Market Downturn, How to Earn Stable Income Through Hyperliquid HLP Treasury?

By: blockbeats|2025/02/24 17:00:03
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Editor's Note: This article introduces the Hyperliquid HLP Treasury, which demonstrates its low volatility, high Sharpe ratio, and negative correlation with Bitcoin. A portfolio strategy can significantly enhance returns. As HLP's TVL grows, volatility converges, Sharpe ratio improves, and it may become a high-quality use case for HyperEVM in the future.

The following is the original content (slightly reorganized for better readability):

I am pleased to share a risk and return analysis of the Hyperliquid HLP Treasury.

Conclusion:

· Cumulative Return: 143% (HLP) vs. 264% (BTC)

· Annualized Volatility: 17.89% (HLP) vs. 45.67% (BTC)

· Sharpe Ratio: 2.89 (HLP) vs. 1.80 (BTC)

· Maximum Drawdown: -6.6% (HLP) vs. -23% (BTC)

Market Downturn, How to Earn Stable Income Through Hyperliquid HLP Treasury?

Leverage magnifies both gains and losses. Due to HLP's lower volatility, it can sustain higher leverage (2.5x) before reaching the same risk level as Bitcoin. By adjusting HLP's risk to match Bitcoin's volatility, overall returns are significantly improved.

HLP exhibits a -9.6% negative correlation with Bitcoin. In other words, when Bitcoin (and the overall crypto market) falls, HLP often moves in the opposite direction. This negative correlation creates an opportunity for enhanced returns.

An 80% HLP + 20% BTC combination increases the cumulative return to 175%, reduces volatility to 16%, and achieves a Sharpe ratio of 3.6. If leverage is applied to this combination to match Bitcoin's volatility, the cumulative return could exceed 1000%.

Early HLP volatility was higher, but as TVL grows (currently exceeding $500 million), volatility continues to converge.

The past 52-week data shows: while HLP's full-period compound annual growth rate (CAGR) is 42%, the most recent 12-month CAGR has dropped to 22%. Correspondingly, the annualized volatility has also decreased to 4.5%, driving the Sharpe ratio up to 5.2!

The Hyperliquid team had foreseen this: "More liquidity providers joining will have a positive impact on HLP. As HLP no longer needs to bear all the risk, the strategy's Sharpe ratio will further improve."

Through double-digit returns and low volatility cycles, HLP may become an interesting use case on HyperEVM.

With the expansion of the treasury capital base, we can expect the growth rate to slow down. Due to the increase in scale, monthly returns become more stable. The recent average monthly return of about 1.75% still remains attractive, especially compared to the token's volatility.

It is important to note that since the treasury's lifetime data is provided in 4-day units rather than daily data, the data needs to be resampled at a weekly interval, which will almost certainly introduce some tracking error.

Since mid-2023, the HLP treasury has made significant progress, evolving from a niche market maker treasury to a strategy with a TVL exceeding $500 million.

Looking ahead, further transparency—especially daily return data—will help users more accurately track HLP's performance. HLP is a typical example of how decentralized market-making achieves stable risk-adjusted returns and provides a differentiated source of on-chain returns.

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