The market is growing increasingly cautious. AI-related spending is only rewarded if it drives growth without severely eroding cash flow; meanwhile, the crypto market continues to face pressure from ETF outflows and rising yields.
Within crypto, leadership has rotated once again to Solana and DEXs. We delve into the ongoing discussion surrounding TradeXYZ, Hyperliquid, and how the value from HIP-3 is ultimately distributed.
Major benchmarks diverged over the past week. The S&P 500 and gold rose modestly by 0.74% and 0.65% respectively, while the Nasdaq was largely flat. BTC was the weakest performer, declining 3.0% for the week.
AI giants released a dense batch of earnings reports last week. Amazon surged over 15%, recording its strongest quarterly revenue growth in over four years, with AWS revenue growing 37% year-over-year to $42.2 billion. Microsoft also rose over 15%, with cloud business growth exceeding expectations and capital expenditure guidance coming in below Wall Street estimates. In contrast, Meta fell 10%, with Q2 free cash flow plummeting 91%, as AI-related capital expenditures weighed on profitability. A theme this earnings season is becoming clearer: the market is no longer simply rewarding AI investment, but rather rewarding companies that can demonstrate return on investment without sacrificing cash flow.
The crypto market remains under pressure. ETF flows turned net negative again, with BTC and ETH ETFs seeing net outflows of $255 million and $69 million respectively. Risk sentiment was also dampened by the bond market, with the US 30-year Treasury yield rising to 5.23%, its highest level since June 2007.
Leadership within crypto rotated once more. The Solana ecosystem performed best this week, rising 8.5%; the Ethereum ecosystem, after several strong weeks following the Robinhood Chain launch, fell 8.8%. The DEX sector came in second, rising 5.2%.
The Solana ecosystem was primarily driven by META, which surged 36% following its listing on Upbit; PUMP rose 3%, accounting for about one-third of the index's weight. More importantly, Pump.fun's trading volume and revenue continue to recover from their June lows, showing initial signs that "trench" activity may be returning.
The DEX sector was led by Uniswap, which rose 6.5% for the week. UNI benefited from the fee switch expansion to Robinhood Chain, and the commencement of protocol fees for some v4 deployments.
Many interesting on-chain innovations recently (including the FWA we covered last week) are being built via Uniswap v4 hooks. Uniswap and its broader ecosystem are definitely worth watching.
The TradeXYZ Debate
As TradeXYZ continues to dominate crypto trading volume, with RWAs accounting for over 50% of Hyperliquid's trading volume, discussions about its alignment of interests and its high concentration on Hyperliquid have intensified. Concerns range from reasonable (how Hyperliquid monetizes HIP-3 in the long run) to rather far-fetched (TradeXYZ will leave Hyperliquid), so it's necessary to clarify the current relationship.
Let's be clear first: TradeXYZ is an independent team building on Hyperliquid. It is programmatically required to allocate 50% of its HIP-3 revenue to Hyperliquid, with the remaining half at its discretion. We've found that TradeXYZ (the same team as Unit) has consistently used, and continues to use, its HIP-1 spot revenue to buy back HYPE, but the HIP-3 revenue has not been used in the same way.
The first concern, and in our view the weakest, is that TradeXYZ might leave Hyperliquid because the 50% share is too high and it could capture more value on its own. As early as April, I argued the exact opposite: that Hyperliquid was outsourcing too much of the value from its largest market to its deployers. Look at what each side provides. Hyperliquid provides the infrastructure layer, collateral, and most importantly, the user base that underpins the vast majority of TradeXYZ's trading volume. To leave, TradeXYZ would need to rebuild the exchange layer (the hardest part of the entire tech stack), abandon almost its entire trader base, and commit reputational suicide in the process. For Hyperliquid, bringing RWA in-house would be equally suicidal for its reputation: weakening its dominant deployer that underpins so much of its 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 classic symbiotic relationships in crypto, and neither side has a reason to leave the other, from a reputational, economic, or architectural standpoint.
The second concern is about monetization, which holds more water but requires a closer look. First, it's dishonest to ignore TradeXYZ's execution; Hyperliquid's RWA markets could not have reached their current scale without it. Owning 100% of a much smaller pool is worth less than half of the current pool. Second, the 50% fee share is not Hyperliquid's only monetization avenue: it also profits from write priority fees and read fees paid by market makers.
It also benefits from second-order effects, such as increased USDC supply—the cost-adjusted revenue from on-chain balances, of which Hyperliquid retains 90%. Open interest is a proxy: since the launch of HIP-3, its open interest has grown by $3.68 billion, while USDC supply growth over the past year is $1.38 billion, and crypto open interest declined towards year-end. As more traders bring in USDC to go long on RWAs, the revenue from that supply also accrues to Hyperliquid. That revenue is estimated at around $30 million per month, already surpassing the entire HIP-3 perpetual fee pool that Hyperliquid splits evenly with TradeXYZ.
For us, the most interesting question is not the 50/50 split between TradeXYZ and Hyperliquid, but rather how both parties move out of growth mode and ultimately shift from low fees to a more stable, higher fee base.
