Original author: @RyskyGeronimo
Original translation: Ashley
Editors note: This article introduces the Hyperliquid HLP vault, which shows its low volatility, high Sharpe ratio and negative correlation with Bitcoin. The combination strategy can significantly improve returns. HLPs volatility converges with the growth of TVL, and the Sharpe ratio increases. It may become a high-quality use case for HyperEVM in the future.
The following is the original content (for easier reading and understanding, the original content has been reorganized):
I am pleased to share a risk vs reward analysis of the Hyperliquid HLP vault.
in conclusion:
Cumulative return: 143% (HLP) vs 264% (BTC)
Annual 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)
Leverage amplifies both gains and losses. Since HLP has lower volatility, it can take higher leverage (2.5x) before reaching the same risk level as Bitcoin. By adjusting HLP risk to match Bitcoin volatility, the overall return is significantly improved.
HLP has a negative correlation with Bitcoin of -9.6%. In other words, when Bitcoin (and the crypto market as a whole) falls, HLP tends to move in the opposite direction. This negative correlation creates opportunities for enhanced gains.
The 80% HLP + 20% BTC combination increases the cumulative return to 175%, while the volatility drops to 16% and the Sharpe ratio reaches 3.6. If the combination is leveraged to match the volatility of Bitcoin, the cumulative return can exceed 1000%.
HLP had high volatility in the early days, but as TVL grew (currently exceeding $500 million), volatility continued to converge.
Data from the past 52 weeks show that although the compound annual growth rate (CAGR) of HLP is 42%, the CAGR in the last 12 months has dropped to 22%. Correspondingly, the annualized volatility has dropped to 4.5%, pushing the Sharpe ratio to 5.2!
The Hyperliquid team has already predicted this: More market makers joining will have a positive impact on HLP. As HLP no longer needs to bear all the risks, the strategy Sharpe ratio will further increase.
With cycles of double-digit returns and low volatility, HLP could become an interesting use case on the HyperEVM.
As the treasury capital base expands, we can expect the growth rate to slow down. Due to the increase in scale, monthly returns have become more stable. The recent average return of about 1.75% per month is still attractive, especially compared to the volatility of the token.
It is important to note that since the vaults lifetime data is provided in 4-day intervals rather than daily data, the data needs to be resampled to weekly intervals, which will almost certainly introduce some tracking error.
The HLP vault has come a long way since mid-2023, evolving from a niche market-making vault to a strategy with a TVL of over $500 million.
Looking ahead, further transparency — especially daily return data — will help users track HLP’s performance more precisely. HLP is a prime example of how decentralized market making can achieve stable risk-adjusted returns and provide a differentiated source of on-chain returns.
