Hyperliquid and Kalshi join forces to reshape the on-chain prediction market

Hyperliquid has been on a roll lately. First, there's HIP-3, which allows anyone to create perpetual contract markets, then the hotly debated stablecoin bidding war. Now, they've unveiled another major proposal: HIP-4, officially entering 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 into 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 Partners with Kalshi. Hyperliquid is already the undisputed leader in the on-chain perpetual contract space, holding nearly 80% of the market share. But for any successful project, finding new growth drivers is crucial. HIP-4 is a crucial step forward. 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 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 advantage lies 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 are the technical foundation required 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 can expand boundaries, enrich narratives, 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 if it can successfully enter the prediction market arena, it will add a new variable to support HYPE's valuation. Kalshi's core advantages are precisely the opposite of Hyperliquid's: it has extensive experience in creating compliant and attractive markets, has successfully navigated regulatory challenges in the United States (even winning a lawsuit against the CFTC), and has established strong institutional credibility. Its shortcomings lie in the lack of a decentralized, crypto-native technical foundation and an effective channel to reach global, permissionless DeFi users. The two platforms were a natural fit. Kalshi can leverage Hyperliquid's technical infrastructure to efficiently enter the decentralized world and reach global users. 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 is a dedicated "event perpetual contract" necessary? You might ask, since HIP-3 already allows users to create perpetual contracts "permissionlessly," why can't they be used directly for prediction markets? The answer is: it's technically impossible. Standard perpetual swaps are not suitable for the local market. Standard perpetual swaps have two core mechanisms that make them unsuitable for prediction markets: Reliance on continuous price feeds: Perpetual swaps require an oracle to continuously provide external spot prices to calculate funding rates and ensure that the contract price remains stable. However, prediction market questions, such as "Will Team A win the game?", have instantaneous results. The probability jumps from a single value to 0 or 1, eliminating the need for a continuously changing price and, therefore, the need for a continuous oracle feed. Price fluctuations are capped: To prevent extreme market volatility, 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. The moment the game ends, the price should immediately change to 1 or 0. However, with a limit of 1% per price change, adjusting the price from 0.5 to 1.0 requires 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. To address these issues, HIP-4 introduces a brand new product, the "Event Perpetual Swap," which features several key innovations: Abandoning continuous oracles and funding rates: This is the most fundamental change. Event Perpetual Swaps completely eliminate the reliance on continuous oracle price feeds and funding rate mechanisms, as these are completely unnecessary for prediction markets. Before the outcome of an event is known, the contract price is determined entirely by market trading behavior between buyers and sellers, 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" release the final result (0 or 1) for market settlement. 1x Independent Margin: Unlike highly leveraged perpetual swaps, Event Perpetual Swaps disable leverage (supporting only 1x), and each market has independent margin. This is clearly for risk management purposes, significantly reducing users' liquidation risk and strictly confining the risks of this new experimental product to a single market, preventing risk spillover into users' other portfolios. However, isolated margin also limits the composability and synergy of the prediction market with other Hyperliquid markets. Support for Slot Reuse: HIP-4 inherits from HIP-3. Creating a market requires a stake of 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, Hyperliquid will inevitably compete with the current leader, Polymarket. But Hyperliquid chose not to imitate, instead forging a distinct and differentiated path. Elite curation vs. laissez-faire: This is the core difference between the two. Hyperliquid's "Builder" model: Want to create a market? You can, but the barrier to entry is extremely high—you must stake one million HYPE tokens (currently worth over $57 million). This high economic threshold acts as a filter, ensuring that only professional teams with deep pockets and a serious mindset are eligible to create markets. They have a strong incentive to launch high-quality markets that have the potential to attract liquidity and earn fees. Due to 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: Anyone can create a market on Polymarket. This ensures a wide range of topics on the platform, consistently staying current with current events and brimming with activity. With its fee-free nature and user-generated content, Polymarket is a haven for retail investors and enthusiasts. Polymarket offers a variety of imaginative predictions, news headlines, and interesting life stories, attracting users who may not be familiar with finance but are keen on entertainment and social discussion. These users tend to 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 vaguely described, duplicated, and low-quality markets, diluting liquidity.

Protocol Capture Value vs. User Experience First

• Polymarket: Implements a zero-transaction fee policy. Its strategy exemplifies the classic Web2 growth model: using VC capital to subsidize zero-fee products, rapidly capturing user minds and building an unassailable network effect, while leaving future monetization to later. This is a capital-intensive, blitzscaling 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 a typical Web2 growth strategy—burning money to gain market share—while Hyperliquid has been committed to building a crypto-native, sustainable economy from day one. Unleashing Potential: 1+1+1 > 3 Advanced Playstyles Bringing multiple financial instruments under a single account and margin system significantly reduces operational complexity and capital friction for traders. Traders can seamlessly shift capital and risk exposure across different products, building more sophisticated and efficient portfolios. This composability is Hyperliquid's core advantage over specialized prediction market platforms. Strategy 1: Hedging Event-Driven Volatility Risk This is one of the most intuitive application scenarios: using prediction markets as a precise tool to hedge against specific event risks. Scenario: A trader holds a long position in a $100,000 perpetual swap for the XYZ token. They anticipate significant positive news from the XYZ project at an upcoming industry conference. However, if the announcement falls short of expectations, the token price could plummet, creating significant "event risk." Strategy on Hyperliquid: The trader could simultaneously buy shares of a "NO" contract in the "Event Perpetual Swap" market, which asks, "Will XYZ announce a partnership with MegaCorp by the close of trading today?" This "NO" contract acts as insurance against this specific positive event. Result 1 (Good News Fulfilled): 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 (Good News Failed): XYZ does not announce a partnership, and the perpetual swap price plummets due to disappointment. At this point, the "No" contract in the prediction market settles at $1 per contract, effectively offsetting some of the losses on the perpetual swap position. Advantages: Compared to traditional hedging methods such as shorting correlated assets, this method is more direct, precise, and capital-efficient because it directly hedges against the core event driving price fluctuations. Strategy 2: Basis Trading Between Perpetual Swaps 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 has the following question: "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 occurrence. Meanwhile, the ETH/USD and BTC/USD perpetual swap markets on the platform are trading normally. 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 the market's pricing in this event (70%) is overstated. He can construct a relative value trade to capture this 10% "probability difference": Short implied probability: Sell a "yes" contract on the prediction market (priced at $0.70). Hedge against market risk: To isolate the impact of fluctuations in the ETH/BTC exchange rate, he needs to establish a delta-neutral position. He can simultaneously go 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 this operation, the trader remains neutral to the actual movement of the ETH/BTC exchange rate, but shorts the market's "event premium" or "implied probability." He profits as long as the prediction 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." Opposing HIP-4: While HIP-4 holds promise, the road ahead is not entirely smooth, and it faces several key challenges. 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 the option ultimately 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 about the future through intuitive price signals, but the introduction of transaction fees significantly weakens 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, ensuring this assumption holds true. In most cases, the sum of the prices of YES and NO tokens in Polymarket is very close to 1. However, the prediction market in HIP-4 is a "privileged right" acquired by market builders by staking 1 million HYPE (currently worth approximately $58 million) in exchange for a 50% share of transaction fees. This will inevitably influence user trading behavior, causing HIP-4 prices to deviate from the market's predicted probabilities. For example, due to transaction costs, the sum of Yes + No in the Hyperliquid market may be less than $1 (buying one Yes and one No requires double the transaction fee). Although the transaction fee is small, insufficient liquidity can lead to significant trading dead zones. For example, if the true probability in a market is 50%, the prices of both the 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 is equivalent to an implicit 3% commission from the market maker. This is detrimental to accurate price discovery and impairs the user experience. As mentioned earlier, the core mechanism of prediction markets is how to ensure that the sum of the probabilities of YES and NO outcomes 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. Polymarket implements this mechanism through an arbitrage mechanism: First, any participant can deposit 1 USDC into the contract to 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 market price of YES token is 0.70 and the price of NO token is 0.40, an arbitrageur deposits 1 USDC into the contract, minting 1 YES and 1 NO share. They can then immediately sell them on the order book at 0.7 and 0.4, respectively, earning a risk-free profit of 0.1 USDC. A large number of such transactions would increase selling pressure, driving the prices of 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, arbitrageurs would first buy one YES and one NO share on the order book at 0.60 and 0.30, respectively, then redeem them for 1 USDC through the contract, 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 their combined value returns to 1 USDC. However, the HIP-4 proposal lacks such provisions, leaving us uncertain as to how HIP-4 will constrain the prices of YES and NO tokens. Furthermore, the prediction market in HIP-4 will likely charge fees, adding significant uncertainty to the extent to which HIP-4 option prices will reflect market expectations. 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 cross-margin trading is supported within the perpetual market, the three major product lines—spot, futures, and futures forecasts—remain isolated from each other, effectively preventing the potential for synergy from being realized. This means that while these three product categories appear to be on the same platform, users still need to manage their positions and funds separately. For example, if you win 1,000 USDC in the prediction market, this money will not automatically increase the margin in your futures account unless you actively transfer it. Similarly, if your futures account runs out of margin and a margin call occurs, but your prediction market account has a balance, this amount will not be automatically transferred 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 their cash holdings to open futures or prediction positions and must first convert them into USDC. This isolation design is understandable for initial robustness, but it also limits the power of cross-market coordinated strategies. If users want to hedge their futures positions using prediction markets, they must manually adjust the funds between the two accounts, which is cumbersome and delays. This shows that Hyperliquid still needs to improve many basic functions. Until the three product lines are fully integrated, the synergy brought by the prediction market business will be reduced. Low Profits, Few Staff, and High Tasks: Low Profits: Assuming that after HIP-4 is launched, Hyperliquid will initially only be able to capture approximately 10% of Polymarket's trading volume (given its current large scale and first-mover advantage). If Polymarket's trading volume in August 2025 is $664 million, 10% translates to approximately $66 million in monthly trading volume. Based on the typical 0.1% DEX fee, this translates to $66,000 in monthly revenue, of which Hyperliquid will likely receive half (the other half goes to the developers), or approximately $33,000. Compared to Hyperliquid's overall profitability, this is a drop in the bucket. Considering that Hyperliquid's profits in 2025 were once claimed to surpass 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 value of the HYPE token or the project's finances. A small team, a large task: Hyperliquid faces 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 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 many underlying issues, and this work will not be completed overnight. 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 is like "distant water cannot quench immediate thirst." In the short term, they will not be able to meet the needs of decentralized markets through HIP-4. Consequently, Polymarket's position will remain secure for the foreseeable future, and it will not feel a 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 moat. Conclusion: A Carefully Planned Game In short, HIP-4 represents a powerful alliance between Kalshi, a centralized prediction market giant, and Hyperliquid, a DEX giant. Kalshi hopes to leverage Hyperliquid's mature on-chain architecture to rapidly expand its business onto the blockchain and reach global users 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. This time, HIP-4, with John Wang's participation, is Kalshi's first practical step into the on-chain arena. 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, with Kalshi providing compliance and credibility, HIP-4 is targeting institutional and high-net-worth investors. Its market themes are primarily focused on serious topics like "finance" and "policy," unlike its main competitor, Polymarket, which pursues a permissionless, bottom-up, and entertaining market approach. The success or failure of this gamble 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 massive 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.