Kinetiq Exclusive Interview: From Hyperliquid's Largest LST Protocol to the "Exchange Factory"

As the largest liquidity staking protocol on Hyperliquid, Kinetiq has over $7 billion TVL (mainly from the HYPE liquidity staking token kHYPE), serving as a critical infrastructure layer in the HyperCore and HyperEVM ecosystems. Leveraging the Hyperliquid HIP-3 protocol, Kinetiq pioneered the "Exchange-as-a-Service" business model through the Launch platform. Kinetiq's flagship DEX product Markets is the first HIP-3 exchange built through Launch, set to launch on January 12th, supporting perpetual contract trading for assets such as BABA, Crude Oil Index, Energy Index, Russell 2000 Index, Bond Index, and more.

BlockBeats interviewed Kinetiq founder Omnia. The interview covered their transition from the LST protocol to an "Exchange Curation Platform," the competitive landscape of HIP-3 exchanges, and strategies for attracting institutional capital. We also explored the utility of the newly launched $KNTQ token and how Kinetiq has designed mechanisms to align incentives among builders, traders, and stakers.

Full Interview:

Belief in Hyperliquid

BlockBeats: Let's start from the beginning. In a tweet, you mentioned that your journey into Hyperliquid began in May 2023 when you listened to a podcast featuring Jeff. In that podcast, what specific "Alpha" or insight ignited your belief? And what made you so convinced of the worthiness of wholeheartedly immersing yourself in building on Hyperliquid long before it became consensus?

Kinetiq: Yes, that podcast was called "Flirting with Models," with Jeff as the guest, which introduced us to Hyperliquid. It was a very insightful podcast, showcasing Jeff's high level of intellect. The discussion about Hyperliquid mainly appeared in the latter part of the podcast. The most intriguing aspect was that this perpetual contract DEX was built on its own chain. Having had years of experience deeply using and understanding these protocols, the fact that Hyperliquid was built on its own chain piqued our interest greatly, and the rest is history as we witnessed it.

BlockBeats: When it comes to the broader ecosystem, Hyperliquid is facing intense competition from emerging Perp DEXs such as Lighter and Extended. As a core infrastructure builder, how do you view these challenges? What do you think is Hyperliquid's core moat to ensure its long-term leadership position?

Kinetiq: We believe Hyperliquid's moat is enduring for the following reasons:

1. Hyperliquid's network effect between market makers and takers has been proven, maintaining strong volume across all time frames even post-genesis airdrop. While other Perp DEXs that have not yet had their TGE caused some very brief market share erosion, we would like to point out that once these competitive entrants conduct their TGE, Hyperliquid's market share promptly and healthily recovers.

2. We believe the Hyperliquid core team's focus on core infrastructure optimization + core product is the right approach. This allows the core team to focus on ensuring Hyperliquid's tech can scale to many multiples of current throughput, while enabling other teams to build on top, helping shift the burden of business development away from the core team and onto the community.

3. Jeff, Iliens, and the team have all demonstrated world-class execution and integrity, giving ecosystem participants (traders, market makers, builders) a high degree of comfort that we are in it for the long run. There is no other ecosystem in crypto that is worth this level of effort and commitment.

Markets and the HIP-3 Ecosystem

BlockBeats: Kinetiq is preparing to deploy the first decentralized exchange "Markets" through the Launch platform. Why is it so important for Kinetiq to build its own HIP-3 DEX 'reference implementation'? Is Markets aiming to directly compete with other projects deployed through Launch, or is it more of a showcase and guiding model for the ecosystem?

In addition, how do you think Markets will differentiate itself from other HIP-3 exchanges such as trade.xyz and Felix? Especially considering its direct support by the Kinetiq team, what unique advantages does Markets bring?

Kinetiq: Kinetiq has always seen HIP-3 as a critical upgrade to Hyperliquid, transforming HyperCore from a product to a platform. HyperCore has demonstrated unprecedented commercial potential, and the addition of HIP-3 now brings productization potential. Therefore, Kinetiq has always aimed to leverage HIP-3 to expand our core business beyond liquidity mining, making us unique in all LST protocols and even exchanges. This includes Launch and Markets, both products benefiting from Kinetiq's distribution capabilities established for kHYPE.

We do not see Markets as in direct competition with other HIP-3 products. Most DEXs, in our view, have their unique advantages in asset selection or collateral selection. Markets aims to be a universal HIP-3 DEX covering traditional asset classes. We plan to differentiate ourselves by:

· Asset Selection: Introducing highly sought-after assets into the perpetual contract framework and placing significant emphasis on oracle design details.

· Top-tier Liquidity.

· Top-tier UI/UX and user onboarding.

· Cost Competitiveness: Using USDH as collateral and benefiting from discounts on Aligned Quote Assets.

BlockBeats: A key challenge of the HIP-3 model is the risk of liquidity fragmentation. As more exchanges list the same stock perpetual contracts, how does Kinetiq plan to address this issue? Will the Launch platform provide direct support to the exchanges it assists with, such as shared liquidity solutions or market maker resources?

Kinetiq: First, we maintain a list of potential listing codes, with a key metric we track being potential taker trading volume. We make every effort to ensure that each code listed on Markets has strong taker demand, which naturally incentivizes market makers to operate on Markets.

Secondly, a certain degree of liquidity fragmentation is inevitable. Whenever we list a trading asset, we always strive to make it the authoritative reference asset code traded across all HIP-3 products tracking the same underlying asset. As for liquidity concerns, we have strong market maker relationships who have expressed intent to provide robust liquidity on Markets.

Stock Perpetual Contracts and Institutional Capital

BlockBeats: Magnus, Co-founder of Kinetiq, on the analysis of stock perpetual contracts trading 24/7 showing that 30-55% of the volume occurs outside traditional market hours, which is a strong validation. Besides native crypto traders, do you think this is sufficient to attract interest and capital from traditional financial players? To achieve this, what key barriers need to be overcome?

Kinetiq: We believe that as a leveraged tool, perpetual contracts are superior to options as they are a Delta-1 product, with returns based on price rather than needing to consider technical factors like volatility and time decay as with options. This will be a key differentiating factor to capture retail trading volume in the future.

We also observe early institutional interest in RWA perpetual contracts as they see blockchain as a more efficient distribution channel for RWA assets (spot and perpetual contracts). They are mainly concerned with liquidity depth and oracle construction. The latter is crucial because improper oracle construction and backtesting could lead to multiple arbitrage and malicious attack opportunities. Therefore, oracle construction is a key focus of Markets' release.

Key barriers to overcome for both retail and institutional capital are fear of the on-chain environment and lack of proper education. Thus, Markets are committed to simplifying as many on-chain operational steps as possible at the UX level to make it as user-friendly to traditional finance as possible.

BlockBeats: You've partnered with Hyperion DeFi to launch iHYPE, a KYC/KYB-compliant permissioned liquidity pool. Why is it crucial for decentralized protocols like Kinetiq to have a dedicated institutional channel? Do you see iHYPE as a primary bridge for traditional financial capital to enter the Hyperliquid ecosystem?

Kinetiq: Hyperliquid has seen tremendous success not only in token price but also in fundamental performance and profitability in a short period. Its unique position is that it is a project that traditional finance can easily assess from a fundamental perspective. Therefore, Kinetiq's argument is that HYPE's DAT and ETF potential outperforms significantly compared to other projects. These DAT and ETF will ultimately need a compliant staking solution to generate more returns for their shareholders. We are confident that iHYPE is the preferred tool for that.

BlockBeats: You also partnered with Native Markets to support $USDH. Why is a native stablecoin so crucial for the success of the perpetual contract market on HyperCore? How does the Kinetiq ecosystem plan to support and drive the adoption of USDH?

Kinetiq: Kinetiq has chosen USDH as collateral on Markets as well as the primary asset pairing for our governance token KNTQ. We have also built workflows to streamline the conversion of USDC to USDH on Markets, enabling users to seamlessly enter Markets and transact with USDH.

Business Model and Token Empowerment

BlockBeats: The Launch model relies on crowdfunding 500,000 HYPE as collateral, which could attract profit-driven "mercenary capital." How do you ensure alignment between the incentives of these crowdfunders and the builder's long-term growth vision? What mechanisms are in place to prevent capital flight once the initial mining period concludes?

Kinetiq: Launch aims to be a win-win for deployers and stakers. Projects will be able to commit a minimum of 500,000 HYPE to be staked, with the staking term determined by them at the start of the fundraising. Upon the initial term's expiration, they can seek to renew with the community to maintain ongoing stakes, even substituting some community stakes with their own funds. This provides them with a flexible solution to garner community support and ownership from the outset while mitigating any token redemption concerns.

We also encourage projects to align with stakers through a mix of tokens and revenue sharing. Once again, Markets' release ahead of any Launch project also validates the Launch model and showcases some market standards around revenue sharing.

BlockBeats: Markets allocates 10% of its revenue to kmHYPE holders, with 90% earmarked for growth. What is the long-term vision behind this ratio? As the ecosystem matures, could we potentially see a shift where KNTQ stakers (sKNTQ holders) start directly capturing a portion of fees from all exchanges deployed through Launch?

Kinetiq: KNTQ sits at the heart of the Kinetiq Protocol, enjoying primacy across all of Kinetiq's business lines, with value flowing through sKNTQ to KNTQ holders from all Kinetiq business lines. We recently announced how sKNTQ accrues value from various aspects of the Kinetiq Protocol, including programmatic KNTQ buybacks utilizing all revenue streams and the burning of 100% of KNTQ transaction fees on HyperCore. More details can be found in our tweet.

BlockBeats: Apart from deploying exchanges, what other innovations do you foresee on the Launch platform? Could we potentially see it being used to create novel financial products, structured products, or even non-financial applications utilizing the HIP-3 framework?

Kinetiq: Launch is envisioned as a permissionless LST infrastructure that enables HIP-3 functionality for those looking to launch their customized DEX. You can think of Launch as a combination of Shopify + Kickstarter, as it's a turnkey platform allowing the creation of permissionless LSTs and the option to adopt HIP-3 functionality, enabling protocols to fully own their distribution channels without the need to build a standalone staking protocol or LST from scratch, leveraging Kinetiq's support in contract security, making it more capital-efficient than any possible alternatives. It is highly likely that financial products/structured products will be built on kHYPE, as it has a strong existing distribution channel among stakers and has been extensively integrated within the Hyperliquid ecosystem.

BlockBeats: BlockBeats has a large and enthusiastic readership in the Chinese-speaking world, with many Chinese users actively participating in the Hyperliquid ecosystem. What would you like to say to the builders, traders, and HYPE holders in this community? Are there any plans for more direct engagement with the Chinese market in the future?

Kinetiq: First and foremost, we want to thank all friends supporting Hyperliquid and Kinetiq. Kinetiq is not just an LST project; we are a team of builders developing high-quality products specifically tailored to meet the needs of Hyperliquid. We are very focused on user experience, and everyone is welcome to provide feedback on our Discord. We also welcome other Hyperliquid builders to reach out to us to explore collaboration opportunities.