Hyperliquid and Kalshi Partner to Launch "Event Perpetuals," Challenging Polymarket in On-Chain Prediction Market

Executive Summary

Hyperliquid, a prominent decentralized exchange for perpetual contracts, has partnered with Kalshi, a U.S.-regulated prediction market, to introduce "Event Perpetual Contracts" via the HIP-4 proposal. This strategic collaboration aims to establish a new paradigm within the on-chain prediction market, positioning itself as a direct competitor to Polymarket and other existing platforms. The initiative seeks to integrate Hyperliquid's technical infrastructure with Kalshi's regulatory expertise, fostering greater institutional participation in decentralized finance.

The Event in Detail

On September 16, Hyperliquid Improvement Proposal 4 (HIP-4) was submitted by a group including John Wang, Head of Crypto at Kalshi. This proposal introduces "Event Perpetuals" designed to enable prediction markets on Hyperliquid's order book infrastructure. The core innovation addresses limitations of HIP-3, which struggled with binary event resolution due to continuous oracle requirements and a 1% per tick price change limit, making swift settlement impractical. "Event Perpetuals" eliminate the need for continuous oracle feeds and funding payments, with prices determined solely by trading activity. Contracts offer binary payoffs, settling instantly upon event conclusion to reflect market-implied probabilities between 0 and 1. This system is designed to overcome previous infrastructure challenges, such as the 50-minute settlement time required under HIP-3 for a market to move from a neutral 0.5 to zero probability, which created arbitrage opportunities.

Deconstructing Financial Mechanics

The "Event Perpetual Contracts" utilize a unique financial structure. They operate with 1x isolated margin, requiring buyers to deposit collateral equal to their maximum potential loss. Trading occurs within price bands of 0.001 to 0.999. Resolution oracles post final values during specified challenge windows for dispute resolution. Builders who deploy these markets are required to stake 1 million HYPE tokens. With HYPE token valuation implying this stake is over $57 million USD, this high barrier entry is intended to attract institutional-grade participants and ensure the quality and financial orientation of the markets. Additionally, builders can charge up to 50% additional fees above base rates. Markets are launched through single-price clearing auctions lasting approximately 15 minutes, where the system evaluates candidate prices to maximize matched volume, with tie-breaking favoring minimal imbalance and prices closest to 50%. Orders execute uniformly at the determined opening price before continuous trading commences.

Business Strategy and Market Positioning

This collaboration represents a strategic move by Hyperliquid to leverage its robust decentralized exchange platform, which has achieved a total value locked (TVL) of $1.46 billion within 30 days and captures 11.47% of Binance's perpetual futures trading volume. By integrating with Kalshi, a U.S.-regulated entity, Hyperliquid aims to bridge traditional finance with on-chain innovation, positioning itself uniquely in the DeFi space. Unlike Polymarket and Kalshi's traditional offerings, which are curated, fixed-payout, and unleveraged, HIP-4's "Event Perpetuals" introduce leverage, permissionless market creation, shared liquidity from Hyperliquid's perp liquidity pool, and on-venue hedging potential. This "Builder Mode" strategy, with its substantial HYPE token staking requirement, echoes strategies seen in traditional finance by attracting sophisticated participants and high-net-worth individuals, aiming for regulated DeFi. The move also contrasts with issues faced by competitors; a recent academic paper highlighted systematic pricing biases on Polymarket, leading to over $40 million in arbitrage profits in a single year due to pricing errors and probability divergences in related markets.

Market Implications and Broader Context

The entry of Hyperliquid and Kalshi into the on-chain prediction market is anticipated to intensify competition, particularly for Polymarket. This heightened competition is expected to drive innovation in product design and user experience within the sector. The partnership signals a broader trend towards the platformization of DeFi protocols, which could encourage increased institutional participation in on-chain markets. For the HYPE token, this initiative is poised to significantly boost its utility and potential valuation, as staking 1 million HYPE tokens becomes a prerequisite for market builders. The collaboration also sets a precedent for the integration of traditional regulated entities with decentralized finance, potentially paving the way for more mainstream adoption of Web3 technologies under regulated frameworks. The introduction of mechanisms like isolated margin and resolution oracles aims to enhance market efficiency and mitigate risks previously observed in more traditional prediction market models, contributing to the maturity of the Web3 ecosystem.