TradeXYZ: 24/7 Markets For Everything (With Leverage)

Every Friday, I’ll help you grow your knowledge base of the most influential apps and teams in DeFi by providing a high-level overview of projects that provide true value to the industry.  

TradeXYZ is an app created by Unit Labs on the Hyperliquid blockchain; when it fully launched last November, it was the first app on Hyperliquid to use assets enabled by the transformative HIP-3 governance proposal.

When HIP-3 passed last October, it enabled permissionless market creation on Hyperliquid’s network. In other words, anyone could create perpetual future asset markets on Hyperliquid, as long as they provide infrastructure such as a data source for the underlying asset’s price (i.e. an oracle) as well as a minimum of 500K staked HYPE tokens (full details can be found here).

This enabled tradeXYZ to host markets for, theoretically, any asset class. And so far, tradeXYZ has dominated HIP-3 asset volume; it currently accounts for 84.9% of all HIP-3 volume, totalling $112B.

Currently, tradeXYZ offers markets for several asset classes beyond crypto, including commodities, stocks (US and foreign), indices, and FX. Plus, these assets trade 24/7.

The increase in volume for HIP-3 assets has uncovered the latent demand for off-hours trading, with weekend volume significantly higher in March. In fact, we’re now at a point where the rapid adoption of Hyperliquid, and specifically tradeXYZ, has even caught the attention of mainstream financial media.

A primary advantage of onchain markets is their ability to trade around the clock. This has always been the case for crypto assets, but achieving this for traditional asset classes is a major upgrade for global markets. To do so, tradeXYZ uses Discovery Bounds to limit volatility during off-hours trading.

While markets for any given asset are closed, the protocol automatically sets a range that the price is allowed to trade in until the market reopens. 

For example, the discovery bound for the S&P 500 perps is ±2% – so, the price can move up or down 2% from its last close price while markets are closed. If it hits the top or bottom of that range before markets reopen, trading halts.

Recently, tradeXYZ introduced Discovery Bounds V2, which gives assets (currently only used for oil markets, with plans to expand soon) more flexibility during off-hours. 

Within the initial bound (e.g. ±2% for S&P 500), if the price moves close to the top or bottom to a “trigger price,” the protocol shifts the range to center around the trigger price, and new bounds and trigger prices are set. Each market is allowed to perform this reset a fixed number of times.

For example, say the S&P 500 perps market is allowed to perform 2 resets during off-hours. The following scenario would happen in the case of a large off-hours price rally:

It’s important to note that just because onchain assets reflect the price of their underlying asset (e.g. S&P 500 perps trade in-line with the actual S&P 500), doesn’t mean they’re tokenized.

Oftentimes, perpetual futures are actually synthetic assets – backed by a central asset pool (usually USDC) – as opposed to tokenized assets.

In Hyperliquid’s case, the liquidity comes from the Hyperliquidity Provider (HLP) pool, which uses USDC to back assets across the entire ecosystem (including tradeXYZ). Since its inception in 2023, HLP has supported nearly $4.3T in trading volume, and it currently holds over $455M in USDC.

This is possible due to the programmability of blockchains.

Unlike tokenized assets, synthetic assets only represent exposure to the underlying asset’s price, rather than an onchain, 1:1 backed form of the asset itself. This enables unprecedented flexibility for asset offerings, use of leverage and collateral types, and much more.

While leverage is often seen as highly-speculative and even irresponsible, it also has positive utility. The use of leverage can be very convenient for traders and investors who want to get short-term large exposure to a given market/asset or hedge against a large position without committing a large amount of capital.

For example, if you’ve been buying gold – physical or exchange-traded – and you want to limit downside, you can easily take a short position in gold on TradeXYZ, using leverage to limit the amount of capital tied up in the position. Alternatively, in a traditional brokerage account, you’d have to put up the capital to short GLD or go through the trouble of setting up a traditional futures account.

The markets have spoken.

The parabolic rise of tradeXYZ has revealed massive demand to bring traditional markets onchain. For example, the amount of unique traders using the app has increased 10x since early February:

Over the past several months, traders have flocked to tradeXYZ to trade commodities like gold, silver, and oil, as well as indices like the S&P 500 and mag-7 stocks like NVDA and TSLA. So far this year, the app has generated ~$100B in trading volume – nearly half of which has been generated in March:

TradeXYZ’s influence has also broken into institutional finance, as the project recently partnered with S&P Dow Jones Indices to provide the first officially licensed S&P 500 perpetual contract.

As I’m writing this on Wednesday, this S&P contract is the 4th largest HIP-3 asset by volume with over $233M traded in the past 24 hours.