Spun out of Swell Labs, Hyperwave is building a self-defined DeFi SuperApp for users across the Hyperliquid ecosystem. Through taking Swell to $3B in TVL, the team has an abundance of experience in building products around liquid staking, restaking, and yield bearing assets in the Ethereum ecosystem.
We believe Hyperliquid has established itself as one of crypto’s core DeFi ecosystems, highly worthy of building institutional and retail products. Seen in the data below, Hyperliquid has accumulated ~$5,000,000,000 in USDC deposits and is competing for more than 10% of Binance’s weekly derivative volume.
Both volume and TVL are strikingly organic for an onchain competitor. We believe that there is an abundance of opportunity in revenue generation from spot & futures trading fees, as well as potential new revenue lines, like revenue share from the stablecoins deposited into their platform as seen with Coinbase and likely Polymarket in the near future.
This continued volume and TVL growth presents an enormous opportunity for the budding Hyperliquid DeFi ecosystem. Alongside organic activity, the protocol’s dual virtual machine is built for DeFi with Hypercore being the backbone of the protocol’s onchain orderbook and vault primitives & the HyperEVM allowing for developers to create general purpose applications at an arms length away.
The Hyperliquidity Provider (HLP)
asxn broke down Hyperliquid’s vault structure in a recent article, stating the protocol “initially built vaults as a core primitive of their L1, encoded into the chain so that they could run the vaults created by the team.”
Hyperliquid used this idea to make improvements on a concept seen with GMX’s GLP vault, which was a multi-asset vault (Stables, BTC, ETH, etc) that was a counterparty for the perpetual futures traders on the GMX exchange. Since Hyperliquid utilizes an onchain, central limit orderbook, they do not have to rely on user deposits to act as the counterparty for all trades taking place on the exchange. Instead, professional market makers / high frequency trading firms are able to provide liquidity on the platform.
So why is HLP needed?
The Hyperliquidity Provider (HLP) vault is the liquidity provider of last resort - allowing traders to open up positions, at a price close to the market, even when there is insufficient liquidity on the Hyperliquid orderbook. This concept is key for allowing the protocol to list longer-tail assets, yet still letting traders open up larger positions without seeing dangerous slippage.
Further, HLP can act as a massive UX improvement during periods of low liquidity for majors (BTC, ETH, SOL) on the exchange. This strategy of being the liquidity provider of last resort is made possible through referencing market prices and liquidity (tick data) across other major exchanges & then opening up a counter position with the HLP vault at a fair market price.
HLP democratized this area of market making, allowing vault depositors to be the liquidity provider and liquidator of last resort for positions on Hyperliquid. HLP is, on average, a profitable vault for several reasons:
It constantly adjusts its bids and asks allowing the vault to occasionally earn a spread, alongside trading fees when a taker opens and fills a position
It aims to be fairly neutral, to net short such that it earns funding payments from traders
It is able to capture a small amount of account margin during backstop liquidations, which is programmatically enough that it can offset the losses from accounts that become undercollateralized
Since it is the liquidity provider of last resort, the vault likely gets a fairly good execution price relative to the market outside of Hyperliquid
All of the above gives HLP a very attractive return profile for crypto investors. Given traders are often skewed net long, and that HLP benefits from funding rates and liquidations, the vault has a negative correlation with the crypto market. Beyond that, the vault has been profitable in 24 of 26 months since it was launched - with very minimal drawdowns. Below is a month by month breakdown of HLP’s returns:
Key Takeaways:
HLP had a maximum monthly drawdown of -0.79%
HLP (15%) has lower annualized, monthly return volatility than BTC (49%) or QQQ (15.7%)
HLP’s volatility adjusted returns are higher than that of BTC
Since inception, HLP has a higher Sharpe (2.72) than BTC (2.28) or QQQ (1.61) have in the same time period
A Medium Post from Geronimo explores the volatility matched returns of HLP, as well as its role in a crypto portfolio
HLP’s TVL growth has muted its returns, but also its volatility. Such that, the risk adjusted return profile continues to look better
So what is hwHLP?
The HLP vault has a 4 day lock up period, creating a level of user friction. Hyperwave launched a tokenized representation of the HLP vault, hwHLP, which provides 2 important improvements, like seen with other LSTs:
Instantaneous Liquidity: Users can sell their HLP deposits on the open market or redeem them for their underlying vault shares
Liquid Wrapper / Composibility: hwHLP can be utilized throughout the HyperEVM and Ethereum DeFi ecosystems
As of 8/3/25, hwHLP is integrated in the below protocols, across both Ethereum and the HyperEVM:
Avoiding the 4 day lock up provides a clear benefit to existing HLP depositors, but composibility is becoming increasingly important in the Hyperliquid ecosystem with the recent addition of the HyperEVM. Barring any exploits or black swan events, HLP could be an effective form of collateral to use in lending protocols or to use as a pair asset for tokens launched in the Hyperliquid ecosystem.
Given HLP’s historically low volatility (outside of the JellyJelly exploit) & its outperformance over stablecoin borrow rates, some active / risk taking traders may use hwHLP for a looping strategy. At scale, this looping strategy could generate more TVL for both HLP and hwHLP and further mute the volatility of the underlying vault – all while adding market depth to Hyperliquid.
Outlook for Hyperwave
As of August 7, 2025, hwHLP currently sits at over $27.8M in market size. Yielding 12% per annum, hwHLP holders should accrue $3.3+ million in yield over a 12 month period. Given, the underlying HLP vault has roughly $400m in deposits - we could easily see the liquid representation (hwHLP) take a much more meaningful market share.
High End Bull Case:
Hyperliquid reaches Binance volumes & HLP deposits 7x to $2.8B
hwHLP takes a 40% market share of HLP deposits hitting $1.12B
HLP continues to yield 12%
Hyperwave users earn $130m+ in yield
At a 10% commission rate, Hyperwave earnings are $13M from hwHLP alone
Beyond, hwHLP, we believe Hyperwave has two core market segments to capture:
HYPE LST Market: As of August 3rd, Hyperwave launched the hwHYPE liquid staking vault. This vault deploys the underlying HYPE deposits through the DeFi ecosystem to maximize depositors yield. This is a much larger target market, with kHYPE approaching $860M in TVL and stHYPE having another $330M+ in deposits
Third Party Vault LSTs: Hyperliquid has a generalized vault structure that allows anyone to manage a vault, with third party deposits. The vault managers are able to take on any type of trading strategy, but to maintain alignment they must have at least 5% of the vault’s AUM at any given time. The vault manager receives a 10% performance fee on the vault’s PnL.
Third Party Vault LSTs: Hyperliquid has a generalized vault structure that allows anyone to manage a vault, with third party deposits. The vault managers are able to take on any type of trading strategy, but to maintain alignment they must have at least 5% of the vault’s AUM at any given time. The vault manager receives a 10% performance fee on the vault’s PnL.
There is clear demand for 3rd party vaults, given they have accrued $20m+ in deposits as of today. As more assets (tokenized equities, commodities, yield bearing stables) become available on Hyperliquid, vault managers will be able to deploy a number of trading strategies that may attract capital and could be worth of liquid derivatives, like hwHLP.