Quick note before we start: I’m writing this because I didn’t feel like I truly understood HIP-4 at first.

The obvious framing was “prediction markets on Hyperliquid,” but that felt incomplete. The idea really started to click after reading work from the D2 Finance team, Mesky, Cosimo Capital, smac and others, especially around how HIP-4 interacts with HIP-3 and why outcome markets are more than simple yes/no bets.

I’ll credit those ideas throughout the piece. This is my attempt to pull the thread together and explain the aha moment in plain English.

Let's start with what I think some are getting wrong about this, then build up to why people who really understand financial markets are genuinely excited.

When most people hear “prediction markets on Hyperliquid,” they picture something like a sportsbook. Will Bitcoin hit $100k by December? Yes or no. You pick a side, someone else takes the other side, and the winner gets paid. Simple.

That framing badly undersells what HIP-4 actually does. It's like describing a piano as "a box that makes noise when you hit it." Technically true, completely misses the point.

As Cosimo Capital put it: “Spot trades ownership and perps trade direction. HIP-4 trades states of the world. That is a different kind of financial primitive.”

An outcome contract is a financial instrument that settles to either $1 (event happened) or $0 (it didn't), and trades anywhere between those two values until it resolves. The price at any given moment represents what the market collectively thinks the odds are. A contract trading at $0.70 means people think there's roughly a 70% chance the event occurs.

The maximum you can make or lose is locked in before you even enter the trade. The money to pay out the winner is already sitting in the system. The trade can still go against you, but the loss is known upfront. Clean, simple, bounded.

One thing worth noting: the price during trading is set purely by buyers and sellers on the orderbook. There's no external price feed plugging in from outside. The market itself is doing all the work of discovering what the odds actually are, in real time, through people putting money behind their beliefs.

This is no longer just theoretical either. Hyperliquid’s first HIP-4 market is now live, and fittingly, it is a simple BTC price-threshold market: will BTC trade above a specific level at a specific time? That is probably the right first version of this product. It is clean, objective, crypto-native, and close to the kind of risk Hyperliquid traders already understand.

Imagine instead of one yes/no contract, you line up a whole row of them side by side. One asks: "Will Bitcoin be above $80k at the end of the month?" Another asks: "Above $90k?" Another: "Above $100k?" And so on across the full range of plausible prices.

When you look at all of them together, you don't just get a single probability. You get a complete picture of what the market thinks across every possible outcome. Not just "where is Bitcoin most likely to land," but how confident or uncertain the market is across the whole range. How spread out or concentrated that uncertainty is. Essentially a map of collective fear and confidence across every price level simultaneously.

As Frank from D2 Finance put it: "A strip of digitals across strikes gives you the full distribution of where price might land, not just where it's expected to land. Perps price the forward. Digitals price the full distribution around it. That's a vol surface, not just point bets on events."

Traders call this a "volatility surface," but forget the jargon. Think of it like the difference between a weather forecast that says "70% chance of rain" versus a full radar map showing you exactly where rain is likely, how heavy, and what the whole system looks like. The radar map is just fundamentally more useful information. Your regular perpetual futures contract tells you where the market expects price to go. HIP-4 outcome contracts, stacked across strike prices, tell you the full shape of the market's uncertainty around that expectation. That's a different and more complete kind of information.

One important caveat: a single HIP-4 market is not the same thing as a vanilla option. If BTC finishes barely above the threshold, the contract pays out. If BTC rockets far beyond it, the payout is still capped. The options-like behavior becomes more interesting when many of these markets exist across different price levels and expiries.

Polymarket and Kalshi are both moving toward perpetual futures, which says something important: the prediction market world is waking up to the fact that outcome contracts and continuous trading belong together. But there is a meaningful difference in how you get there

Polymarket and Kalshi are prediction market platforms trying to add more traditional trading infrastructure on top. Hyperliquid is starting from the opposite direction. It is already a professional trading engine, with liquidity, market makers, APIs, margin infrastructure, order books and active traders already in place. HIP-4 did not have to build an audience or prove execution quality from scratch. It launched into an ecosystem that already had both.

That architectural starting point matters more than it might seem. When outcome contracts live natively inside the same execution engine as perps and spot, with the same accounts, the same collateral and eventually the same portfolio margin system, the composability is real rather than bolted on. Adding perps to a prediction market platform gives you two products running beside each other. Building outcome contracts into a trading engine gives you a path toward something more unified.

There is also a fee structure difference that is easy to overlook but potentially significant. HIP-4 is currently designed so opening a position costs nothing in fees. You only pay when you close or settle. For traders holding positions through resolution, and for market makers quoting both sides, that could change the economics in a real way.

The composability we’re describing, where your capital works across all your positions simultaneously, depends on a feature called portfolio margin that is still being rolled out. Right now outcome contracts are "1x isolated," meaning the capital for each outcome contract sits separately. You can't yet use your regular trading positions as collateral against your outcome contracts, or vice versa.

But portfolio margin is the unlock that makes everything click. Unlike basic cross margin, which simply lets positions share a collateral pool, portfolio margin looks at net risk across the whole book. Instead of treating every position as totally separate, it can recognize when different trades partially offset each other.

In the ideal end state, that could mean a long ETH perp and an offsetting outcome position on ETH require less capital together than they would separately. Your capital stops being siloed and starts working more intelligently across the whole account.

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To really understand why HIP-4 matters, it helps to understand what HIP-3 already did. HIP-3 gave anyone the ability to deploy a perpetual futures market permissionlessly on Hyperliquid. No gatekeepers, no institutional approval required. Just deploy and go.

But outcome markets need different mechanics than perps. A perp is designed for prices that update continuously. A binary market can resolve all at once. It may need to move from uncertain to settled in one step. If you force that into the wrong market structure, you create unnecessary lag and weird arbitrage opportunities. HIP-4 matters because it gives outcome markets their own native design instead of squeezing them into a perp wrapper.

That is what makes HIP-3 and HIP-4 so interesting together. You can have a permissionlessly deployed perp on an asset sitting right next to a permissionlessly deployed outcome contract on the same asset, both running on the same orderbook infrastructure, inside the same accounts.

Think about what that actually enables. A trader can simultaneously hold a leveraged directional position through the perp and a bounded probabilistic position through the outcome contract on the same underlying. A market maker can quote both sides of both instruments. A builder can create a structured product that combines both legs automatically, executing complex strategies that would have previously required a trading desk and custom infrastructure.

And it doesn't stop at price-based markets. HIP-4 outcome contracts can be deployed on any event, not just whether an asset hits a certain price. So you could have a perp on ETH sitting next to an outcome contract on "will the Fed cut rates this month." A sophisticated trader could build a position that hedges macro risk directly against their ETH exposure, all within the same account, on the same platform. That kind of cross-instrument expressiveness is something that simply hasn't existed on-chain before.

One point worth flagging that's been raised by others tracking this closely: the biggest HIP-4 markets may not be the most viral ones. The more durable opportunity is probably recurring, standardized markets that traders can learn, quote, hedge, and automate. Think a daily BTC threshold market, a weekly ETH range market, a Fed decision market, a token unlock market, a governance vote market. As Mesky put it: "One-off markets attract attention. Recurring templates attract market makers."

Because a regular perpetual futures contract (continuous payoff, no expiry) and an outcome contract (bounded, binary) on the same asset now live side by side in the same system, sophisticated traders can look for mispricing between them. If the perp is pricing a certain level of uncertainty but the outcome contracts are implying a different level, that gap is a trading opportunity.

As D2 Finance put it in our recent options piece:

These are exactly the kinds of strategies that previously required expensive custom infrastructure, institutional relationships, and middlemen. HIP-4 makes them snap together like building blocks, available to anyone, not just institutions paying for bespoke access (although lets be real, I still won’t be able to put these together myself 🤣 )

Traditional options, the closest existing category of financial instrument, can have theoretically unlimited losses for the person on the wrong side of the trade. That open-ended risk is a big part of why options trading has always been mostly an institutional game. You need serious sophistication and risk management infrastructure to play.

HIP-4 contracts have hard ceilings and floors. Both sides know their worst case before they commit. A $250 bet can lose at most $250. There's no margin call, no liquidation, no getting wiped out by a sudden move. This makes the whole thing accessible to retail traders in a way that traditional options never really were, while still giving them exposure to the same kinds of price dynamics that institutional traders have always been able to hedge against.

As Cosimo Capital put it, “The absence of leverage is the breakthrough.” Their point is that HIP-4 contracts are fully collateralized upfront, so the maximum loss is already funded before the trade begins. That gives Hyperliquid a way to offer markets with big upside and clearly defined downside, without taking on the same kind of platform risk that comes with leveraged long-tail markets.

As Smac observed: "The argument that perps will suffocate onchain crypto options before they scale misunderstands convexity demand."

This post, combined with some of the work I had been reading from D2 Finance, was one of the real lightbulb moments for me.

The simple version is this: perps are great for directional trades, but they do not give traders every payoff shape they want. HIP-4 does not magically turn Hyperliquid into Deribit overnight, and a simple binary outcome is not the same as a vanilla option. As we mentioned earlier in this piece, if BTC clears the threshold, the contract pays out the same whether BTC finishes slightly above it or far above it.

But HIP-4 does open the door to a new category of defined-risk, options-like products. The key is that the payoff can be bounded and fully collateralized upfront. That makes it less like unlimited-upside vanilla options and more like a design space for capped calls, structured products, event hedges, and other nonlinear markets that can live next to perps and spot on Hyperliquid.

That is why this is not just a prediction markets side project. It is potentially Hyperliquid’s first step into a much larger market for bounded, nonlinear payoff products.

This is where the builder angle starts to matter. HIP-4 gives developers a new ingredient to work with inside the same environment as Hyperliquid’s perps and spot markets.

They can combine outcomes, perps, and spot into products that feel simple on the frontend, even if the strategy underneath is doing something much more advanced.

Most users will not manually stitch all of these trades together themselves. The more likely path is that builders package these strategies into cleaner frontends, vaults, structured products, and trading tools that make the complexity feel simple.

HIP-4 isn't really about yes/no bets on events. It's about creating a new type of financial building block, one that lets you read the full shape of market uncertainty across a range of outcomes, not just the most likely single result. Stack those contracts next to regular perpetual futures in the same system, let them share capital through portfolio margin (coming soon), and you get a set of strategies and trading dynamics that previously only existed inside expensive institutional infrastructure.

The fee structure makes it economically viable in a way that existing prediction markets aren't. The bounded risk makes it accessible in a way that traditional options aren't. And the composability with the rest of Hyperliquid, including layers yet to be fully realized, is something no isolated prediction market venue can replicate.

That combination is what has serious people calling this a new financial primitive. Not a feature. A new design space.

DISCLAIMER: Nothing written in The Edge Newsletter or said on The Edge Podcast is a recommendation to buy or sell tokens or securities. This content is for educational and entertainment purposes only. Nothing shared here is financial advice. Any views expressed in our content are solely the opinion of that writer, host, or guest. Always do your own research. DeFi Dad, Nomatic, and guests may have positions in the assets or other matters discussed in this content.

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