Hyperliquidity Provider (HLP) & Vaults
Earn Institutional Yield by Becoming "The House"
In traditional finance, market making is reserved for high-frequency trading firms. Hyperliquid democratizes this through the HLP (Hyperliquidity Provider) vault, allowing anyone to deposit USDC and participate in the protocol's market-making strategies without running code or managing servers.
What is HLP?
HLP is the protocol-managed liquidity vault that acts as the primary market maker on the Hyperliquid L1.
When you deposit USDC into HLP:
- Your funds are pooled with other users to back automated trading strategies
- Market Making: Vault places Limit Bids and Asks on the order book, profiting from spreads and rebates
- Liquidations: Vault acts as primary liquidator, taking over forced liquidations and capturing bonuses
🎰 The "House" Edge
Because HLP takes the other side of traders' positions, its performance is inversely correlated with aggregate trader PnL:
- ✓If traders lose money (which statistically happens), HLP profits
- ✗If traders win big (during a massive pump), HLP can suffer temporary drawdowns
Historical Performance & Yield
Note: Past performance is not indicative of future results.
Historical APY
20% - 100%+
Variable
Asset
USDC
Single asset exposure
Lock-up Period
4 Days
To prevent toxic flow
Source of Yield
Multiple
Trading Fees, Spreads, Liquidations, Trader Losses
Unlike lending protocols (Aave, Compound) that offer 2-5% APY, HLP is an active trading strategy. It takes risk to generate higher returns. This is why yields are significantly higher but also more volatile.
HLP vs. GMX (GLP)
Many DeFi users are familiar with GMX's GLP token. Here is how HLP differs:
| Feature | Hyperliquid (HLP) | GMX (GLP/GM) |
|---|---|---|
| Underlying Asset | 100% USDC | Basket (BTC, ETH, USDC, etc.) |
| Mechanism | Active Market Making (CLOB) | Passive Counterparty (Oracle/AMM) |
| Price Impact | Skewing bids/asks | Zero price impact (Oracle) |
| Exposure | Delta Neutral (mostly) | Long Crypto Market (holds BTC/ETH) |
| Risk Type | Strategy execution risk | Asset price risk |
💡 Key Takeaway
HLP is better if you want to earn yield on Stablecoins (USDC) without exposure to the price volatility of Bitcoin or Ethereum. GLP is better if you believe in the long-term appreciation of crypto assets.
User Vaults: Copy Trading
Besides the official HLP vault, Hyperliquid allows any user to create their own User Vault.
How it works:
A trader creates a vault. You deposit USDC into it. The vault automatically copies all their trades.
Profit Sharing:
If the trader makes a profit, the vault takes a "Leader Fee" (usually 10%) from your profits.
Transparency:
You can see the full PnL history, drawdown, and Sharpe ratio of every vault before depositing.
⚠️ Warning
User vaults are risky. You are trusting a specific person's trading skills. If they get liquidated, you get liquidated. Always start with small amounts and review their track record carefully.
Risks of HLP
HLP is not a risk-free savings account. You must understand the downsides before depositing.
1. Market Skew Risk
Description:
If the entire market moves in one direction (e.g., Bitcoin pumps 20% in an hour) and most traders are Long, HLP is effectively Short.
Impact:
Vault value can drop as it pays out profits to traders
Mitigation:
HLP algorithms automatically hedge and adjust spreads, but cannot eliminate entirely
2. L1 / Smart Contract Risk
Description:
Hyperliquid runs on a custom Layer 1 with experimental technology.
Impact:
Inherent risks of bugs or exploits
Mitigation:
Code is audited, but always carry residual risk with new chains
3. Withdrawal Delays
Description:
4-day lock-up period on deposits to prevent toxic flow.
Impact:
You cannot treat this as a checking account
Mitigation:
Plan ahead if you need liquidity
How to Deposit into HLP
Go to Vaults
Navigate to the "Vaults" tab on the Hyperliquid app
Select HLP
It is usually the first vault listed with the "Protocol" tag
Deposit
Enter your USDC amount (you need USDC in your main trading account first)
Wait
Your funds start earning yield immediately (next epoch)
Monitor
Check your "My Vaults" section to see your PnL history
Frequently Asked Questions
❓ Can I lose my principal?
Yes. If HLP suffers a significant drawdown (due to traders winning or a market crash where hedges fail), the share price of the vault can go down.
❓ How often is yield paid?
Yield is reflected in the share price of the vault. It compounds automatically. You realize the profit when you withdraw.
❓ Is there a fee to deposit?
No. There are no entry or exit fees for the HLP vault itself, only the standard gas fees for the transaction.
❓ Why is the APY so volatile?
Because it depends on trading volume and trader PnL. In a boring market, HLP earns fees from volume. In a trending market, HLP might lose to traders or win from liquidations.
❓ What if the protocol gets hacked?
While audited, experimental Layer 1 technology carries inherent risks. This is why starting with a smaller amount is recommended.
Key Takeaways
- ✓HLP offers significantly higher yields than traditional lending protocols because it's an active strategy
- ✓You earn yield in USDC only - no crypto price volatility exposure like with GLP
- ✓4-day lock-up means you need to plan ahead if you need liquidity
- ⚠️Downside risk exists - vault can suffer drawdowns during extreme market moves
- ⚠️Start with a small amount to test the mechanics before deploying significant capital
Ready to put your USDC to work with institutional-grade market making?
Start Trading on Hyperliquid