Crypto exchange Hyperliquid is paying traders 500% a year to hold long oil derivatives. Payouts are hourly as an additional reward atop the price appreciation of oil itself which has regained $100 per barrel.
Of course, if it sounds too good to be true, it probably is. There are no free lunches on Wall Street.
First of all, Hyperliquid offers extreme leverage — up to 20x on Brent oil, for example — so unremarkable, intraday price fluctuations can easily wipe out a portfolio.
Moreover, even unlevered trades on Hyperliquid inherit innumerable financial risks from bugs, hackers, market manipulators, vulnerable technologies, and offshore counterparties.
Still, Brent and WTI oil perpetuals on the crypto exchange printed deeply negative hourly funding rates today, meaning that the short side of the trade is overcrowded and must pay fees to borrow margin exposure from less popular longs.
Traders on the venue are so one-sided that shorts must pay 500% annualized fees to anyone willing to go long.
Of course, many Hyperliquid short-sellers are day traders who incur minimal funding fees during a quick trade of a few minutes or hours. Still, the funding rate mismatch between shorts and longs is incredible.
Although Brent oil is trading below its $126 peak on April 30 as a reward for long-term shorts since that date, longs have been winning recently.
As shorts stare in disbelief at rapidly rising prices, longs not only benefit from leveraged gains but also receive hourly funding payouts.
Oil has rallied 6% today alone, and the world’s most actively traded commodity is 24% more expensive than 30 days ago amid escalating tensions in the tanker straits of Hormuz and Bab el-Mandeb.
Year to date, oil is up 75%.
The Iran war that began in February has kept squeezing seaborne supply and global logistics for millions of barrels that the world burns daily.
Oil price surge sparks billion-dollar trading frenzy on crypto platforms
Hyperliquid isn’t literally paying from a corporate account
Technically, funding rates on Hyperliquid aren’t an exchange fee. Hyperliquid isn’t generally in the business of discretionary choices about these fees.
Instead, funding fees are algorithmically determined and occur as hourly transfers between traders.
The intention of funding rates is to tug Hyperliquid’s crypto-native perpetual contract for oil back toward the so-called “oracle” price. Oracle data providers attempt to monitor real-world, off-blockchain prices and broadcast that data onto blockchains in a well-formatted, standardized, and reliable way.
When the contract trades cheaply relative to the oracle price, shorts pay longs, and vice versa.
Hyperliquid News blamed the monthly futures contract roll for today’s particularly egregious funding rates. Writers at the publication opined, “It’s simply due to the roll schedule.”
Specifically, Trade[XYZ] does roll WTI oil from V6 to X6, and Brent from X6 to Z6, between September 8 and September 14.
However, funding rates don’t normally spike this high during futures contracts rolling dates. Given the volatility of oil itself, Hyperliquid’s contracts are particularly popular and one-sided for a variety of reasons this week.
Earlier this year, US exchanges ICE and CME asked Washington to police Hyperliquid’s anonymous oil books, warning the venue could distort the global price.
