Is This New Altcoin Player a Threat to XRP?

Key Points

• XRP is built for financial institutions, and it offers them liquidity in a few forms.

• Hyperliquid is built for crypto traders, and it offers them speed and leverage.

• Stablecoin float is important to both of these chains, and Hyperliquid has more.

• 10 stocks we like better than XRP ›

Is one of the new altcoin kids on the cryptocurrency block, Hyperliquid, (CRYPTO: HYPE) a knife pointed at XRP (CRYPTO: XRP), one of the reigning champions? Both aim to be fast, inexpensive, and specialized chains, and both are looking to attract a very particular and fairly picky type of capital.

Let's investigate what XRP's exposure is here.

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These are two very different lanes for on-chain finance

In case haven't heard, Hyperliquid is a Layer-1 (L1) blockchain, not an app that lives on someone else's chain.

It's engineered to support the chain's main decentralized exchange (DEX), which caters to crypto traders that want to use leverage or trade derivatives of crypto assets. In other words, the architecture is meant to make a high-performance, on-chain order book feel seamless for everyone who uses it.

Scale matters significantly for that design, and it appears to be well addressed. Hyperliquid's network shows plenty of activity concentrated around its DEX, with more than $1.1 billion in spot trading volume on Sept. 18, and more than $9.6 billion in perpetual futures trading volume. On the other side, the DEX for the XRP Ledger (XRPL) is not at all a major focus of the network, and its volume in the same period was a scant $55,551.

Now, let's look a bit more at XRP's lane.

The XRPL is built for regulated money movement and tokenized finance, with protocol-level asset controls that financial institutions require. Banks and asset issuers can require authorization before someone holds their tokens, freeze misdirected balances when permitted by law or policy, and enforce transfer rules without needing bespoke smart contracts. Ripple, the company that issues the XRP crypto, designed its ecosystem for banks, fintechs, and other financial institutions that need high-throughput, high-reliability, and bulletproof regulatory compliance features.

To serve those requirements, XRPL also has a native stablecoin, RLUSD. Between RLUSD and the other stablecoins on the XRPL, there's a total of $95.9 million in fiat currency-backed value. The chain also has $159.4 million in tokenized U.S. Treasuries parked, which is helpful because Treasuries are tools that financial institutions need.

In contrast -- and this is quite surprising, so pay attention -- Hyperliquid has $6.3 billion in stablecoin value on its chain, a huge sum given its market cap of $15.7 billion. So there's simply more liquid capital than on the XRPL, which makes sense because traders need stable coins to act as dry powder and to park their profits somewhere the money can be readily accessed. But the chain has zero in terms of other tokenized real-world assets like Treasuries, as crypto traders have many other ways of holding their excess capital in a safe place that generates yield on-chain, like via staking to the Hyperliquid protocol, or by bridging it elsewhere.

The synthesis here is that Hyperliquid optimizes itself for an on-chain cryptocurrency exchange experience for sophisticated crypto users, while XRP optimizes for institutional settlement, liquidity, and compliance. Those are very different sets of customers, different product roadmaps, and different moats, and at the end of the day, there's basically no overlap between the two populations.

So Hyperliquid isn't going to be a threat to XRP anytime soon, at least not in any domain where XRP is actually trying to compete.

Both could fit in a portfolio

Given the above, it's reasonable for long-term investors to wonder whether it might make sense to buy both XRP and Hyperliquid.

For Hyperliquid, the investment thesis is that more upside will come from continued proof that an exchange-centered L1 can compound network effects by attracting more assets, more counterparties, more liquidity providers, and a thicker order book that keeps power users on-chain to spend more of their money and generate fees as a result. If the chain keeps providing strong DEX throughput and fee capture, the native token, HYPE, will rise in value, as users need it to pay their trading costs. Assuming that the team continues to offer in-demand features and run the chain smoothly, and trading volumes increase, it might earn the distinction of being the preferred place for advanced on-chain crypto trade execution -- for what it's worth, it's already most of the way there.

For XRP, the upside comes from continuing institutional adoption of its platform as a financial tool, and the buildout of compliant rails for tokenized cash and securities that easily plug into banks and asset managers. Protocol-level controls are exactly the features that risk managers seek, and its numerous collaborations with asset managers and banks are concrete proof that this lane is opening.

Therefore, buying both of these coins is a rational choice.

Ideally, investors would hold XRP as a core bet on institutional adoption of crypto, and fit Hyperliquid as a smaller and riskier holding that benefits if crypto exchange activity keeps migrating on-chain to take advantage of its high-efficiency technology platform. For both, stick to multiyear holding periods and evaluate performance by whether their areas of competency are deepening over time rather than on the month-to-month price movements, as they're both inclined to be volatile.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends XRP. The Motley Fool recommends Hyperliquid. The Motley Fool has a disclosure policy.