Galaxy Digital Research Report: Hyperliquid's L1, starting to hold above

Author: Lucas Tcheyan & Will Owens

Compiled by: Deep Tide TechFlow

HyperEVM is the EVM-compatible general Layer 1 blockchain of Hyperliquid, which is beginning to show early signs of development.

Although the activity of HyperEVM is still relatively flat compared to HyperCore (the flagship perpetual contract platform of Hyperliquid), since its launch in February, HyperEVM has achieved steady growth in trading volume, total locked value (TVL), and application development. Despite the lack of strong tools and direct incentive programs, HyperEVM has still made such progress. Upgrades to key infrastructure, a maturing DeFi ecosystem, and increasing speculation about potential airdrops have all fueled the development of HyperEVM.

The recently released CoreWriter update marks a pivotal moment for the ecosystem. By enabling full write access to HyperCore, CoreWriter will unlock a new class of native applications integrated on both levels, further blurring the lines between the two platforms and driving the evolution of HyperEVM from Sidecar into the core engine of the continuously expanding on-chain financial stack of Hyperliquid.

Key points

The development work of HyperEVM is progressing in an iterative and controlled manner to ensure that its activities do not impact HyperCore. This has posed some resistance to teams building early on this chain, but it has not stopped a large number of developers from launching applications, with over 175 teams currently building on HyperEVM.

HyperEVM is ranked tenth in the L1 network by TVL. The leading applications are mainly composed of DeFi products, especially lending. This aligns with HyperEVM's goal of unlocking DeFi composability for HyperCore.

HYPE is the native Gas token of HyperEVM, and each transaction will burn the base fee and priority fee. So far, transaction fees have accounted for 0.006% of the total supply of HYPE, but if on-chain transaction activity rebounds as expected in the coming months, the burn rate is expected to continue to increase.

User activity is still catching up with the adoption of HyperCore. As blockchain infrastructure and tools better integrate HyperEVM and HyperCore, the adoption rate of HyperCore will further increase in the coming month.

The latest release of CoreWriter allows smart contracts on HyperEVM to write directly to HyperCore, marking a significant unlocking of the HyperEVM application ecosystem, which will drive a surge in application deployments and user activity in the coming months.

Hyperliquid's broader vision is to position HyperEVM as a complementary financial layer to HyperCore. In the future, the goal is to create a vertically integrated DeFi stack that allows trading, lending, vault, and staking functions to coexist natively across two chains.

HyperEVM Architecture

Hyperliquid has two interrelated yet independent platforms: HyperEVM and HyperCore. Among them, HyperCore is more well-known as Hyperliquid's perpetual contract futures platform, featuring an on-chain order book, margin system, and matching engine. Since its launch in 2023, it has dominated the perpetual contract market and has even started to compete with perpetual contract products from centralized exchanges. HyperEVM is the general L1 layer of Hyperliquid that is EVM-compatible. HyperCore is a newer platform, launched on February 18, aimed at unlocking DeFi's composability for HyperCore through integration with general smart contract platforms.

An important distinction here is that HyperCore and HyperEVM are independent chains, but they are both secured by the same HyperBFT consensus mechanism (a combination of proof-of-stake and Byzantine fault tolerance optimized for high throughput and low latency systems) and the same set of validators. This allows applications built on HyperEVM to interact directly with HyperCore's spot and perpetual order books.

(Source: Hyperliquid Docs)

Consensus and Execution

HyperEVM employs a "dual-block architecture" to address the trade-off between speed and capacity. It processes a fast small block once per second, with a gas limit of 2 million, allowing regular transfers and transactions to be completed almost instantly. At the same time, it processes a large block once per minute, with a gas limit of 30 million, providing builders with the space to handle heavyweight tasks, such as deploying large smart contracts or minting a large number of NFTs. The chain's block delay is less than one second, supporting up to 200,000 orders per second.

Although HyperEVM has the advantages of high throughput and low latency, its transaction fees are always higher than those of Ethereum L2 networks, especially during periods of on-chain congestion. The chart below compares the median daily transaction fees of HyperEVM and seven L2 networks.

It is worth noting that HyperEVM fees spike significantly during peak activity (over $0.30 per transaction).

HYPE is the gas token on HyperEVM, which adopts an improved version of Ethereum's EIP-1559 burning mechanism to destroy base fees and priority fees. The chain is EVM-compatible, enabling teams to easily redeploy EVM smart contracts on HyperEVM. Since its launch, over 55,000 HYPE tokens have been destroyed, accounting for 0.006% of the total HYPE supply. In contrast, over 367,000 HYPE have been destroyed on the HyperCore platform due to spot trading fees. At the current market price of HYPE at $39.12 per token, this destruction means that more than $2.15 million worth of HYPE has been destroyed since its launch. On May 26, the daily destruction peaked at 5,849 HYPE (approximately $226,000), coinciding with a surge in contract deployments and user activity. As activities on HyperEVM continue to expand, its contribution to the total consumption of HYPE will significantly increase, shifting from marginal consumption to a substantive driver of long-term supply reduction.

Since its launch in February, HyperEVM has processed over 30 million transactions, with daily trading volume steadily increasing in the second quarter. In June, the daily trading volume peaked at 411,120 transactions, meanwhile, several key technologies were released, and on-chain NFT and memecoin trading volumes also showed an upward trend.

Technical Upgrade

When HyperEVM went live, it only had very basic functions, including spot transfers of HYPE with HyperCore and packaged HYPE contracts for DeFi applications. This was a very rudimentary release, and the chain lacks many key features that should distinguish it from other general-purpose Layer-1s, the most notable of which is the integration with HyperCore.

In the announcement, the team stated that one of the reasons for releasing in such a raw state is to ensure that everyone can "access equally and start in a fair competitive environment". Additionally, the phased rollout strategy allows them to gradually upgrade the system more safely while integrating user feedback in real time. According to the development team of HyperEVM, the lack of完善的工具 has indeed caused some resistance, but it has not hindered their development progress.

Since its launch, the team has implemented several technical updates to HyperEVM, including:

March 25: HyperCore connects with HyperEVM, enabling users to trade any token from one chain on another chain.

April 30: Launch precompiled reading to enable HyperEVM smart contracts to read state from HyperCore.

May 26: The block duration has been halved to 1 second, enhancing HyperEVM throughput. Improving throughput remains the team's top technical priority, and block time is expected to be further reduced.

June 26: The HyperEVM block has been updated, removing the previous sorting of only posted orders to improve integration with HyperCore.

On July 5, HyperEVM was updated with a new precompiled program called CoreWriter. This allows HyperEVM contracts to directly write to HyperCore, including functions such as placing orders, transferring spot assets, managing the treasury, and staking HYPE. This move upgrades HyperEVM from a chain that can only read updates from HyperCore to a chain that can directly update the state of HyperCore, which will be a significant advancement for the unique functionalities of HyperEVM (further discussed below). The team announced the first upgrade of CoreWriter on July 2, and it was officially deployed three days later (mainnet updates are typically deployed on Saturdays).

Although CoreWriter represents an important step towards unification for HyperEVM and HyperCore, it also has some limitations. Most notably, write operations performed through CoreWriter are not atomic operations (Deep Tide Note: in multithreaded programming, operations that cannot be interrupted by the thread scheduling mechanism; once started, they run until completion), which means that smart contracts cannot confirm whether orders or state changes on HyperCore are successful in a single transaction. This asynchronous design is intentional, aimed at minimizing front-running, but it poses challenges for more complex or precision-dependent trading strategies. Therefore, while CoreWriter allows for new types of applications, its early implementations are more suited for use cases that can tolerate asynchronous execution or have a high success rate, such as staking, vault deposits, and simpler programmatic interactions. Given the complexity of interactions between HyperEVM and HyperCore, the Hyperliquid team will continue to iterate and update, gradually unlocking new features to ensure they do not affect the functionality of HyperCore.

The application ecosystem of HyperEVM

Since its launch, the HyperEVM ecosystem has developed rapidly, with over 175 projects publicly building on its chain, and many more projects being built in secret. Developers are the core of any emerging ecosystem, and Hyperliquid has attracted a large number of powerful developers due to its unique architecture and integration with HyperCore. HyperCore is one of the most liquid on-chain exchanges, with a large user base that can easily migrate to HyperEVM. We have communicated with many teams that previously worked on other chains and are now building on HyperEVM. They repeatedly emphasize that the decision to migrate stems either from ongoing user demand or from the need for applications to have more liquidity to operate effectively. Moreover, unlike many other Layer-1 ecosystems, Hyperliquid can attract developers without a dedicated incentive/funding program. It has been proven that the success of HYPE, combined with the anticipation of future airdrops (which account for 42% of the remaining supply), is sufficient to provide enough incentives.

The total locked value of HyperEVM (TVL) has steadily risen to rank tenth in the L1 leaderboard since its launch. The growth of TVL is primarily concentrated in several key protocols (which will be detailed below). Importantly, this growth has occurred without any liquidity mining activities or ecosystem incentives. While most of Hyperliquid's users and trading activity still take place on HyperCore, HyperEVM is now positioning itself as the DeFi settlement layer for the entire stack. With CoreWriter about to unlock write access to HyperCore, TVL will transition from passive capital (idle lending) to active capital, trading with the real-time perpetual contract market, vaults, and order books.

As shown in the figure below, the HYPE tokens held by the ecosystem aid fund (25.79 million) still exceed the total HYPE tokens of the HyperEVM chain (approximately 25 million). This imbalance indicates that HyperEVM is still in its early stages. With the increase in on-chain usage, we expect more idle funds to migrate to efficient DeFi use cases.

Although HyperEVM was launched as early as February, the deployment of smart contracts on HyperEVM did not really begin until mid-May. This was mainly due to several reasons. The lack of ERC-20 support, a block explorer, or a reliable indexer at the time of HyperEVM's launch posed many restrictions for developers. Additionally, the Hyperliquid team provided almost no advance notice about the launch time of HyperEVM, resulting in many teams only starting full development and deployment of contracts after HyperEVM went live. With the gradual release of core infrastructure and tools (such as cross-VM asset bridges, contract indexing, and verification tools) in March and April, the deployment of smart contracts began to accelerate. With the launch of CoreWriter, we expect that as applications update their features and products hit the market, the deployment of smart contracts will surge again.

Protocols with high TVL rankings

HyperLend is the project with the highest TVL on HyperEVM, boasting $487 million, and is the main lending protocol of HyperEVM. It offers many standard lending features, such as core pools, allowing for the provision or borrowing of multiple tokens within a single pool; efficiency mode, which allows users to borrow related assets with higher TVL; and isolated pools, which isolate risks to specific token pairs. On June 10, HyperLend announced a shift in focus towards integration with HyperCore. With this latest update, position liquidation can now be done directly on HyperEVM, as well as through cross-chain execution on HyperCore. This is one of the first major integrations between HyperEVM and HyperCore and is likely what the founders of Hyperliquid envisioned when launching HyperEVM. Through the HyperCore integration, HyperLend now offers three different liquidation methods for liquidators. For a complete overview of HyperLend's liquidation processes, check out the team's post here. The team also hinted that they are developing additional products utilizing the CoreWriter version, but no details have been released yet.

Felix ranks second with a TVL of $340 million and also offers a range of on-chain lending products. The application has two core primitives: a collateral debt position market and a vanilla lending market. Felix leverages the EVM compatibility of Hyperliquid as its backend infrastructure, utilizes Liquity's v2 architecture for its CDP stablecoin feUSD, and employs Morpho's tech stack for its vanilla lending market. In April of this year, Felix announced the launch of USDhl, a fiat-backed stablecoin being developed in collaboration with the stablecoin platform M0. According to publicly available on-chain data, since its launch, Felix's stablecoin products have contributed over $100 million in stablecoins to the HyperEVM ecosystem, with the majority ($75 million) coming from feUSD. Felix also plans to integrate liquidation features on HyperCore after the release of CoreWriter.

HypurrFi is the third-largest lending application on Hyperliquid, with a total locked value of (TVL) reaching 318 million USD. It self-identifies as the "debt infrastructure provider" for Hyperliquid. In addition to lending services, HypurrFi also offers over-collateralized stablecoin USDXL, a built-in decentralized exchange (DEX), and a yield vault for users to deploy their assets. Following the decoupling of the USD to yen (USDXL) in May, the team has reduced the issuance cap of this stablecoin to 5 million USD while working to implement a more robust peg mechanism.

HyperSwap and KittenSwap are the main AMM decentralized exchanges on Hyperliquid (DEX), and they rank as the fourth and fifth largest applications based on total locked value (TVL). They draw inspiration from common EVM AMM designs and provide standard and concentrated liquidity positions similar to Uniswap. KittenSwap also adopts Curve's ve(3,3) model. The release of CoreWriter will significantly enhance their functionality, allowing these two DEXs to integrate the HyperCore order book, enabling users' orders to be routed through either the DEX or the order book for optimal execution.

Unit Protocol is the asset tokenization layer of the Hyperliquid ecosystem, supporting cross-chain access to mainstream cryptocurrencies such as BTC, ETH, and SOL on HyperCore and HyperEVM. Unit operates a decentralized guardian network that uses a "locked minting" system to issue native spot assets without relying on centralized custodians. As of July 1, Unit has deployed over $100 million in BTC and $13 million in ETH on HyperEVM.

In addition to the examples mentioned above, many teams are developing products that rely on CoreWriter integration. Here are some examples:

Kinetiq is a liquidity staking protocol on Hyperliquid that operates on HyperCore and HyperEVM. It allows users to stake the native HYPE tokens on HyperCore and earn kHYPE, a liquidity staking token that can be used in DeFi applications on HyperEVM. Kinetiq employs an oracle-based autonomous validator selection system that dynamically delegates HYPE to the highest-performing validators, optimizing returns and ensuring network security. To facilitate staking operations between HyperEVM and HyperCore, Kinetiq will leverage CoreWriter to provide convenient integration and liquidity for staked assets. Just days after the release of CoreWriter, the team has indicated plans to launch the product on July 15.

Sentiment is a decentralized lending protocol on HyperEVM that allows users to borrow and lend assets with customizable leverage. It enables users to stake assets (such as Kinetiq's kHYPE or other HyperEVM tokens) to borrow stablecoins like USDC at competitive rates, thereby facilitating strategies such as leveraged liquidity mining. The smart contracts of Sentiment are about to interact with HyperCore through CoreWriter, allowing real-time access to Hyperliquid's on-chain order book for collateral valuation and liquidation management.

HyperDrive and Hyperwave offer a tokenized version of HLP (a community-owned protocol library that executes market-making and liquidation strategies on HyperCore). The update of CoreWriter will enable these projects to more easily integrate HLP into the evolving DeFi ecosystem of HyperEVM.

Liminal is a Delta neutral yield protocol built on HyperCore. Liminal utilizes Hyperliquid's high-performance trading infrastructure to execute automated, market-neutral strategies and captures funding fees from the perpetual futures market. Its non-custodial design ensures users retain control over their funds, while institutional accounts leverage Hyperliquid's native proxy system to ensure the security of trade execution. The release of CoreWriter will ultimately enable the team to deploy HyperEVM contracts for users to manage positions on HyperCore.

Rysk is a decentralized options trading protocol based on HyperEVM that transforms covered call options into highly liquid, tradable primitives. It allows users to realize gains in advance while enabling advanced options trading within the Hyperliquid DeFi ecosystem. Rysk leverages the HyperCore API to hedge buyer options flows in real-time, directly on-chain, but the team plans to update the stack to integrate CoreWriter. This will reduce the execution risk of covered call options and provide users with greater transparency. The team is also exploring other options to enable users to build their own custom trading strategies using HyperEVM and CoreWriter, combining options with perpetual options.

Outlook

HyperEVM has been online for nearly half a year and possesses all the elements to become a general-purpose L1 platform, complementing successful perpetual contract platforms. Other emerging L1 platforms require large incentive schemes and truly novel applications to attract users and developers, while HyperEVM has built-in access to both, allowing developers to focus on product development and innovation.

The founder of Hyperliquid, Jeff Yan, recently stated in a podcast: "(Hyper) EVM in the entire financial sector is like AMM in the entire trading sector." Although HyperCore is the main building block of the Hyperliquid ecosystem, it cannot meet all the use cases built on the perpetual contract exchange (perps exchange). In the short term, HyperCore may still be the primary trading hub, but we expect that with improvements in blockchain performance and tools, as well as the maturation of applications, activities around HyperEVM will accelerate in the coming year. Through vertical integration of the platform, Hyperliquid aims to create a comprehensive financial ecosystem that provides users with a one-stop service and maintains the stickiness of liquidity.

The newly released CoreWriter is an important catalyst that will accelerate the development of HyperEVM through comprehensive integration with HyperCore. For the first time, it will allow applications on HyperEVM to write directly to HyperCore, enabling seamless interaction between the two environments and unlocking more powerful and coordinated on-chain applications.

In short, CoreWriter represents an important milestone of HyperEVM, and developers have expressed interest in leveraging this integration to build products that are hard to find elsewhere.