⦿ Executive Snapshot

• What: Hyperliquid has introduced builder codes that allow third-party frontends to monetize trading flows, significantly impacting its market structure.
• Who: Hyperliquid, third-party frontends (Based, Phantom, pvp.trade), and users trading on the platform.
• Why it matters: This innovation shifts Hyperliquid's model closer to traditional equity markets, enhancing its competitive landscape and revenue potential.

⦿ Key Developments

• Nearly 40% of Hyperliquid's daily active users trade through third-party frontends rather than the native UI.
• The top three builders have collectively captured more than $31 million in fees, showcasing the monetization potential of frontend trading.
• Builder codes allow interfaces to append a builder address for automated on-chain fee capture, with surcharges of up to 1% on spot trades and 0.1% on perps.
• Over 90% of trading volume still originates from Hyperliquid’s native frontend, indicating strong user loyalty.
• LiquidTrading has facilitated $5.6 billion in volume on Hyperliquid while allowing users to trade on competing platforms like Ostium and Lighter.

⦿ Strategic Context

• The introduction of builder codes represents a significant evolution in the trading model, resembling the two-tiered structure of traditional finance where brokers and wholesalers operate.
• Historical performance on Solana demonstrates that owning the frontend can be more lucrative than owning the backend, emphasizing the need for Hyperliquid to maintain its competitive edge.

⦿ Strategic Implications

• Immediate implications include a competitive environment where builders can negotiate better terms and potentially threaten Hyperliquid's fee structures.
• Long-term implications may involve increased fragmentation of trading flows and a potential shift towards a more commoditized perp aggregator landscape.

⦿ Risks & Constraints

• A potential risk includes the emergence of competitors that can offer better margins or zero-fee models, which may lure users away from Hyperliquid.
• There are execution risks related to the technical complexities of maintaining a performant on-chain order book amidst evolving market conditions.

⦿ Watchlist / Forward Signals

• Future developments in builder rebate models or zero-fee trading structures could signal shifts in user behavior and competitive dynamics.
• Monitoring the performance of LiquidTrading and other terminals will provide insights into whether frontends begin routing flows based on venue rebates rather than user loyalty.