The market is becoming increasingly cautious. AI-related spending is only rewarded when it can drive growth without severely eroding cash flow; meanwhile, the crypto market continues to face pressure from ETF outflows and rising yields.
Within the crypto space, leadership has once again shifted to Solana and DEX. We delve into the ongoing discussions around how value is ultimately allocated in TradeXYZ, Hyperliquid, and HIP-3.
Over the past week, major benchmarks have shown divergence in performance. The S&P 500 and gold saw modest gains of 0.74% and 0.65% respectively, while the Nasdaq remained mostly flat. BTC was the weakest performer, ending the week down 3.0%.
Last week saw a flurry of earnings releases from AI giants. Amazon surged over 15%, reporting its strongest quarter of revenue growth in over four years, with AWS revenue up 37% year-over-year to $42.2 billion. Microsoft also rose over 15%, exceeding expectations in its cloud business, while its capital expenditure guidance fell below Wall Street estimates. In contrast, Meta fell 10%, with free cash flow plummeting 91% in the second quarter, as AI-related capital spending weighed on profitability. A clear theme emerging from this earnings season is that the market no longer simply rewards AI investment but rather rewards companies that can demonstrate a return on investment without sacrificing cash flow.
The crypto market continues to face pressure. ETF funds once again saw net outflows, with BTC and ETH ETFs experiencing net outflows of $255 million and $69 million, respectively. Risk sentiment was also dampened by the bond market, with the U.S. 30-year Treasury yield rising to 5.23%, the highest since June 2007.
Leadership within the crypto space has once again shifted. The Solana ecosystem performed the best this week, rising 8.5%; the Ethereum ecosystem, after weeks of strength following the launch on Robinhood Chain, saw an 8.8% decline. The DEX sector followed closely, rising 5.2%.
The Solana ecosystem was mainly driven by META, which surged 36% due to listing on Upbit; PUMP rose 3%, accounting for about one-third of the index's weight. More importantly, trading volume and revenue on Pump.fun have continued to recover from the June lows, indicating that "trench" activities may be making a comeback.
The DEX sector was led by Uniswap, with a 6.5% increase for the week. UNI benefited from the fee switch expanding to the Robinhood Chain and from some v4 deployments starting to charge protocol fees.
Many recent interesting on-chain innovations (including the FWA we covered last week) are being built through Uniswap v4 hooks. Uniswap and its broader ecosystem are definitely worth paying attention to.
TradeXYZ Debate
As TradeXYZ continues to dominate crypto trading volume, RWA has accounted for over 50% of Hyperliquid's trading volume, sparking intense discussions about its alignment of interests and the high concentration on Hyperliquid. Concerns range from reasonable (how HIP-3 will monetize long-term on Hyperliquid) to rather far-fetched (TradeXYZ will leave Hyperliquid), so it is necessary to clarify the current relationship.
First things first: TradeXYZ is an independent team building on Hyperliquid. It is mandated by code to split 50% of the HIP-3 revenue with Hyperliquid, while the remaining half is up to its discretion. We found that TradeXYZ (which is the same team as Unit) has been using and continues to use its HIP-1 spot income to buy back HYPE, but the HIP-3 revenue has not undergone the same operation.
The first concern, and what we consider the weakest, is that TradeXYZ will leave Hyperliquid because the 50% split is too high and they could capture more value on their own. As early as April, I proposed the exact opposite view: Hyperliquid outsources too much of the market's value to deployers. Look at what each side provides. Hyperliquid offers the infrastructure layer, collateral, and most importantly, the user base that supports the vast majority of TradeXYZ's trading volume. To leave, TradeXYZ would need to rebuild the trading platform layer (the hardest part of the entire tech stack), almost entirely forsake its trader base, and in the process, damage its reputation in a self-destructive manner. For Hyperliquid, bringing RWA in-house would be equally reputational suicide: weakening a dominant deployer that underpins so much success would send a signal to all future HIP-3 deployers and all builders on Hyperliquid—any team successful enough will be replaced. This is one of the most typical symbiotic relationships in the crypto space, where neither side has any reason to leave the other, whether from a reputational, economic, or architectural perspective.
The second concern is regarding monetization, which is more valid but needs a closer look. First, disregarding TradeXYZ's execution, it is dishonest to claim that Hyperliquid's RWA market could not have reached today's scale; owning 100% of a much smaller pool worth less than half the current pool. Second, the 50% fee split is not Hyperliquid's only monetization avenue: it also profits from priority fees written in and reading fees paid by liquidity providers.
It also profits from second-order effects, such as the increase in USDC supply—revenue from on-chain balances adjusted for cost, of which Hyperliquid retains 90%. TVL is a proxy: since HIP-3 launch, TVL has grown by $3.68 billion, while the past year saw a $1.38 billion increase in USDC supply, with crypto TVL decreasing at year-end. As more traders bring in USDC to go long on RWA, the revenue from this supply also accrues to Hyperliquid. This revenue is estimated at around $30 million per month, surpassing the entire HIP-3 perpetual fee pool split between Hyperliquid and TradeXYZ.
For us, the more intriguing question is not the 50/50 split between TradeXYZ and Hyperliquid, but how both parties will transition from a growth model to ultimately establish a more stable, higher fee base.
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