"We are Not TradeXYZ": The Harsh Truth Behind the Closure of the First HIP-3 Platform

The opening pricing of a new IPO company on the US stock market, coupled with the movement of eager capital continuing to trade after the weekend market close, has led to an epic price discovery for Hyperliquid. HYPE's all-time high has drawn the attention of global traders to this 24/7 platform and the capabilities of a team called TradeXYZ.

Hyperliquid is a high-performance blockchain designed specifically for derivatives, featuring a fully on-chain order book. HIP-3 is its third improvement proposal: anyone can stake approximately 500,000 HYPE as collateral to launch their own perpetual contract market on this chain, trading US stocks, indices, commodities, or even companies without an IPO. Hyperliquid provides matching, margin, and on-chain settlement, while the deployer defines which trading pairs to list, which oracle to use, and how much leverage to offer.

TradeXYZ is the first trading platform deployed under the HIP-3 framework. By pricing markets over the weekend and trading IPO pre-market contracts, it attracted Wall Street's attention within less than a year of its launch.

Besides TradeXYZ, several other HIP-3 trading platforms have been deployed, attempting to replicate its success through their own advantages.

However, the results have been disappointing.

Recently, the Hyperliquid ecosystem project Felix announced that its HIP-3 trading platform would shut down starting June 19, with all markets being liquidated one by one.

Felix was the first HIP-3 trading platform to list silver and crude oil trading pairs on Hyperliquid. The OIL, GOLD, and SILVER trading pairs generated significant fees and approximately $3 billion in volume from December to January. Now, it has become the first HIP-3 deployer to officially exit.

Why did this once-leading player close its doors first?

"We Are Not TradeXYZ"

Felix founder 0xBroze reviewed the reasons for this failed attempt.

First, the quote asset was chosen incorrectly. An HIP-3 trading platform needs to select a stablecoin for its perpetual contracts. The earliest entrant, TradeXYZ, chose USDC. This wasn't a deeply considered decision at the time, as Hyperliquid hadn't initiated its stablecoin bidding process. Felix, launching later, naturally chose USDH to take advantage of fee discounts.

However, they didn't anticipate that Hyperliquid would later activate Growth Mode, drastically reducing trading fees. USDH's advantage evaporated, turning it into a "burden of liquidity fragmentation." Users holding USDC had to swap to USDH to use Felix, and market makers were unwilling to provide liquidity for USDH-related markets. In retrospect, 0xBroze views USDH more as a strategic piece by Hyperliquid to pressure Circle into sharing revenue.

Second, TradeXYZ was the first mover. It launched on the very day HIP-3 went live, roughly a month before Felix. This time gap wasn't just a matter of timing; the early entrant captured user mindshare and had ample time to sequentially push out subsequent markets.

Furthermore, TradeXYZ has more trading pairs. As the only deployer using USDC, TradeXYZ quickly built a moat through the sheer number of trading pairs. 0xBroze believes this likely stems from a balance sheet advantage. TradeXYZ could afford the Ticker auction fees and liquidity costs. Felix, with limited capital, had to be more selective in choosing which trading pairs to open.

Finally, there's the "airdrop narrative." Early TradeXYZ users speculated that the platform would issue a token, as its team had previously won the auction for the spot ticker UNIT on Hyperliquid. The expectation of an airdrop progressively boosted TradeXYZ's early user numbers, volume, open interest, and liquidity, creating a flywheel effect that Felix could never catch up to.

To sum it up in one sentence: We failed because we are not TradeXYZ.

The Matthew Effect

First, look at the trading volume. In the week leading up to early June, TradeXYZ accounted for 95.85% of all HIP-3 volume. The remaining 7 platforms combined for less than 5%. The second-place platform, dreamcash, had 2.75%, third-place Kinetiq Markets had 0.64%, and HyENA had 0.49%.

Source: ASXN

The concentration of Open Interest is even higher, with TradeXYZ holding 96.81%.

Source: ASXN

This monopolistic landscape has been persistent. From the launch of the HIP-3 proposal in October last year to this May, TradeXYZ's volume share never dropped below 60%.

In the first week of June, total HIP-3 volume was $4.8 billion, with TradeXYZ's XYZ100/USDC trading pair alone contributing $4.53 billion.

Source: ASXN

High Costs, Low Returns

To understand why other deployers struggle, one must calculate the costs of running an HIP-3 trading platform.

Two costs are clearly defined. Deploying an HIP-3 platform requires staking 500,000 HYPE, worth approximately $30 million (at $60 per HYPE).

Source: HypurrScan

The second cost is the Ticker auction. For each new trading pair, a Ticker must be purchased via auction, with an average winning bid of around 500 HYPE, roughly $30,000. This auction market is also dominated by TradeXYZ. Since February, the enthusiasm for non-TradeXYZ participants to engage in auctions has been waning.

Source: Blockworks Research

Starting an HIP-3 platform is not only costly but also offers very thin profit margins.

To align its perpetual contract fees with traditional brokerages, Hyperliquid introduced "Growth Mode." When activated, the Taker fee is slashed to extremely low levels, making opening an NVDA position cheaper than on Interactive Brokers. The trade-off is that deployers only get roughly 10% of the potential fee revenue.

If a deployer chooses not to run a trading platform and instead simply stakes their 500,000 HYPE, at an approximate annualized yield of 2.3%, they would earn about $60,000 per month. This means that just to cover the opportunity cost of "doing nothing," a trading platform must generate over $60,000 in monthly fees.

Here is the May revenue for each platform: TradeXYZ earned approximately $3.1 million, dreamcash around $89,000, Kinetiq around $21,000, and HyENA around $16,000. Platforms further down the list earned less than $5,000 each.

Besides TradeXYZ, only dreamcash barely broke even. All other deployers failed to cover even the opportunity cost of their 500,000 HYPE stake. This calculation doesn't even include the harder-to-quantify expenses like market making, oracle fees, team salaries, and liquidity incentives.

Source: Blockworks Research

A Spectrum of Survival Strategies

The few remaining platforms have different survival strategies.

dreamcash uses USDT0 as its quote asset, backed by Tether. Tether provides it with approximately $200,000 in trading incentives weekly, translating to about $867,000 per month—far exceeding its platform fee revenue. Coupled with the expectation of an airdrop, dreamcash firmly holds the second-place position in volume.

Kinetiq Markets boasts a novel "crowdfunding mechanism." It developed a platform called Launch. Founder Omnia describes it as a combination of "Shopify + Kickstarter," allowing others to deploy their own customized HIP-3 trading platforms using crowdfunded pools of 500,000 HYPE. Markets itself serves as a proof-of-concept for this model, aiming to demonstrate that Launch works, rather than directly competing with TradeXYZ for volume.

A Long Road Ahead

Felix will certainly not be the last HIP-3 trading platform to shut down. There is limited room for other players to adjust.

They could potentially target niche or novel markets that TradeXYZ is unwilling to touch. However, Felix has already validated for everyone that the end of this path is "once you generate volume, TradeXYZ copies it and siphons your liquidity."

Alternatively, they could find different distribution channels, building a user base in net-new markets to avoid the red ocean of native Hyperliquid traders. Kinetiq's Launch represents an attempt in this direction, but it hasn't truly proven its viability yet.

But without changes on the cost side, the current landscape of one dominant player is likely to persist.

Some in the community have proposed lowering the 500,000 HYPE staking threshold and implementing a lower, price-fluctuating cap on auction costs linked to the HYPE price. From this perspective, a decline in HYPE's price isn't necessarily a bad thing, as it could enable more projects to build on Hyperliquid at a lower cost.