As the largest liquid staking protocol on Hyperliquid with over $1 billion in TVL, Kinetiq has evolved into a critical infrastructure layer for the ecosystem. By leveraging Hyperliquid's HIP-3 upgrade, Kinetiq is pioneering "Exchange-as-a-Service" through its Launch platform and its own flagship DEX, Markets, which aims to bring traditional asset classes on-chain.
BlockBeats interviewed the Kinetiq team to dig deeper into their roadmap. The discussion covers their transition from a liquid staking protocol to a comprehensive DeFi platform, the competitive landscape of HIP-3 exchanges, and their strategy for attracting institutional capital. We also explore the utility of the newly launched $KNTQ token and how the protocol aligns incentives between builders, traders, and stakers.
Full interview:
Founder Conviction & Ecosystem Vision
BlockBeats: Let『 s start at the beginning. In a twitter article, you mentioned that your journey into Hyperliquid began after listening to a podcast with Jeff in May 2023. What specific 'alpha' or insight from that podcast sparked your conviction, and what made you so confident to go all-in on building within the Hyperliquid ecosystem before it became a mainstream consensus?
Kinetiq: Yes, the podcast is called Flirting with Models where Jeff was a guest, which led to us discovering Hyperliquid. It was an extremely insightful podcast that clearly displayed Jeff‘ s raw intellectual horsepower, and the topic of Hyperliquid more specifically came up towards the latter half of the podcast. The primary intrigue was in the fact that this perpetuals DEX was being built on its own chain, as we’ve had tons of experience in the past years using and understanding these protocols deeply, the fact that Hyperliquid was being built on its own chain primarily piqued the interest, the rest is history.
BlockBeats: Speaking of the broader ecosystem, Hyperliquid is facing increasing competition from emerging perp DEXs like Lighter and Extended. From your perspective as a core infrastructure builder, how do you view these challenges? What is Hyperliquid's core moat that will ensure its long-term leadership?
Kinetiq: It is our core belief that Hyperliquid‘s moat is enduring due to the following factors:
Hyperliquid's network effect between makers and takers has been proven already with Hyperliquid hitting strong metrics on all timeframes even after the genesis airdrop. While there has been some very temporary market share erosion from other pre-TGE perp DEX's, we note that the market share of Hyperliquid recovered healthily once these attempted competitors TGE.
We think the Hyperliquid's core team's focus to work on core infrastructure optimisation + core products to be the correct approach. This allows the core team to be focused on making sure Hyperliquid's technology can scale multiples of what it is handling now, while allowing other teams to build products on top of it which helps offload business development burden from the core team to the community.
Jeff, Iliens, and team have proven to be world class in both execution and integrity and we believe it gives ecosystem participants (takers, makers, builders) a high degree of comfort to continue our participation in the long run, no other ecosystem in crypto is worthy of this effort and commitment.
Markets & The HIP-3 Ecosystem
BlockBeats: Kinetiq recently announced 'Markets' as the first DEX to be deployed via your Launch platform. Why was it so important for Kinetiq to build its own HIP-3 DEX 'reference implementation'? Is Markets intended to compete directly with other projects from Launch, or does it serve more as a showcase and a guiding model for the ecosystem?
Kinetiq: Kinetiq always viewed HIP-3 as a critical Hyperliquid upgrade that completely transforms HyperCore from a product to a platform. HyperCore has demonstrated unprecedented commercialisation potential and the addition of HIP-3 now gives rise to productisation potential. As such, Kinetiq has always wanted to leverage HIP-3 to expand our core business beyond liquid staking, making us entirely unique in this regard in the global liquid staking, and even exchange sectors. This encompasses both Launch and Markets, of which both products benefit from the distribution capability that Kinetiq built for kHYPE.
We do not see Markets as direct competition against other HIP-3 products. From our perspective, most DEX‘s have unique edges in either unique asset selection or unique collateral selection. Markets is intended to be a generalist HIP-3 DEX that will cover traditional asset classes. We intend to differentiate via:
· Asset selection where we bring the most sought after assets into a perpetual format with strong attention to detail in oracle construction
· Best in class liquidity
· Best in class UI/UX and onboarding
· Cost competitiveness with the use of USDH as collateral, benefiting from the Aligned Quote Asset discount.
BlockBeats: One of the key challenges for the HIP-3 model is the risk of liquidity fragmentation. As more exchanges launch the same equity perp, how does Kinetiq plan to address this? Will the Launch platform provide direct support, such as shared liquidity solutions or market maker resources, for the exchanges it helps deploy?
Kinetiq: Firstly, we maintain a universe of potential tickers for listing and a key metric we track is potential taker volume. We try our best to ensure that every ticker we list on Markets will have strong taker demand which will naturally incentivise makers to do business on Markets.
Secondly, liquidity fragmentation to a certain degree is going to be inevitable. Whenever we list a ticker, we will always aim to be the canonical ticker that is being traded amongst all the other HIP-3 products that track the same underlying. In order to alleviate liquidity constraints, we do have strong market maker relationships which have signalled intention to provide strong liquidity on Markets.
Equity Perpetuals & Institutional Capital
BlockBeats: Your analysis on 24/7 trading for equity perps showed that 30-55% of volume occurs outside traditional hours. This is a powerful validation. Beyond crypto-native traders, do you believe this will be a compelling enough narrative to attract significant interest and capital from TradFi players? What are the key hurdles to overcome?
Kinetiq: We believe that perpetuals is a better instrument compared to options for leverage since it is a delta one product and returns are based on price without consideration for more technical factors like volatility and time decay in the case of options. This will be a key differentiator in winning over the retail volume in time to come.
We believe we also observed early institutional interest in RWA perpetuals as they see blockchains as a much more efficient distribution channel for RWA assets (both spot and perpetuals). The key considerations for them tend to be liquidity depth and oracle construction. The latter is extremely important given that there can be multiple arbitrage / exploit surfaces if the oracle is not properly constructed and backtested. As such, oracle construction is a key workstream for Markets‘s launch.
Regardless of retail or institutional capital, the key hurdle to overcome is the fear and lack of proper education in the on-chain environment. As such, Markets will deploy UX that tries to abstract as much on-chain workflow away from users so as to be as Tradfi friendly.
BlockBeats: You've partnered with Hyperion DeFi to launch iHYPE, a permissioned, KYC/KYB-compliant pool. Why is having a dedicated institutional gateway so critical for a decentralized protocol like Kinetiq? Do you envision iHYPE as a primary bridge for TradFi capital to flow into the Hyperliquid ecosystem?
Kinetiq: Hyperliquid has become very successful in a short period of time not just in token price but also fundamental performance and earnings. It is uniquely positioned as the project that Tradfi can evaluate easily from a fundamental perspective. As such, Kinetiq‘s thesis is that HYPE DATs and ETFs have much higher potential to do well as compared to those of other projects. These DATs and ETFs will eventually need a compliant solution for staking so as to generate more returns for their shareholders. We are confident that iHYPE is that vehicle of choice.
BlockBeats: You've also partnered with Native Markets to support $USDH. Why is a native stablecoin so critical for the success of perpetuals markets on HyperCore, and how does the Kinetiq ecosystem plan to support and accelerate the adoption of USDH?
Kinetiq: Kinetiq has chosen USDH as the collateral for Markets as well as the primary quote asset against KNTQ, our governance token. We also built workflows to abstract the complexities of swapping USDC for USDH on Markets, so as to allow users to seamlessly onboard onto Markets and USDH.
Ecosystem Sustainability
BlockBeats: The Launch model relies on crowdfunding the 500K HYPE bond, which brings in 'mercenary capital' seeking yield. How do you ensure the incentives of these crowdfunders are aligned with the long-term growth vision of the builders? What mechanisms are in place to prevent a flight of capital after an initial farming period?
Kinetiq: Launch is designed to be win-win for both deployers and stakers. Projects will be able to guarantee at least 500K HYPE to be staked for a set duration that they determine at the start of the fundraising. After the expiry of the initial term, they can seek to renew their stake with the community or even replace some of the community stake with their own. It is a flexible solution for them to attain community buy in and quasi ownership at the start while overcoming any stake acquisition issues.
We also encourage projects to align with the stakers in a mix of both token and revenue sharing. Once again, Markets launching prior to any Launch projects also validates the Launch model and demonstrates some market standards around revenue sharing.
BlockBeats: Markets allocates 10% of its deployer revenue to kmHYPE holders, with 90% directed to growth. What is the long-term vision behind this ratio? As the ecosystem matures, could we see a shift where KNTQ stakers (sKNTQ holders) start capturing a direct fee share from all exchanges deployed via Launch?
Kinetiq: KNTQ is at the very center of the Kinetiq protocol and takes precedence in all of Kinetiq‘s business lines, hence value is directed from all Kinetiq business lines to KNTQ holders via sKNTQ. We recently announced how sKNTQ will accrue value from every aspect of the Kinetiq protocol through programmatic KNTQ buybacks from all sources of revenue and burning 100% of KNTQ trading fees from HyperCore.
BlockBeats: Beyond deploying exchanges, what other innovations do you foresee being built on the Launch platform? Could we see it used for creating novel financial products, structured products, or even non-financial applications that leverage the HIP-3 framework?
Kinetiq: Launch is envisioned as a permissionless LST infrastructure that is HIP-3 enabled for deployers that want to launch a DEX. You can think of Launch as a combination of Shopify + Kickstarter in the sense that a ready-made platform allowing the creation of permissionless LST’s with the ability to opt-in to HIP-3 capabilities, allows protocols to own their distribution entirely without having to build a standalone staking protocol or LST from scratch, and leverage Kinetiq‘s security expertise, making it ridiculously capital efficient compared to any possible alternatives. Financial products / structured products would most likely be built with kHYPE as it has strong existing distribution with stakers with ample integrations in the Hyperliquid ecosystem.
BlockBeats: BlockBeats has a large and passionate audience in the Chinese-speaking world. Many of them are deeply invested in the Hyperliquid ecosystem. What is your message to the builders, traders, and HYPE holders in this community? Are there any plans to engage more directly with the Chinese market?
Kinetiq: 首先，我们想感谢所有支持 Hyperliquid 与 Kinetiq 的朋友。Kinetiq 不仅是一个 LST 的项目，我们是一群专门针对 Hyperliquid 的需求而开发高质量产品的建设者。我们非常注重用户体验，大家可以在我们的 Discord 提出有关反馈。我们也欢迎其他 Hyperliquid 建设者与我们联系，探讨合作机会。