Hyperliquid (HYPE -3.81%), the native token of the Hyperliquid decentralized exchange (DEX), has more than tripled in value this year. Most of that rally was fueled by hopes that U.S. regulators would finally allow its perpetual futures (perps) into the U.S. market. Let's see what perps are, why they support Hyperliquid's growth, and what will happen if they're approved.
How does Hyperliquid work?
Hyperliquid's Layer-1 (L1) blockchain operates as a high-speed, independent digital trading exchange for cryptocurrencies. Unlike Coinbase (COIN -10.10%) and other traditional cryptocurrency exchanges, where you buy and hold the actual coins in your digital wallet, Hyperliquid's exchange holds your coins entirely on the decentralized blockchain. Hyperliquid also matches trades nearly instantly and charges zero transaction fees on individual orders, making it a much cheaper alternative to Coinbase for most trades.
Image source: Getty Images.
On Hyperliquid, perps allow investors to bet on whether a cryptocurrency's price will rise or fall without actually owning the underlying token. That's structurally similar to stock options, but perps don't have any expiration dates because they're "perpetual". Hyperliquid's users can also borrow funds on the platform to trade perps with more money than they deposit.
CRYPTO: HYPE
Key Data Points
Why aren't perps approved in the U.S. market?
Hyperliquid's perps drive most of its trading activity. Still, they're banned in the U.S., the U.K., and China because they're much riskier than conventional cryptocurrencies and allow users to take on massive amounts of leverage (up to 50x) to fund their trades.
The use of "funding rates" -- small fees paid back and forth between buyers and sellers every hour to peg the perp to the underlying token's price -- is also opaque. Government regulators believe these issues make them dangerous investments for unaccredited retail investors.
Will the U.S. approve Hyperliquid's perps?
Last month, the Trump Administration suggested the Commodities Futures Trading Commission (CFTC) could bring HYPE into the U.S. market as a fully compliant token.
However, legal and compliance experts estimate it would take at least 10 to 12 months for HYPE to be fully approved as a regulated token under an accelerated timeline. Even if the CFTC approves HYPE's perps, the U.S version of the token would likely face tighter restrictions -- including lower leverage limits and sanctions screening -- than its overseas counterpart.
That said, a U.S. approval for Hyperliquid could pull more crypto traders away from Coinbase and other established cryptocurrency exchanges. Its blockchain is also expanding with support for Ethereum's (ETH -4.44%) decentralized applications and tokenized assets. Those real-world uses could drive HYPE higher over the long term -- but I personally wouldn't buy it unless its perps are actually approved for U.S. customers without any crippling restrictions.
