What is Hyperliquid Improvement Proposal 3 (HIP-3)?

Hyperliquid Improvement Proposal 3 (HIP-3) is a protocol upgrade introducing permissionless deployment of perpetual futures markets. It represents a structural shift from validator-operated perps to builder-operated decentralized exchanges, each powered by HyperCore’s high-performance onchain orderbooks.

The proposal establishes clear rules: deployers must stake 500,000 HYPE, pass auction mechanics for additional listings, and manage their own DEX settings. These requirements make HIP-3 both accessible to builders and resilient against malicious or incompetent deployments.

At its core, HIP-3 is not just another feature but a framework that decentralizes perpetual market creation on Hyperliquid. By combining deployer autonomy with validator safeguards, it pushes the protocol toward a modular infrastructure layer capable of challenging the largest players in crypto derivatives.

How Does HIP-3 on Hyperliquid Work?

HIP-3 works by giving deployers operational control over perpetual DEX creation while embedding safeguards through protocol-level structures.

The workflow can be broken down into several functional layers:

• Deployment Process: Each HIP-3 launch creates a standalone perpetual DEX with its own orderbooks and margining, fully integrated into HyperCore infrastructure for speed and solvency guarantees.
• Listing Rules: Deployers may introduce up to three assets without auction costs, but every additional asset must compete in a global Dutch auction held every 31 hours.
• Fee Dynamics: From the user perspective, trading costs are doubled relative to validator-operated perps, while deployers capture a guaranteed 50% fee share to incentivize market maintenance.
• Settlement Tools: The haltTrading function empowers deployers to pause markets, close positions at the prevailing mark price, and later recycle or relaunch contracts seamlessly.
• Risk Controls: Open interest is limited by both notional exposure and position size, with per-asset and aggregate caps preventing destabilizing leverage across the entire DEX.
• Collateral Framework: Any permissionless quote asset can back a DEX, but validator votes can revoke eligibility if an asset no longer meets collateral standards.
• Validator Backstop: To safeguard users, validators retain authority to slash deployers for irregular inputs that endanger correctness, uptime, or systemic performance.

HIP-3 Slashing Explained

Slashing in HIP-3 is a validator-driven safeguard designed to penalize deployers whose actions threaten protocol correctness, uptime, or solvency guarantees. Unlike intent-based systems, HIP-3 slashing focuses solely on the technical impact of deployer inputs rather than their motivations.

The mechanism allows validators to vote on penalties, with outcomes ranging from partial burns of 20-50% to full 100% stake removal. Importantly, slashed HYPE is burned rather than redistributed, preserving neutrality and avoiding perverse incentives among affected traders or validators.

Example: If a deployer misconfigures an oracle that feeds manipulated prices, causing systemic downtime and invalid trades, validators could slash their 500k HYPE stake entirely.

When Will HIP-3 Go Live On Hyperliquid Mainnet?

HIP-3 is currently live on Hyperliquid’s testnet with mainnet-level bug bounties, ahead of its anticipated production rollout. The final launch timeline depends on validator consensus, successful stress testing, and resolution of intentionally planted medium-severity “Easter egg” bugs.

In the meantime, users and investors can engage with the testnet, submit bug reports, and monitor governance discussions for mainnet readiness.

Types of Hyperliquid HIP-3 Markets

HIP-3 markets allow deployers to design diverse perpetual futures exchanges that extend far beyond traditional crypto trading pairs. These markets can be grouped into several broad categories based on their underlying assets and design possibilities:

• Crypto Assets: Permissionless perps on emerging tokens, layer-1s, or niche altcoins that may not qualify for validator-operated listings.
• Commodities: Markets referencing oil, gold, or other resources, using external oracles to bring real-world assets into onchain trading.
• Equities: Tokenized perpetuals on global stocks like Tesla or Nvidia, enabling equity-like exposure directly on Hyperliquid infrastructure.
• Indices: Basket-based perps, such as S&P 500, Nasdaq, or custom crypto indices, giving traders macro-level hedging instruments.
• FX Pairs: Currency markets like EUR/USD or USD/JPY, which benefit from high liquidity and continuous demand in global finance.
• Prediction & Exotic Markets: Yes/no event contracts on prediction markets, leveraged baskets, or novel pair trades that go beyond traditional financial instruments.

Will HIP-3 Benefit Hyperliquid's HYPE Token?

HIP-3 creates direct buy-side pressure for HYPE by requiring every deployer to stake 500,000 tokens before launching a perpetual DEX. At a $45 token price, this equates to a $22.5 million capital lock per deployment, immediately constraining circulating supply.

Hyperliquid already clears more than $300 billion in monthly perp volume and earns around $1 billion in annualized revenue. Should builder-led DEXs capture even a modest portion of this activity, staking-driven scarcity could accelerate well beyond validator-only demand.

Importantly, the upgrade lands in the face of intensifying competition from Aster and Lighter, both seeking traction in decentralized perpetuals. In a bullish scenario where institutions or DAOs lean into HIP-3, supply compression could propel HYPE back toward its $58.4 peak or establish new highs.

Hyperliquid HIP-3 vs HIP-2 vs HIP-1

Comparing HIP-3 with HIP-2 and HIP-1 highlights how each proposal progressively expands Hyperliquid’s functionality and decentralization scope. While HIP-1 and HIP-2 focused on token standards and liquidity, HIP-3 pushes the protocol into permissionless derivatives infrastructure.

HIP-1 introduced Hyperliquid’s native token standard, enabling permissionless fungible assets with onchain spot orderbooks and capped supply rules. It gave builders control over token parameters like decimals, supply, and fees, but its scope was limited to spot markets.

HIP-2 advanced liquidity by embedding Hyperliquidity, an automated strategy similar to Uniswap but integrated directly into native orderbooks. This ensured early HIP-1 tokens could trade against USDC with consistent depth and spreads, even before active market makers joined.

HIP-3 extends decentralization further by allowing permissionless perpetual futures deployment with independent orderbooks, validator oversight, and mandatory HYPE staking. Unlike HIP-1 and HIP-2, which focused on spot tokens and liquidity bootstrapping, HIP-3 transforms Hyperliquid into a modular derivatives infrastructure layer.

Risks of Hyperliquid HIP-3

While HIP-3 unlocks meaningful opportunities for builders and investors, it also introduces new risks that participants should carefully weigh.

These risks can be grouped into several key categories:

• Deployer Mismanagement: Builders control oracles, fees, and leverage settings, so poor design or compromised keys can destabilize their markets.
• Validator Slashing: Irregular inputs that harm protocol uptime or solvency can result in partial or full slashing of a deployer’s 500k HYPE stake.
• Liquidity Fragmentation: Multiple independent DEXs may split order flow across markets, potentially reducing depth compared to validator-operated perps.
• Collateral Vulnerability: Quote assets can lose eligibility through validator votes, forcing sudden migration and disrupting trader confidence.
• Adoption Uncertainty: Although the testnet is live, real demand for builder-run perps on mainnet is unproven and could evolve slowly.
• Smart Contract Bugs: Complex HIP-3 logic may contain vulnerabilities, and despite bug bounties, unpatched exploits could pose systemic protocol risks.

Final Thoughts

HIP-3 turns HYPE staking into productive capital, where every new perpetual deployment reduces circulating supply while anchoring token value to market creation. For the community, it shifts participation from passive trading to active underwriting of liquidity, credibility, and the integrity of on-chain venues.

With native Hyperliquid USDH stablecoin arriving as a native settlement layer, HIP-3 will have a protocol-aligned currency base that magnifies its investor impact and long-term compounding potential.