Could This 1 Rising Star Cryptocurrency Be a Threat to Solana?

Key Points

• Hyperliquid is a fast and cheap blockchain with a narrow specialty.

• Its user base is rapidly growing, highly enthusiastic, and willing to pay.

• All of those features mean it could be a competitor to Solana.

• 10 stocks we like better than Hyperliquid ›

Sometimes all it takes to make a blockchain a winner is one killer app and a bold narrative. The latest contender with this kind of narrative is Hyperliquid (CRYPTO: HYPE), a high-throughput Layer-1 (L1) chain whose headline application is an on-chain decentralized exchange (DEX) that feels effortless, fast, and cheap, while also offering access to leverage and derivatives.

That's part of the reason some investors have called Hyperliquid a Solana (CRYPTO: SOL) killer. But how real is this threat, and should Solana investors be worried?

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Image source: Getty Images.

This chain certainly has an edge in its niche

Let's start by taking a closer look at what this chain actually is and what it offers.

Hyperliquid is a proof-of-stake (PoS) blockchain that's tailored toward meeting the needs of (largely professional) crypto traders by embedding the trading features they want within the protocol itself. That architecture includes an on-chain central order book where every order, cancellation, and liquidation is recorded on the base chain rather than off-chain. On most other chains, these features would need to be implemented by the developers of decentralized applications (dApps), meaning that several different trading platforms hosted on the same blockchain could have significantly different feature sets and qualities.

Costs obviously matter to adoption, and the chain leans into a zero-gas fee user experience for its flagship app (its decentralized exchange). End users see zero gas on orders, with low exchange fees governed by a transparent schedule. Transactions also process and close quickly enough for traders to act on extremely short notice with precision -- as inadvisable as that may be for the average investor to attempt. As for the token itself, HYPE can be staked to generate a yield, much like Solana.

However, Hyperliquid only launched in 2022, and its decentralized finance (DeFi) breadth is limited for now. Most activity still circles the chain's main DEX, and it isn't clear if that will change. There's currently about $2.6 billion in total value locked (TVL) on the chain, with an impressive $27.8 billion in DEX volume over the 30-day period ended Sept. 19. In that same period, the network generated fees worth $95.2 million, a respectable amount for any blockchain.

So, in this case, that concentration around the DEX is not a flaw, it's actually the main value driver for the chain. But it's still a constraint when comparing Hyperliquid to an ecosystem chain like Solana with multiple thriving project categories.

Ecosystem breadth is the key here

The main pillar of Solana's investment thesis is that it's a fast and cheap smart contract chain.

The case for buying it also rests on another major pillar, which is the network effects generated from many different things happening at once. Solana is a hotbed of DeFi innovation and scaling, including payments rails, consumer apps, gaming, and meme coin launchpads, all living side by side, and it's also competing in emerging segments like artificial intelligence (AI) agents, among others.

On any given day, Solana posts millions of transactions and hosts a very large base of active wallet addresses, alongside a sizable stream of app fees and revenue across categories. Its $12.6 billion in total value locked indicates that it's a leading general purpose blockchain, rather than being a specialist platform. And while Hyperliquid's 30-day fee generation figure is notable, Solana is simply much larger; on Sept. 18 alone, its dApps brought in $15.6 million.

Therefore, Hyperliquid looks like a focused bet on one category where it is, without a doubt, best in class. That can absolutely threaten Solana's share in derivatives trading, and it is seriously threatening Solana's DEXes more generally. It's offering a superior trading experience compared to platforms that don't have protocol-level support for key features, and it's winning the competitive fight relatively easily as a result.

But it's too big of a leap to say it threatens Solana's entire economy, as Hyperliquid's DeFi ecosystem is still nascent compared with the other chain's sprawling footprint of services, nevermind its vastly larger selection of projects in other segments that aren't offered by Hyperliquid. There is not any reason for Solana holders to be afraid of Hyperliquid's success.

For investors, it might be worth buying both coins.

If you want targeted upside from a chain that's laser-focused on delivering derivates to crypto traders, Hyperliquid can be a small, higher-risk satellite position to hold for growth. On the other hand, if you want broad exposure with many ways to win, Solana remains the better core holding, and its ecosystem breadth means that it's likely a bit safer in the long run, too, even if it isn't exactly a conservative investment.

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Alex Carchidi has positions in Solana. The Motley Fool has positions in and recommends Solana. The Motley Fool recommends Hyperliquid. The Motley Fool has a disclosure policy.