Felix
Bitcoin emerged in 2009 as a decentralized alternative to the traditional financial system, challenging a paradigm long dominated by insider deals and restrictive gatekeepers. It was something new in parallel to the sclerotic financial system of old. At a time when the world was reeling from a financial crisis triggered by opaque banking practices and cronyism, Bitcoin offered an alternative. It presented the possibility that individuals, rather than large financial intermediaries, could oversee and secure their own wealth. Bitcoin represents a fundamental reimagining of monetary infrastructure—a digital asset that embodies principles of financial sovereignty and democratized access.
In some ways, Hyperliquid embodies Bitcoin’s values with its ethos of community ownership and no insider deals. The user would finally be able to own the infrastructure of their financial rails once again. The user could own the exchange.
In this brief piece, we will work through the history of BTC’s expansion into DeFi, why BTC’s growth on decentralized exchanges will continue, and why spot BTC on Hyperliquid will lead to a revitalization for, what has been till now, idle BTC.
There are two primary entry points for crypto newcomers today: BTC or memecoins. While memecoins serve as a thrilling way for retail users to experience price volatility without any fundamental drivers, BTC is on the other side of the spectrum. It is perceived as an institutional-grade asset, fulfilling a very different role for newcomers’ portfolios.
As Bitcoin’s popularity grew, a strong narrative emerged around its role as “digital gold.” Much like physical gold, it began to be perceived as a store of value that could potentially serve as a hedge against inflation and turbulent market conditions. Many double down on the notion that a scarce digital asset, capped at 21 million coins, could outlast many fiat currencies’ debasement. This idea of Bitcoin as a financial safe haven has only intensified. It cemented BTC’s place in the portfolios of both institutional investors and retail enthusiasts alike, especially in 2024 with the onset of BTC ETFs. Even more, Bitcoin has also been cast as a potential next-generation reserve currency, with sovereigns now examining it for reserve holdings.
Today, most on-chain BTC sits in cold-storages idly. We believe that there are billions of dollars of BTC to be unlocked as soon as the right on-chain DEX trading infrastructure arrives. In the status quo, most actively traded BTC lives on CEXs.
When we look at raw trading volume, centralized exchanges dominate. Binance, today, sees roughly $17 billion in daily spot trading volume, with about $3.7 billion of that coming from BTC alone. Bybit’s 24-hour spot trading volume stands at $5.5 billion, of which around $2.2 billion is BTC. Coinbase features spot BTC at around $560 million in daily volume.
According to CoinGecko’s DEX tracker, AMMs (particularly Uniswap and Aerodrome) had $757 million in 24-hour spot BTC trading volume across Ethereum mainnet, Base, and Arbitrum. While Ethereum has done a good job, there is clearly much more work to be done.
The majority of BTC on-chain is living in cold wallets. A small sliver lives on Ethereum and trades on AMMs. This begs a critical question: What if more of that BTC could be used in a specialized on-chain trading environment, where there was access to better execution, deeper liquidity, and lower fees? How much more on-chain BTC would be unlocked if Hyperliquid supported spot BTC?
1. Moving Beyond AMMs
Historically, trading BTC on-chain has relied most heavily on Automated Market Makers (AMMs) like Uniswap or Aerodrome on Ethereum. These AMM systems emerged as a practical solution to Ethereum's fundamental technical constraints. With block times averaging around 12 seconds and gas fees frequently spiking during high network activity, Ethereum cannot efficiently support a traditional order book model where every order placement, modification, and cancellation requires an on-chain transaction. A fully on-chain order book would be prohibitively expensive for traders, as each limit order would incur gas fees, and the slow block times would make it impossible to achieve the split-second price updates needed for efficient market making.
By contrast, Hyperliquid's on-chain order book aims to mimic the performance and liquidity of centralized exchanges, delivering tighter spreads and more efficient price discovery. Market makers need an environment where they can rapidly update quotes, manage risk, and respond to market movements in real-time. Traditional centralized exchanges achieve this through sophisticated matching engines that can process thousands of orders per second, allowing market makers to provide deep liquidity and narrow spreads. Hyperliquid's architecture is designed to bring this same level of performance on-chain, enabling market makers to employ similar strategies and trading algorithms they use on centralized venues, but with the security and transparency benefits of an on-chain and (progressively) decentralized environment. Deeper liquidity begets more trading volume, which creates a virtuous cycle.
2. Overcoming Base and Ethereum Constraints
Ethereum's architecture makes it fundamentally unsuited for active trading. Its 12-second block times mean prices are consistently stale, while unpredictable gas fees and network congestion make transaction costs both expensive and unreliable. During high-activity periods, traders can face astronomical gas fees or transactions that simply fail to execute. While Ethereum excels at borrowing, lending, and institutional DeFi services, its technical constraints have prevented it from becoming a viable venue for serious traders.
Base has attracted significant trading volume through AMM protocols like Aerodrome and Uniswap, but faces its own critical challenges. The most pressing issue is transaction spam from arbitrage bots and MEV searchers competing for limited blockspace. This has led to an unsustainable situation where roughly 20%+ of transactions fail due to reverts. While Base inherited Ethereum's robust security and institutional reach, they failed to implement proper spam prevention mechanisms early on. This high revert rate creates an unacceptable trading experience - imagine trying to execute a time-sensitive trade only to have it fail one out of every five attempts.
3. Solana can have the memecoins
Solana has established itself as a prominent trading chain, with notable successes like Jupiter's DEX aggregator and a thriving spot ecosystem. Much of this success stems from Solana's vibrant memecoin trading environment, particularly through platforms like Pump.fun, which has captured significant retail interest. However, in many ways, Solana is still an unideal trading environment: retail users continue to get sandwiched; there is service degradation during periods of high load (e.g Jito service degraded after the $MELANIA token launch); and the tooling around user protections is still quite weak. Of course, there are many great teams that are improving the infrastructure around Solana including Dflow, Jito, Helius, Anza, etc.
While Solana positions itself as a trading chain, it has never captured a meaningful position in the majors spot trading scene. The majority of spot trading volume consistently comes from major assets - stablecoins, BTC, ETH, and SOL. While Solana excels in the memecoin + alt segment, the real opportunity lies in capturing this core trading volume of majors. On-chain spot trading for major assets requires a sophisticated orderbook model, and Hyperliquid positioned well to being the dominant on-chain spot majors trading platform.
With spot BTC coming to Hyperliquid’s spot orderbook and eventually the EVM environment, we’re excited for how much new BTC could come on chain. We explore use cases below.
1. Seamlessly Trade Spot and Derivatives
Hyperliquid now offers a comprehensive trading suite that combines spot and perpetual futures trading in one self-custodied platform. This integration serves two key audiences: existing Hyperliquid perp traders can now expand their strategies without leaving the platform, while spot traders seeking a CEX-like experience for BTC can finally trade on-chain without sacrificing performance. By unifying these markets under one roof, traders can deploy more sophisticated strategies and manage their capital more efficiently.
2. Execute Basis Trades
A common institutional strategy is to capitalize on the “basis”—the price difference between spot and derivatives markets. For example, you might buy BTC spot and short a BTC perpetual to lock in the difference (or vice versa). This approach generates a low-risk return from the predictable convergence of spot and derivatives prices (and associated funding rates). Because trades settle on-chain, there is no need to park large sums of crypto in custodial wallets on centralized platforms.
Furthermore, protocols like Ethena and Resolv can take advantage of this by having more of their delta neutral strategies executed fully on-chain via Hyperliquid. They can hold in the spot and short in the perp all verifiably through Hyperliquid, which reduces custodian risk.
3. Options Trading
For traders seeking complex hedging or speculative positions, options offer a versatile tool. Having both spot BTC and options side-by-side means users can quickly adjust their options strategies based on real-time spot price movement, all without leaving the Hyperliquid environment.
4. BTC Margin
Many CEXes support multi-collateral, whereas Hyperliquid only supports USDC. Hyperliquid’s introduction of spot BTC markets means that users might be able to one day use BTC as collateral for perps margin.
5. Run Carry Trades and Borrow
Once the HyperEVM is released, traders can potentially borrow against it or lend it out, creating additional return opportunities. For example, users can borrow stables, deposit into HLP and then compound gains into more BTC, while managing their liquidation risk
Spot BTC on Hyperliquid is extremely promising, but it needs the right operational setup. In particular, it needs a high quality team to build the bridging infrastructure that enables spot BTC inventory to flow in. To bring Bitcoin onto Hyperliquid L1, BTC must be locked from the origin chain while an equivalent token is minted on Hyperliquid. Any flaw in this process—whether in the code that secures the locked BTC or in the verification mechanisms that mint the wrapped BTC—can jeopardize potentially billions.
Today, Unit announced its existence to fill this gap, coming out of stealth. Furthermore, they have announced the launch of spot BTC on Hyperliquid. We’re excited to see a pool of new users join the Hyperliquid community and are excited about the next assets that the Unit team brings to Hyperliquid. 2024 was a big year for Hyperliquid, but will it just be a drop in the bucket compared to what 2025 will be?
