) for a fee discount still pay enormous fees - nearly 6 basis points to open and then close a trade. Assuming this trader only ‘takes’ liquidity, the fee bill will be minimum $15,000 per month. High stakes gambler James Wynn has paid several million dollars in fees by trading billions of dollars over a holiday weekend. Even whales trading more than $2 billion dollars still pay 2/3rds of the fees compared with $50mm traders, so still 30x worse than TradFi.

Market makers can trade for free when adding liquidity but must contribute a billion dollars of volume every month or be more than 1% of total exchange volume.

Current Hyperliquid rate card assuming 10,000 HYPE staked

Hyperliquid is on track to earn roughly ~$800 million a year in fees, most of which are redirected to regular buybacks of the native token HYPE. TradFi powerhouse CME Group earns $6.25 billion / year, mainly from exchange fees on futures and options contracts. If crypto continues to grow, Hyperliquid could be on track to hit similar numbers in the distant future. Meanwhile, the high fees charged are a real drag on trader longevity. If traders are losing most of their accounts to fees doing active trading then the exchange needs to bring in new customers. It’s obviously preferable to keep existing customers active a little longer, which is a reason to give ‘rakebacks’.

Rakeback is a common term in online poker, referring to a rebate of a portion of the rake (the fee charged by poker platforms for running games) that players receive. It's essentially a type of bonus offered to encourage players to stay active and generate rake on a particular platform

Hyperliquid earns ~$786 million annualized based on the last 30 days | Source: DeFiLlama

A rakeback would allow perps traders - who generate the majority of activity and therefore revenue for the exchange - to stay active for longer even if they are not profitable (majority of traders). This future activity benefits exchange volumes, and short term selling pressure on the HYPE token from airdrops being sold will likely convert to long term buying pressure as traders continue to pay fees to fund buybacks.

For fun, we will speculate on what we think this could look like. We’re just sharing the conclusion we arrived at in a casual chat among the team so don’t take this as gospel:

• 3% of supply, or ~$1 billion airdrop (same scale as November 2024 in dollar amounts, but only ~9% increase to circulating supply)

• Rewards perps traders who generated the most fees and took losses. Giving the most degenerate gamblers more chips they will eventually lose is +EV. Profitable traders don’t need incentives to continue trading so their share should be lower.

• ~30% estimated chance there’s a retroactive airdrop day one. Otherwise it will be dropped end of year just like last year, with a retroactive points distribution

• We anticipate hyperEVM to be a larger value driver later on as there is more for users to do onchain. However, it may end up being a decent airdrop as it is likely underfarmed

We see a case both for having another large distribution to traders (revenue source and giving depleted gamblers more chips to use) and a lower distribution (already the leading onchain perps DEX and they gave away $1 billion last year). However, given Hyperliquid’s long-term vision is to not only dominate onchain but all of finance (starting with centralized perps exchanges), we lean more towards having a larger distribution to traders and further boosting volume.

HypurrNFTs. The top 5,500 ranked wallets in the pre-TGE points farming were given the option of claiming a genesis NFT with no utility. There’s a somewhat illiquid over the counter market for these NFTs - usually between avatars who already trust each other because escrows are risky. We’re seeing a few of these change hands in the $40k range. Around 4% of the HYPE token supply went unclaimed, so if we assume it’s a similar proportion for NFTs that leaves roughly 5,000 NFTs available. Half the size of a typical “10k PFP collection” from last cycle. But we think at least half of these holders are too rich and too loyal to the brand to ever consider selling. There’s a chance that these items become a status symbol of being an early Hyperliquid whale, and eventually trade at extremely high valuations (see Veblen goods, where demand increases because the price increases). But. We don’t think the collection drops soon. There’s no active NFT market on Hyperliquid Core, and we don’t think the team will pass up a massive ongoing revenue opportunity by allowing unaffiliated HyperEVM teams to spin up “Blur on Hyperliquid” and capture all the fee income on the flagship official NFT. The counter view is that the team don’t have resources to dedicate to building an NFT market and are happy for builders to bring more activity to the L1 without taking a cut. The team are very busy with technical challenges scaling and keeping the chain secure. NFTs aren’t popular in crypto at the moment. So HypurrNFTs might not be released until November 2025 or into 2026. The later they are released the more valuable we they might be. How valuable? Hyperliquid token is valued at $40b. A $1b NFT collection doesn’t seem outlandish, which would equate to $200k per unit. It isn’t public whether there will be a single NFT or a collection with traits and rarity, perhaps based on the points rank of the farmers.

Again, this is just speculation based on how we would be thinking about the decision if we were in the Hyperliquid team’s shoes, there is no guarantee of any airdrop or points season and there is always the possibility that the value received is less than the fees paid.

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Until next time..

Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are opinions from an anonymous group of cartoon animals with Wall Street and Software backgrounds.

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