Summary Riding on the HYPE wave, Hyperliquid Strategies has emerged as one of the better-performing digital asset treasury companies. But a closer look at the fundamentals of both Hyperliquid Strategies and its key HYPE token holding points to some caveats. The token and stock are both priced for a lot of success, limiting the margin of safety available to investors here. Hyperliquid Strategies Inc. ( PURR ), led by Atlas Merchant Capital chiefs David Schamis (CEO) and Bob Diamond (Chairman), is a relatively new digital asset treasury company (DATCo) focused on the Hyperliquid ( HYPE-USD ) token. Like many other DATCos before it, PURR came about by combining with an existing listed company, Sonnet BioTherapeutics, after which it added 12.5m HYPE (at a ~$581m cost) to its balance sheet, along with ~$300m of cash. The underlying asset, HYPE, is unique in the listed space for being a token that accrues value based on fee-funded buybacks, rather than a coin (e.g., Bitcoin ( BTC-USD ), Ether ( ETH-USD ), Solana ( SOL-USD )). These fees come from activity on Hyperliquid, a fast-growing perpetual futures exchange running on its own blockchain. The traction Hyperliquid has seen since its launch is reflected in HYPE’s outperformance - even through a crypto bear market. Coingecko More recently, however, the investment case has seen two material shifts. Firstly, from HYPE, which has seen its price pull back quite significantly along with the rest of the market. Secondly, from PURR stock, which has flipped from an initial discount to a big premium to parity with its underlying net asset value (or mNAV)—unusual in today’s crypto DATCo space, where wide discounts are the norm. Artemis In light of these changes, along with the release of its first quarterly report, it’s worth taking a closer look at PURR. PURR-ing Through The Quarter 1. Status Quo Staking Update. The key P&L highlight from PURR’s latest quarter was the $500k in revenue earned from staking (i.e., participating in the process of validating and producing blocks for the Hyperliquid blockchain) all of its HYPE holdings. Keep in mind this was for just the one month; annualized, this implies a staking yield just below 2%. Hyperliquid Strategies For context, PURR doesn’t run its own node (unlike key peer Hyperion DeFi (HYPD)) and therefore doesn’t earn these staking rewards directly. It does, however, stake its balance via custodian Anchorage, which currently runs one of the largest validators outside of the Hyperliquid foundation. Of note, the Anchorage/Figment node currently yields ~2% - in line with PURR’s reporting after adjusting for calendar effects. Hyperliquid 2. Treasury Management Readthroughs. Elsewhere, the company disclosed that it simultaneously bought back >3m shares (using up over $10m of its $30m authorization) and added ~5m HYPE tokens through early February. This seems counterintuitive at first glance, but consider that PURR’s mNAV was quite volatile through the period. When PURR was trading below mNAV for a short while after its debut (“Fundamental Value > Current Price” per treasury framework), the optimal treasury strategy was indeed to buy shares. And when mNAV turned into a premium, buying HYPE tokens made more sense. Hyperliquid Strategies The first takeaway here, in my view, is that management is quite nimble when it comes to managing the discount. Thus, as long as they have funding, and they do, given the disclosed $125m in “deployable capital” plus a $1bn credit facility, the PURR mNAV should stay well-supported around 1x. Hyperliquid Strategies The other takeaway is that PURR is potentially more active a manager than most DATCOs. Recall from the treasury framework that management commits to buying HYPE when “Fundamental Value > Current Price” and buying PURR when “mNAV Given they have been doing more of the former through early February, the underlying view seems to be that they see HYPE as attractively priced below $40. As such, I’d expect PURR to disclose a lot more token purchases next quarter as well. Hyperliquid Strategies Thinking Through The PURR Investment Case Today 1. No mNAV Margin of Safety. In contrast to other DATCos, I’d emphasize the mNAV less here, given that at the time of writing, PURR is trading slightly above parity. Compare this to comparable ETH and SOL DATCos , many of which have fallen out of favor and trade at big mNAV discounts. In essence, investors don’t get the same safety margin with a HYPE DATCo; underwriting the token itself is, therefore, the key make or break here. 2. Ways to Win with Hyperliquid. So, what is the HYPE thesis? Hyperliquid is an exchange, so core upside really depends on 1) trading activity inflecting higher and 2) fees from that activity accruing to the token. The protocol has ticked both boxes since its launch, so no surprise that the HYPE has been one of the best-performing names in the crypto space. Hyperliquid From here, the protocol is also tapping into blockchain composability for a unique ecosystem lever. Take HIP-3, or Hyperliquid Improvement Proposal 3, for instance, which allows anyone to deploy their own perpetual futures or “perp” markets (crypto and non-crypto) - so long as they stake 500k HYPE. Or “builder codes” that embed fee-sharing into the apps built atop its engine. Hyperliquid Strategies Why does an ecosystem approach make sense? For builders, the incentive is that tapping into the deep liquidity already on Hyperliquid helps get around the hurdles associated with launching a new perp market from scratch. Meanwhile, Hyperliquid earns fees in return, and HYPE holders (including PURR via its staked token holdings) accrue some % of that via fee-funded buybacks. Win-win-win. Hyperliquid Strategies 3. US Volumes at Risk. But for every Hyperliquid thesis that reaches up, envisioning it taking some % slice of overall crypto and non-crypto volumes, there isn’t a lot of downside protection either. Top of mind here is the large % of Hyperliquid volume that likely comes from the US and is, therefore, “at risk” from regulatory blowback. Yes, the protocol officially restricts US users from accessing the “front end” (i.e., the app interface). But they aren’t restricted at the “back end” (i.e., interacting directly with the blockchain). And even with regard to the front end, users can use VPNs to get around IP blocks. Per Similarweb, the US still makes up the largest % of Hyperliquid traffic. Similarweb Will US users migrate away from Hyperliquid when safer alternatives become available? I think so. While Hyperliquid offers the best balance of leverage and liquidity, peace of mind also counts for a lot. As a trader, the last thing you want is your wallet getting flagged when you bridge out of the chain. Meanwhile, alternatives are already popping up. Within the centralized crypto exchange space, Coinbase ( COIN ) launched its own crypto perp product last year and followed that up with 24/7 non-crypto perps in recent weeks. Could other crypto or non-crypto brokers, many of whom don’t yet offer perps, also follow suit soon? I don’t see why not - especially in light of the crypto-friendly political backdrop today. In sum, as more US-regulated perp destinations pop up, I’d expect a significant % of Hyperliquid trading volumes to migrate back onshore over time. 4. DEX Volumes at Risk. Elsewhere, competition for crypto volumes is intense. On the “decentralized exchange” (DEX) or non-custodial side of things, Hyperliquid is still the clear #1 with ~$7.8bn of 24-hour volumes and ~$7.1bn of open interest. Even the #2 player, tradeXYZ, is a HIP-3 deployment built atop Hyperliquid. DefiLlama But Hyperliquid’s leadership is well understood by now. What really matters for a prospective investor is the direction and rate of change. On these fronts, it’s notable that perp volumes on Hyperliquid have actually been in decline ; per last month’s numbers, volumes are pacing ~17% below the November peak and ~4% lower than the month before. More so if we subtract the fast-growing tradeXYZ (+53% month-on-month growth in Feb), which focuses on non-crypto perps, to isolate for "core" Hyperliquid. DefiLlama Some of this is down to cyclicality; after all, we did enter a crypto bear market late last year. But benchmarking Hyperliquid volumes to the broader perp DEX market suggests that competition is eating into the protocol’s share as well. Relative to this time last year, when Hyperliquid commanded ~57% of volumes, the protocol now holds half as much share at ~29%. DefiLlama Can Hyperliquid claw back the staggering twenty-eight points of share it lost over one year? Intuitively, yes, since these share losses coincided with a temporary ramp-up of incentives on competing a16z-backed DEX, Lighter. Interestingly, though, Hyperliquid has only clawed back around ten points since these incentives ended around January (note at trough levels, Hyperliquid's share was down to ~17%). DefiLlama To me, this suggests that these volumes weren’t all that sticky to begin with. Bear in mind that Hyperliquid’s share data includes trade XYZ volumes, which are likely also being inflated in a similar vein to Lighter’s (traders anticipating future token incentives ). My takeaway from all this is that Hyperliquid competes for very price-sensitive flow. So, without sustained network effects or a moat that doesn’t involve throwing prices or incentives, the protocol will remain vulnerable to the kind of share losses it’s suffered in recent months. Not ideal for HYPE, given how closely tied its value accrual is to fees. 5. A Very Pricey Token. Still, a low enough price can paper over a lot of fundamental drawbacks. That isn’t the case with HYPE. At first blush, using the headline market cap (price * outstanding tokens), this is a token that trades at ~27x its annualized fee income. Not cheap. Note, however, that not all 1 billion HYPE tokens have been minted. If we were to take the fully diluted market cap (i.e., factoring in the max supply), the fee multiple is closer to ~46x. A price that high doesn’t leave much margin for error at all. USD 'm Outstanding Market Cap / Annualized Fees 27.4x Fully Diluted Market Cap / Annualized Fees 46.1x Source: DefiLlama (25 th March) Wrapping Up In a market where crypto DATCos trade on the cheap, PURR doesn’t offer much value, in my view. At the DATCO level, the stock trades at mNAV parity, leaving investors with little downside protection. And at the token level, PURR’s key digital asset holding, HYPE, screens very richly relative to its fundamentals. All in all, I’d pass on this one.
