Galaxy Deep Research Report: How Hyperliquid's HIP-4 Upgrade Changes the Landscape of Prediction Markets?

Author: Will Owens, Galaxy Research Analyst

Compiled by: Hu Tao, ChainCatcher

The HIP-4 protocol upgrade of Hyperliquid marks the arrival of a third prediction market model. Among the existing giants in the field, Polymarket has a native consumer-facing discovery mechanism, while Kalshi has a regulated access channel to U.S. exchanges. Hyperliquid announced the launch of HIP-4 in February this year, aiming to bring outcome prediction markets into this "house of all finance," and officially activated the proposal on the mainnet on May 2. It turns out that prediction markets have become one of the most practical new financial primitives for hedgers and speculators in recent years. With the industry standards established by Hyperliquid in perpetual contract execution and infrastructure, it is now poised to compete for market share in event trading volume.

Hyperliquid's user base is distinctly different from that of Polymarket or Kalshi. The latter two have spent years building products that attract non-crypto users, both featuring polished consumer front-ends that allow users to "browse" prediction markets like shopping on Amazon. In contrast, Hyperliquid serves active crypto-native traders through a terminal front-end. While this makes its top-of-funnel user base relatively niche, this group is characterized by: they are traders themselves, the vast majority hold stablecoins, and their wallets are already connected. HIP-4 is tailored specifically for these users.

As of May 25, HIP-4 has expanded from periodic BTC price binary options to "normative markets" covering real-world off-chain events published by validators. The currently launched markets include:

• "On day Y at time Z, will the BTC price be above X?" This is a daily recurring binary contract that resets at 2 AM Eastern Time and settles at expiration based on the BTC mark price on HyperCore.

• "What is the price range of BTC on day X at time Y?" This is a multi-outcome contract launched a few days after the activation of the HIP-4 mainnet, with three ranges (above, between, below) and settles to the same oracle.

• Federal Reserve June interest rate decision (raise, lower, or maintain), settling around June 17.

• May CPI year-on-year growth rate (exactly 4.3% / below 4.3% / above 4.3%), settling around June 10 based on official data from the U.S. Bureau of Labor Statistics (BLS).

• NBA Finals Game 4 (New York Knicks / San Antonio Spurs).

• 2026 NBA Championship (Knicks / Spurs).

• 2026 World Cup Champion (France / Spain / England / Portugal / Brazil / Argentina / Germany, etc.).

As a starting phase, the range of these products is still relatively limited. But the truly intriguing question is: to what extent can HIP-4 go? How does it compare to Polymarket and Kalshi in terms of infrastructure, rates, and distribution channels? And what does its entry mean for this prediction market track, where all parties are racing towards a "fully traded" model from different starting points?

This article will provide an in-depth analysis of HIP-4: what it has achieved, how it compares to Polymarket and Kalshi, and the profound impact it brings to the entire prediction market landscape.

Summary

• Mainnet Launch: HIP-4 officially launched on the Hyperliquid mainnet on May 2, 2026. The proposal was announced on February 2, went live on the testnet that week, and was officially delivered three months later. Now, outcome prediction contracts are alongside perpetual contracts and spot trading under a single margin account on HyperCore (Hyperliquid's native trading engine).

• Timing is Delicate: This launch comes just days after Polymarket completed its migration to a new central limit order book (CLOB v2) and a new stablecoin (pUSD). In the same week, Bloomberg reported that Polymarket is seeking U.S. regulatory approval to bring its flagship exchange into the compliant U.S. domestic market.

• Industry Scale: In April, the historical cumulative trading volume of prediction markets surpassed $150 billion. Kalshi set a record with a nominal trading volume of $14.81 billion (up 13.3% month-over-month) and for the first time surpassed Polymarket in nominal trading volume, taker volume, and number of trades. In contrast, Polymarket's trading volume fell to $9.01 billion (down 14.8% month-over-month).

• Growth Trajectory: Although the sector's monthly trading volume saw its first month-over-month decline in seven months, the long-term growth trend remains strong: monthly taker trading volume has increased more than 17 times over two years. Bernstein analysts predict that the sector's scale will scale from $51 billion in 2025 to $1 trillion by 2030.

• Technical Advantages: HIP-4 is directly embedded into HyperCore (Hyperliquid's on-chain limit order book), sharing the same execution layer and unified margin account with perpetual contracts and spot trading. Sub-second finality, a throughput of about 200,000 orders per second, and cross-margin composability are structural advantages that Polymarket (currently considering migration) and Kalshi (closed centralized infrastructure) cannot replicate without reconstructing their entire products.

• Initial Results: As of the 25th day since launch, HIP-4 has captured 20.1% of the total 24-hour trading volume in the BTC prediction market (HIP-4 at $2.38 million, while Polymarket at $9.46 million).

Current Prediction Markets

In the past 18 months, prediction markets have been one of the most compelling growth stories in the cryptocurrency and broader fintech space. We have mentioned this multiple times, along with variants like influence markets and decision markets. The combined monthly trading volume of Polymarket and Kalshi was around $2 billion in September 2025. By April 2026, the combined nominal trading volume of the two platforms had reached approximately $24 billion, with the historical cumulative total trading volume surpassing $150 billion that month. The total trading volume of active traders has increased more than 17 times in less than two years.

In April, Kalshi's leading advantage began to form structural changes.

Kalshi reported a nominal trading volume of $14.81 billion in April, a 13.3% increase from its previous record in March, setting a historical monthly high. Polymarket's trading volume fell 14.8% to $9.01 billion. Kalshi's leading advantage expanded from $2.5 billion in March to $5.8 billion in April, creating the largest recorded monthly gap between the two platforms. Kalshi also surpassed Polymarket in active trader trading volume ($5.42 billion vs. $1.99 billion) and number of trades (94.4 million vs. 87.4 million), reversing Polymarket's long-standing lead in trade count.

Two structural drivers explain Kalshi's lead. The first is the product mix. In late April, sports contracts accounted for 74.3% of Kalshi's weekly trading volume, while Exotics (the platform's parlay-style composite contracts) pushed that share up to about 85%. The Masters golf tournament alone generated $545 million in nominal trading volume on Kalshi, comparable to the total trading volume of the platform's Super Bowl single game. Kalshi is well-prepared for the NBA Finals and the 2026 FIFA World Cup. That said, sports markets tend to lean towards speculation rather than the "information signal" value generated by geopolitical or tech markets, even though there are some commercial hedging use cases. The second driver is regulatory clarity. Kalshi's status as a CFTC-regulated designated contract market (DCM) brings it distribution partnerships and a faster path to U.S. retail market access than Polymarket.

Polymarket's category mix is more diverse (as of late April, sports accounted for 46%, politics 27%, and cryptocurrencies 22%), which is structurally advantageous during periods of political volatility or major cryptocurrency cycles, but becomes a disadvantage in times lacking political catalysts and dense with sports events. April belonged to the latter. Polymarket's active user count also decreased, from about 733,000 in March to 646,000 in April.

Despite this, Polymarket's economic performance remains strong. Polymarket collected $47.7 million in fees in April. Its user base is still significantly larger than the retail base implied by Kalshi. Polymarket has the deepest non-sports market in the category, an official partnership with MLB announced in March, and a $2 billion strategic investment from ICE, the parent company of the New York Stock Exchange. The platform has been operating a limited, U.S. compliant product through an acquired CFTC-licensed exchange and is working to bring its flagship exchange into the U.S. (more details below). It also completed a major infrastructure upgrade just four days before the HIP-4 launch, on April 28 (CLOB v2 and migration from USDC.e to its new internal collateral token pUSD).

April also marked the first month-over-month decline in the sector's trading volume after setting records for seven consecutive months. Was this a calendar effect (April had no Super Bowl, no March Madness, no NFL playoffs), or the first true demand cap? This question will be revealed as we observe May's performance.

On May 1, the sector's open interest was $1.11 billion, with Kalshi at $630.7 million and Polymarket at $449.9 million (accounting for about 98% of the total share). Limitless, predict.fun, and Opinion each held less than $15 million.

Each major platform is moving towards the same "trade everything from one account" model from different starting points.

Interestingly, there is strategic convergence beneath the trading volume numbers. Reports indicate that both Kalshi and Polymarket are building perpetual contracts. Hyperliquid has built outcome markets through HIP-4. Each major venue is moving towards the same "trade everything from one account" model from different starting points.

HIP-4 Mechanism

HIP-4 adds outcome markets to HyperCore (Hyperliquid's on-chain trading engine). These are fully collateralized binary instruments that settle to 0 or 1 at expiration based on whether discrete real-world events occur. The mechanism is simple and familiar for prediction market traders: buy "yes" at price P. If the event occurs, the contract settles to 1, and you gain (1 - P) in profit. Buying "no" works the opposite way. The maximum loss is always your entry cost. No leverage, no liquidation. According to the Coinbase/Circle AQAv2 arrangement, USDC is becoming the consistent quote asset across Hyperliquid markets; normative HIP-4 outcome markets settle in USDC, while USDH issued by Native Markets is being phased out.

To deploy a market, builders must stake 1 million HYPE, then define the event title, resolution time, oracle source, and an optional dispute window. The 1 million HYPE stake applies to markets deployed by builders. Normative markets are directly published by a collection of validators without requiring builders to stake, with deployment and settlement managed by on-chain validator voting.

A one-time, approximately 15-minute single-price clearing auction opens the market and clears at a price that maximizes matched volume. This is followed by continuous limit/market order trading, with prices restricted between 0.001 and 0.999 before expiration. At settlement, the oracle publishes 0 or 1, and USDC is automatically paid. The profit and loss card looks similar to perpetual contract trading, except the title is a market question rather than an asset code, and your position size is represented as a number between 0 and 1 rather than a nominal amount leveraged. If the result is disputed, the dispute window delays final settlement.

A noteworthy technical detail: each outcome market has two tokens ("yes" and "no"), but their order books are merged to share liquidity. An order to buy "yes" at price P is equivalent to an order to sell "no" at price 1-P. Under the merged order book, price-time priority generalizes to price-edge-time priority. This means that at the same merged price level, pending sell orders will execute before pending buy counterpart orders. For advanced users, balances can be manually split and merged between primary and secondary edges. These are mostly abstracted at the API level, but this is precisely what allows HIP-4 markets to quote tight spreads with relatively thin nominal liquidity.

HIP-4 charges zero fees for opening positions. Fees are only charged when closing, destroying, or settling. (In fact, during the initial testing phase, all outcome market fees are zero.) For traders, predicting the future on Hyperliquid is much more economical than on Polymarket and Kalshi, which charge significantly higher fees on winning positions. This fee design also directly connects to Hyperliquid's tiered fee structure (outcome market trading volume counts towards tier calculations within the protocol), meaning active prediction market traders qualify for lower rates in their perpetual contract trading through the same unified account.

The first active contract covers a recurring daily BTC price threshold event that resets at 2 AM Eastern Time. The market essentially asks, "Will BTC be above X at a certain date and time?" Yes or no. Within days of the mainnet launch, Hyperliquid added multi-outcome markets, starting with a recurring BTC price range contract that settles daily into three ranges (up, down, within). Planned categories for expansion include politics, sports, macro data releases, cryptocurrencies, and entertainment.

On May 25, normative market collections expanded to include off-chain events. Hyperliquid validators now directly publish markets using automated news push software that runs as part of the chain, with deployment and settlement managed by on-chain validator voting. The first batch of off-chain markets includes the June Federal Reserve interest rate decision (change or no change, settling around June 17), May CPI year-on-year (around 4.3% with three buckets of outcomes, settling around June 10 based on U.S. Bureau of Labor Statistics data), and the UEFA Champions League football champion (Paris Saint-Germain or Arsenal). Settlement remains within a closed loop on Hyperliquid L1: no external oracles, no UMA-style optimistic dispute layers (arguably Polymarket's Achilles' heel), only validators voting based on predefined rules and automated pushes.

The natural response to HIP-4 is to compare it with HIP-3 (the framework Hyperliquid provides for builders to deploy perpetual contracts). Both involve builders staking HYPE to deploy markets on HyperCore. Both share the same matching engine and order types. However, these two primitives have structural differences that are significant for what each can trade.

HIP-3 perpetual contracts use continuous oracles that update with about 1% price deviation limits; this design is suitable for ongoing leveraged trading of assets with continuous price discovery. This works for stocks, forex, commodities, and cryptocurrencies, which are the categories that trade.xyz and other HIP-3 deployers have already established. But it does not work for discrete events.

A perpetual contract cannot clearly express questions like "Will the Federal Reserve lower interest rates?" or "Will Trump win in Oregon?" Its returns are not continuous, nor are the oracles, and there is no funding rate that allows the contract to converge on the correct answer.

HIP-4 uses fixed range settlements, with no funding rates and no liquidation engines. These contracts are limited to their entry premiums and rely on a single oracle publication rather than streaming price feeds. This is why HIP-4 must exist as a standalone proposal rather than as a sub-function of HIP-3.

The most powerful aspect of HIP-4 may be that it allows traders to operate across other parts of their Hyperliquid accounts. The unified margin unlocks several specific use cases that no independent prediction market platform can match without a complete product rebuild.

First is the discrete event hedging of perpetual contract books. A trader holding a long ETH perpetual contract before a Federal Reserve meeting historically had only two choices: reduce their position or accept binary risk exposure. HIP-4 introduces a third option: buying "yes" or "no" contracts for the event itself within the same margin account. The outcome position partially offsets the directional risk of the perpetual contract without closing it. For example, holding a $10,000 long ETH-PERP position before the Federal Reserve decision can be paired with a $1,000 "no" contract for "Will the Federal Reserve lower interest rates?" If the Federal Reserve maintains rates and ETH drops, the outcome position will pay (1 - P) and offset some of the losses from the perpetual contract. If the Federal Reserve lowers rates and ETH rises, the trader loses the premium of the outcome position but retains the upside potential of the perpetual contract. The hedge resides in the same margin account and settles with the same collateral.

Second is the market maker hedging for discontinuous risks. A delta-neutral perpetual contract market maker faces tail risks from one-off events (regulatory announcements, protocol upgrades, sudden macro decisions), and streaming perpetual contract hedges cannot clearly express these risks. A market maker quoting ETH or BTC perpetual contracts before CPI data releases can use HIP-4 contracts to hedge the discontinuous parts of the risk without moving funds to a separate platform or running a parallel options book. This is a real improvement in risk management for professional liquidity providers on Hyperliquid.

For a user already trading perpetual contracts and spot trading through the same account on Hyperliquid, the cost of entering prediction markets is essentially zero.

How Does HIP-4 Compare?

HIP-4, Polymarket, and Kalshi are now competing for the same end state: a place where a user can express views on any event from a single account. But they start from different products, different infrastructures, and different regulatory statuses. The table below outlines the structural differences. Subsequent sections will elaborate on the most important dimensions of the gaps.

User Experience and Discovery

Polymarket and Kalshi have spent years building consumer-facing front-ends, and both have proven effective. They simply serve different audiences and generate market depth in different ways. Kalshi's depth comes from programmatic, vertically specific market generation. An NBA basketball game on Kalshi will not just generate one market. Instead, it will produce markets covering player proposition bets, point spreads, and composite contracts.

Multiplying this by each major sports league, daily weather and economic data releases, and macro data release cycles, Kalshi's number of active contracts can reach hundreds of thousands. The result is immense depth within a limited set of CFTC-licensed verticals. The application is sports-first (sports currently drive about 85% of weekly trading volume, including Exotics), and its deposit process is the most streamlined in the field. Deposit in dollars, no crypto wallet needed, no cross-chain bridge, fully regulated (provided users don't mind KYC). Kalshi has launched on Robinhood and Coinbase apps, bringing prediction markets to millions of retail traders who never considered downloading a dedicated app. This combination of programmatic depth, regulated deposits, and embedded distribution is what allowed it to surpass Polymarket in trading volume in April.

Polymarket, on the other hand, has depth in breadth. Operating outside U.S. commodity trading rules, Polymarket can list long-tail markets that Kalshi cannot legally touch: hyper-specific international elections, diplomatic policy events, court rulings, Twitter controversies, crypto protocol upgrades, and more. Its category mix is the broadest in the industry: politics accounts for about 27% of weekly trading volume, sports 46%, cryptocurrencies 22%, with culture and macro filling the rest. Its front-end is built around a browsing experience, featuring curated categories, "trending" markets, a social layer for users to discuss active markets (comment sections), and a deposit process that guides users through their first trade. The result is 646,000 monthly active users in April, along with the deepest non-sports liquidity in the category.

These are different products serving different users. If you want to day trade NBA player props or tiny fluctuations in federal funds futures, Kalshi has programmatic depth. If you want to take positions on the UK election or celebrity court rulings, Polymarket is currently the only choice. Both are effective. Neither will lose their respective audiences to the other in the short term. It will be interesting to see which can leverage institutional capital flows. Prediction markets as institutional hedging tools may be the most profitable market for the platforms, and Kalshi seems best positioned to do so.

HIP-4 lacks these. Outcome markets are crammed into Hyperliquid's trading terminal, alongside perpetual contracts and spot trading. There is no "browse markets" view, no trend pushes, no social layer, no distribution partnerships with retail brokers, and no programmatic market generation across sports or macro. Fairly speaking, HIP-4 has just launched. Discovery features run through builder front-ends like Outcomexyz and Stratium, but the footprints of these early projects are still small.

This is a real recent gap.

The question is whether the builder ecosystem can fill this gap quickly enough to make an impact. Hyperliquid's framework explicitly invites third parties to deploy markets and build front-ends on top of HIP-4, which is how perpetual contracts have expanded on the platform through HIP-3 (with trade.xyz currently occupying most of the open interest in HIP-3). If a comparable builder ecosystem emerges for outcome markets on Hyperliquid, the discovery gap may close faster than expected. If not, HIP-4 may remain a niche product in active traders' accounts.

Infrastructure

HyperCore is the most powerful part of HIP-4's claim and the dimension where it differs most from Polymarket and Kalshi. Hyperliquid's execution layer is an on-chain CLOB with sub-second finality, a throughput of about 200,000 orders per second, and a unified margin engine handling daily billions in perpetual contract trading volume. HIP-4 connects to this infrastructure without modification. Outcome markets share the same matching engine, order types, wallets, and collateral as perpetual contracts and spot trading.

Currently, Polymarket is operating a newly rebuilt central limit order book on infrastructure not designed for it.
Polymarket operates on Polygon (an Ethereum Layer 2 blockchain). The CLOB v2 launched on April 28 is a complete rebuild of the matching engine and migrated to pUSD as the internal collateral token, which is a meaningful upgrade. However, Polymarket's reliance on the chain remains structural. The platform's VP of Engineering, Josh Stevens, has publicly acknowledged that achieving the performance levels required for an active exchange would mean migrating to a dedicated chain. Whatever Polymarket does next in terms of infrastructure will require multiple quarters of engineering work and may necessitate some form of chain migration. Currently, Polymarket is operating a newly rebuilt CLOB on infrastructure not designed for it.

Kalshi operates on centralized exchange infrastructure. It is fast, stable, regulated, and closed. Kalshi cannot natively integrate with on-chain products, cannot provide cross-margining with cryptocurrency positions, and cannot allow users to self-custody collateral. Its trade-off lies in frictionless dollar deposits and regulatory clarity. For institutions that require CFTC-regulated counterparties, Kalshi's infrastructure is its hallmark.

Ranking among the three: HyperCore is the most flexible execution layer in the category, Polymarket is in a transitional phase, while Kalshi is designed as a closed system. But infrastructure alone does not win trading volume. It must be combined with markets, users, and discovery capabilities. This is precisely what HIP-4 still needs to prove.

Oracle Scope

At the mainnet launch on May 2, HIP-4 was limited to HyperCore's price feeds. The only markets it could parse were variations of "What is the price of BTC at time T?" The initial two markets, the daily binary contract and the multi-outcome range contract, were both BTC price events. The expansion on May 25 changed this. Hyperliquid validators now directly publish off-chain normative markets, running automated news push software as part of regular chain operations, with deployment and settlement managed by on-chain validator voting. Parsing remains a closed loop within Hyperliquid L1. There are no UMA-style optimistic dispute layers, nor integrations with Chainlink or Pyth.

This is a third path that the category has never seen before, worth noting. Polymarket has UMA's optimistic oracles, which parse any real-world event through staking and challenge mechanisms. It is permissionless and universal, which is why Polymarket can list markets on any tweet, foreign election, court ruling, or protocol upgrade on demand. Kalshi has CFTC-certified parsing sources, with each contract going through a filing process that approves the market and parsing methods. The oracle layer is slower and more rigid than UMA's, but it is highly defensive in regulatory terms.

Hyperliquid's validator-as-oracle model is curatorial rather than permissionless, meaning it cannot match UMA's long-tail coverage. The validator collection must actively choose to publish each market, which filters quality but limits throughput. Long-tail markets (specific foreign elections, court rulings, any events with social controversy) require a second phase of permissionless deployment with broader oracle integration, which has yet to launch. Until this second phase arrives, HIP-4's market catalog will remain limited to what validators can parse, which restricts the number of markets even as category coverage expands.

Regulatory Landscape

These three platforms occupy three different regulatory positions, with asymmetries more significant than my table can capture.

Kalshi is a CFTC-regulated designated contract market (DCM) with frictionless access to the U.S. retail market. This status is what unlocks distribution partnerships with Robinhood and Coinbase. However, Kalshi's sports contracts are facing legal challenges from states claiming jurisdiction over such bets. Massachusetts has issued a cease-and-desist order. Wisconsin has filed a lawsuit. Venture capital firm a16z (also a supporter of Kalshi) sent a letter to the CFTC in April supporting federal preemption, which is a notable industry intervention, but the issue remains unresolved. If federal preemption is established, Kalshi will retain its largest growth category. If not, the sports business that drove 85% of Kalshi's trading volume in April will be fragmented state by state.

Polymarket is seeking a full return to the U.S. market. It already has a domestic foothold: after acquiring a CFTC-licensed exchange (QCEX) last year, Polymarket launched a limited, U.S. compliant product. But this version is like a popcorn stand next to an overseas flagship store, with only a tiny portion of the market, liquidity, and category breadth. The real prize is bringing the flagship store itself into the U.S. In the week of HIP-4's launch, reports indicated that Polymarket was seeking CFTC approval to achieve this goal. If approved, Polymarket would gain access to the U.S. retail market that has been elusive for years, presenting its deepest markets and broadest category coverage to U.S. traders, rather than the simplified version currently operating in the U.S.

HIP-4 inherits Hyperliquid's broader regulatory risk exposure, similar to the legal gray area that the rest of crypto-native DeFi occupies. Reports indicate that the Chicago Mercantile Exchange Group and the parent company of the New York Stock Exchange, ICE, have urged U.S. regulators to review Hyperliquid. According to news reports, these two exchanges have told the CFTC and lawmakers that Hyperliquid's decentralized environment poses risks of manipulation and evasion of sanctions, particularly concerning the 24/7 commodity and crude oil contracts running under HIP-3, which have long been dominated by CME and ICE.

On the same day Bloomberg reported this, the price of the HYPE token fell.

The broader regulatory picture is also changing. On May 14, the Senate Banking Committee passed the CLARITY Act with a bipartisan vote of 15 to 9, allowing the bill to be submitted for full Senate consideration. This legislation would create a federal framework that classifies most digital assets as commodities under CFTC jurisdiction, formally extending the CFTC's power over derivatives to include cryptocurrency spot markets. The bill also includes provisions to protect non-custodial software developers from money transmission laws (see Section 604 of the CLARITY Act, known as the "Blockchain Regulatory Certainty Act" or "BRCA"). Although this safe harbor provision is designed for developers of Tornado Cash and Samourai-style software (programmers who write and release open-source software but do not maintain ongoing operational control), Hyperliquid presents a different factual pattern (a trading venue actively operating with on-chain settlement), however, if its developers are determined to be "non-controlling" in the context of Sec. 604, this could be beneficial for Hyperliquid. But the key is that Hyperliquid needs to address Chapter 3 of the CLARITY Act, particularly the Sec. 301 framework, which involves securities law and Bank Secrecy Act obligations.

This includes exemptions for decentralized finance trading book applications, but Sec. 301(a)(2)(A) stipulates that these exemptions are revoked if the protocol is determined to be a non-decentralized trading protocol. If Hyperliquid fails to qualify for exemptions, and the regulatory body enforcing the act determines it to be a non-decentralized trading protocol, then Hyperliquid will need to comply with Bank Secrecy Act obligations under Sec. 301(b)(d)(D).

During the Senate Banking Committee's deliberations on May 14, some amendments were made to the latest text of the CLARITY Act, and the latest publicly available version does not include these changes, with reports indicating that some of them pertain to BRCA. Additionally, negotiations regarding the wording of the CLARITY Act are ongoing, with issues related to illicit financial activities and BRCA being unresolved priorities. Therefore, all of this could change between the time I wrote this and the final passage of the bill into law.

In addition to BRCA and BSA-related issues, Hyperliquid also hopes that the CFTC's emerging acceptance of perpetual contracts will include on-chain perpetual contracts. This has not yet happened, and it is unclear if it will, but Hyperliquid founder Jeff Yan met with lawmakers in Washington with the Hyperliquid Policy Center in mid-May.

All of this indicates that there are still many regulatory questions about whether Hyperliquid can replicate its offshore dominance in the U.S.

Summary of the four dimensions in this section: Polymarket leads in oracle scope and consumer user experience, Kalshi leads in regulated U.S. distribution and sports, while HIP-4 leads in infrastructure and unified margin, with its regulatory path potentially opening up. None of the three dominates across all four dimensions. What happens as each platform expands into the other's territory will be the main storyline for this category in the next 12-18 months.

Risks

HIP-4 launched 25 days ago, entering a highly competitive category, and the argument that it cannot develop into a meaningful product is very real. The following risks are most likely to determine whether HIP-4 can expand beyond a niche function in traders' terminals.

Normative Market Breadth

The remaining limitation is breadth rather than category coverage. Both HIP-4 and Polymarket curate market launches, so this is not a distinction between curation and openness. The difference lies in what each parsing layer can support. UMA's optimistic oracles can parse any real-world event, so Polymarket's curation is a product choice rather than a technical ceiling; it can list almost unlimited long-tail markets as needed.

HIP-4's validator-as-oracle model can only parse what the validator collection can clearly adjudicate, so its curation part is forcibly determined by the parsing model. The validator collection must actively choose to publish each market, as mentioned, this arrangement filters quality but limits throughput. Long-tail markets (specific foreign elections, court rulings, any events with social controversy) require a second phase of permissionless deployment with broader oracle integration, which has not yet launched. Before this second phase arrives, HIP-4's market catalog will remain limited to what validators can parse, which restricts the number of markets even as category coverage expands.

Discovery Gap

Hyperliquid is a trading terminal, not necessarily a consumer product. Outcome markets lack a native browsing layer or social component. Its bet is that builder front-ends can fill this gap as trade.xyz expanded HIP-3. If they cannot, HIP-4 will remain a feature for active Hyperliquid traders, never reaching the audience scale established by Polymarket and Kalshi. Discovery is also the only risk that Hyperliquid cannot solve on its own. It relies on third parties to choose to build. What favors Hyperliquid is that it is one of the most attractive places for builders in the crypto space.

Validator Centralization

Hyperliquid operates on 24 (soon to be 27) validators, and the chain's history includes the JELLY delisting event in March 2025, where the team froze a market during its operation. This precedent is well-known among crypto-native users and represents the "trust" version under which Hyperliquid operates. For prediction markets that settle to binaries and where dispute resolution is critical, this is a real execution risk source. The expansion on May 25, in principle, makes this risk more specific: normative market parsing now relies on explicit validator voting rather than external oracle publication.

In practice, the validator curation model is preemptively avoiding this risk. The initial normative markets (Federal Reserve change/no change, CPI around fixed numbers, binary UEFA Champions League finals) were designed to have clear parsing results tied to a single authoritative source. More difficult cases (post-settlement macro data revisions, disputed sports event results, ambiguous Federal Reserve statement wording) are the types of markets that the validator collection has an incentive not to publish. The closed-loop design eliminates the risk of third-party oracle disputes but concentrates parsing power within the validator collection, and early market choices indicate that Hyperliquid understands this trade-off.

Regulatory Risk Exposure

Like the rest of the category, Hyperliquid operates in the same DeFi gray area. The CLARITY Act provides a seemingly reasonable path to legal operation in the U.S., but it has not yet become law. Until then, HIP-4 inherits Hyperliquid's current status as an offshore, unregulated venue, and the lobbying efforts of CME/ICE indicate that this risk is real, not theoretical. Regulatory actions against Hyperliquid, or the final version of the CLARITY Act excluding on-chain derivatives or merely failing to resolve its legitimacy issues, would severely limit HIP-4's addressable market. The outlook for the next 12-24 months is brighter than it was six months ago, but the recent reality has not changed.

Convergence Pressure

This risk became non-hypothetical on May 29, when the CFTC approved Kalshi's Bitcoin perpetual contract (BTCPERP), which Kalshi then set out to launch. Kalshi has been signaling this move since April, but the approval has turned the plan into a real competitive threat. This is the first CFTC-regulated perpetual contract in U.S. history, and the framework is clear: a regulated, domestic alternative to replace the offshore platforms dominating the perpetual contract market, with Hyperliquid at the forefront. The pressure to "trade everything" is now clearly reciprocal. HIP-4 is Hyperliquid's entry into prediction markets; Kalshi's launch of perpetual contracts directly impacts Hyperliquid's strongest and most defensible product.

Two things have mitigated this threat in the short term. First, Kalshi's approval is currently limited to BTC, and the CFTC is reviewing additional contracts on a case-by-case basis, so this is a single regulated perpetual contract rather than the complete multi-asset book that Hyperliquid operates. Second, the CFTC currently has only one sitting commissioner, Chair Michael Selig, who was appointed by Trump and has advocated for bringing perpetual contracts domestically, making the regulatory stance supportive but also thin and potentially fragile. Reports indicate that Polymarket is also seeking to launch its own perpetual contract product.

But the direction forward is now clear. A CFTC-regulated competitor offering domestic perpetual contracts directly attacks the institutional hedging capital flows, which is the most profitable prize in this category, and it has something Hyperliquid cannot currently offer: U.S. regulatory identity. If Kalshi expands its business beyond BTC before HIP-4 launches permissionless markets and broad category coverage, then the convergence race will tilt towards the existing participant that first operates a complete tech stack under U.S. regulation. In the next 12 months, the landscape will depend more on who can reliably operate a complete tech stack rather than who can best build outcome markets, and Kalshi has fired the first shot.

So What?

The prediction market category is undergoing a structural transformation that most reports overlook. The key story is not the showdown between Kalshi and Polymarket, nor the confrontation between HIP-4 and any existing participant. The key story is convergence. Each major venue is moving towards the same end state: a single account, a single margin engine, all markets in one place. Hyperliquid has built outcome markets on a perpetual contract platform. Kalshi and Polymarket are building perpetual contracts on prediction market platforms.

The race to "trade everything" has now become the defining competitive dynamic of this category, with the prize being the most profitable customer base in crypto-related finance: those who need to hedge and speculate across asset classes, events, and time spans from one venue.

Each platform starts from different moats. Polymarket has consumer distribution and the most flexible oracle layer. Kalshi has U.S. regulatory access and the clearest sports products. Hyperliquid has the best execution infrastructure in crypto and a unified margin engine that a competitor cannot match without completely rebuilding its tech stack.

The question is which moat is the hardest to replicate. In a sense, both Polymarket and Kalshi are trying to build what Hyperliquid already has. CLOB v2 is Polymarket's attempt to build HyperCore on Polygon. Reports indicate that Polymarket is seeking its own chain, which is Polymarket's attempt to build an execution layer equivalent to HyperCore.

Kalshi is a different case. It is already operating a high-performance regulated exchange, and its approval for perpetual contracts on May 29 proves it can launch products. What makes Kalshi hard to replicate is not the perpetual contracts themselves, but the composability around them: achieving cross-margining between perpetual contracts, spot trading, and outcome contracts within a single self-custodied account. Kalshi's closed, centralized design is the source of its regulatory clarity, but it is also the reason that such a unified, composable account cannot emerge. Kalshi can match Hyperliquid on a product level one by one; but it cannot easily match the integrated tech stack.

In contrast, Hyperliquid needs to expand its category coverage and attract a consumer discovery layer. HIP-3 has already shown that the platform can attract builders to use its primitives. Building market and discovery features on top of the execution layer is much easier than rebuilding the execution layer itself, and the unified, composable account is already built by Hyperliquid. This asymmetry favors Hyperliquid, although this advantage is narrower compared to Kalshi.

The key story is not the showdown between Kalshi and Polymarket, nor the confrontation between HIP-4 and any existing participant. The key story is convergence.

We are long on HIP-4 for two reasons:

First, the pace of regulatory framework changes for HIP-4 is faster than most reports suggest. The CLARITY Act passed the Senate Banking Committee on May 14. Jeff Yan and the Hyperliquid Policy Center are actively engaged in this process in Washington. Six months ago, the risk exposure of offshore DeFi seemed permanent. Now, there is a credible path to regulatory clarity in the U.S., and Hyperliquid is positioning itself to seize it.

Second, HIP-4's progress is exceeding expectations. By the 25th day, the protocol had captured 20% of the combined 24-hour trading volume in the BTC prediction market, and the normative market collection published by validators has already covered the Federal Reserve, CPI, and sports events. The validator-as-oracle model is a credible third path between UMA's general parsing flexibility and Kalshi's CFTC-certified rigidity. The second phase of permissionless deployment remains key to unlocking arbitrary builder markets in the long term, but the recent category gap has already closed faster than initially implied at launch.

Hyperliquid has spent two years becoming the standard for on-chain perpetual contracts. It achieved this by first building the infrastructure, then attracting builders, and allowing the consumer layer to assemble itself on top. HIP-4 applies the same playbook to a new product surface. The platform that wins this race will be the one with the hardest-to-replicate execution layer, the fastest delivery from its builder ecosystem, and the most open regulatory path.

In all three aspects, Hyperliquid's case is stronger than current market positioning suggests.