“Liminal’s Future: Think Bigger”

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In this edition, we’re covering Liminal, a delta-neutral protocol that preserves self-custody, operates fully on-chain, and offers a high degree of strategy personalization. The upcoming launch of their xTokens is set to attract significant attention.

Everything you need to know about Liminal can be found in this research.

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Let’s get into it.

Disclaimer: Views expressed are the author’s personal views and should not be relied upon as investment advice.

Discloser: Analyst (Yarl) behind this research owns $HYPE. Full disclaimer and disclosure here.

Key Takeaways 

• Liminal delivers sustainable yield from Hyperliquid funding rates, avoiding inflationary incentives.

• With around $60M in TVL and 14,000 depositors, Liminal has grown into a promising protocol.

• xTokens such as xHYPE, xBTC and xETH will make delta-neutral strategies accessible, liquid and composable, while combining yield from both funding rates and LSTs for greater capital efficiency and lower execution costs.

• HIP-3 enables new markets with tokenized equities and indexes, as well as yield-bearing collateral. Liminal can play a key role by bringing liquidity, volume, and open interest to these markets, driving demand, traction, and growth.

• Partnerships with Ethena, Pendle and other HyperEVM protocols strengthen the ecosystem and increase demand for Liminal’s products.

If you’d like to support our work while getting started with Liminal, feel free to use our referral link: https://liminal.money/join/GLCRESEARCH

Quick Overview: What is Liminal ?  

In our first coverage, we reviewed how the protocol works and highlighted key statistics since its inception. For those who missed that post, here’s a quick recap of Liminal:

Liminal is an innovative protocol inspired by Ethena’s strategy, designed to deliver real yield from funding fees paid by leveraged traders on Hyperliquid. The key difference with Ethena is that Liminal offers a very high degree of personalization while maintaining full self-custody and operating fully onchain, something never seen before in DeFi. 

This flexibility comes with higher execution costs for now but Liminal is also able to capture higher funding rates compared to most on CEXs. It’s important to note that while Liminal makes it very easy for anyone to access these strategies, some users aren’t fully optimizing their returns by entering and exiting positions too quickly. It’s a delta-neutral strategy, but investors still need to manage it thoughtfully to maximize performance.

Users can deposit USDC or USDT from multiple chains, although execution currently happens in USDC. They then select the asset they want to build a strategy around (HYPE, PUMP, XPL, etc.), along with parameters such as allocation and leverage. Liminal opens a long spot position through HyperCore using Unit assets (except for HYPE) and an equal-sized short perpetual, neutralizing market exposure while capturing yield from funding rates. The entire process is automated, including rebalancing, liquidation protection, and trade execution.

The most interesting point here is that Hyperliquid, as a trading infrastructure less than 3 years old, shows a clear long bias among traders. Most assets require you to pay funding when going long.

As shown in the chart below from Ethena (focused on $BTC and $ETH), traders are long-biased: funding rates are more often positive than negative. 

In fact, over the past three years, Ethena reports that 91% of the time funding was positive, meaning returns were available through delta-neutral strategies.

You can also see the same trend in Hyperliquid’s funding rates below. Since February, it’s been the same story. Let’s take $HYPE as an example.

In reality, there are always strong opportunities to capture in the market, with speculative or newly launched tokens being prime examples. As shown below with $PUMP and $FARTCOIN, annualized funding rates exceed 30% on both.

This is exactly where Liminal comes in: it captures those funding rates through automated delta-neutral strategies. With Liminal, even retail users can access sophisticated DeFi strategies simply by depositing USDC, and Liminal handles the rest.

And soon, users will be able to access strategies and returns directly by buying xTokens.

Liminal’s Growth: TVL, APYs and User Adoption

The interesting part is that Liminal has shown solid traction since launch, with TVL at $66 million at the time of writing (ATH at $90 million) and more than 14,000 unique depositors.

Lately, TVL has been decreasing slightly. The launches of Aster and Plasma clearly didn’t help. We don’t know exactly how much of the withdrawals are related to Aster or Plasma, but the chart shows that capital has been flowing out following those events. 

That being said, we still believe Liminal is being underestimated for several reasons:

1. Using institutional mode on Liminal, you’re actually farming the Unit airdrop. In this mode, you have self-custody, and every transaction, rebalancing, etc. happens on your personal Hyperliquid subaccount. You’re therefore doing spot volume, farming Unit, and potentially a Hyperliquid Airdrop 2.0 (points just got reset).
   

2. Liminal has already reached around $2M from funding rates. Over the last 3 months, Liminal has been providing APYs of around 7% with $BTC, $ETH & $SOL, close to 10% with $HYPE, and over 17% with $PUMP. Liminal charges a 10% performance fee on these fundings, meaning they’ve made around $200,000 so far. Over the last 30 days, Liminal has made around $100k through builder codes which is around $1,2M annualized + referral revenue.  

That being said, higher funding rates often come with higher volatility, which in turn increases execution costs.

3. There is also the possibility of farming a Liminal airdrop. We don’t know yet if they will remain an equity-only company or not, but it could be an additional bonus. 

In the meantime, you are earning 7–17% APY on your stablecoins passively, farming Unit, Hyperliquid and potentially farming Liminal too. 

Note: this doesn’t include execution costs, meaning the actual yield would be slightly lower in reality.

In the coming weeks, xTokens will mark the next major evolution of Liminal by extending these strategies beyond the app and into the wider DeFi ecosystem. 

What are xTokens ? Turning Strategies Into Composable Assets

xTokens are tokenized delta-neutral strategies. Each xToken (such as $xHYPE, $xBTC, $xETH or $xSOL) represents a share in the pool that holds spot assets (or LSTs in the future) while shorting perpetuals with calibrated leverage. The way it would work is that a pool gets created for each delta-neutral position, and the funding payments gradually increase the pool’s value over time. An oracle tracks this pool value which is how your xTokens compound as time goes on.

Right now, Liminal handles every address separately: each depositor has different funding rates, liquidation prices, and isolated margins. With xTokens, the strategy will be managed directly by Liminal, meaning everyone will share the same strategy operating within a single pool. Instead of running thousands of individual accounts, Liminal will manage just one aggregated position. Cross-margining will also become possible, reducing rebalancing and transaction costs. In short, economies of scale will be achieved, giving traders better execution, lower costs, and ultimately higher real APYs.

This design converts Liminal’s funding-rate streams into liquid and composable assets.

Just think about it. A couple of days ago, Plasma launched its token, $XPL, one of the most anticipated crypto launches of the year. When events like this happen, traders tend to be long biased because they want exposure, and that drives funding rates up. When $XPL launched, funding shot as high as 500% annualized and has hovered around 50-100% since.

Right now, it’s already simple to capture this. You just go to Liminal, deposit stablecoin, select the $XPL delta-neutral strategy, and that’s it. You’re capitalizing on those elevated funding rates.

Now imagine if all you had to do was buy xXPL. One click and you’re earning yield from a sophisticated automated strategy.

It seems likely that these products will gain traction, and Liminal’s TVL and P&L could grow “significantly” as a result.

How xTokens Unlock Capital Efficiency in DeFi ? 

What we’re most excited about is the composability and scalability that the launch of xTokens brings. Sophisticated investors can still choose customized setups to run specific strategies while keeping self-custody. But not everyone is interested in managing complex strategies, and that’s where xTokens will shine.

xTokens unlock scalability by making it much easier to access these strategies, since it’s likely they’ll be available across many different platforms and chains.

They also unlock composability. With xTokens live on HyperEVM and other major EVM chains, they could be used as collateral in money markets like Hyperlend and potentially AAVE in the future. That means you could hold a delta-neutral token that generates strong APY, compounds over time, and becomes very attractive for looping strategies.

Take the $XPL launch as an example. Let’s say you hold xXPL. Over the first 2–3 months, it generates around 10-30% APY on average. If you want to leverage this yield, you could use your self-compounding delta-neutral tokens as collateral on Hyperlend or AAVE, borrow against them, and buy more xXPL further improving your capital efficiency. Of course, the risks increase when doing so.

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The point is that xTokens will unlock a huge amount of creativity and composability. 

They’re like Lego pieces for DeFi users, who can use them to build whatever they want, from stablecoins to custom delta-neutral portfolios or on-chain treasuries.

Integrations with Pendle and Ethena

We have all witnessed the massive success of the AAVE Ethena Pendle flywheel. This is where things get really interesting, because Pendle adds another layer of capital efficiency by splitting the yield from the underlying:

xXPL = PT xXPL + YT xXPL

This means people can speculate on YTs if they believe funding rates (+LST yield when available: kHYPE, stETH, jitoSOL, etc.) will rise until maturity. We could also imagine YTs giving leveraged exposure to a potential Liminal airdrop, which would further drive demand for YTs. If there’s an active market and people want to participate, you’ll be able to buy PT xXPL and receive a fixed yield. In other words, you’d hold a delta-neutral strategy where the only variable left is the yield, and Pendle makes it possible to fix that. This makes looping strategies even more attractive.

If everything goes well, Liminal has a real shot at creating strong demand for their products. It’s still early, but the pace of execution from the team already looks promising. 

On top of that, Liminal is partnering with Ethena, one of the most respected teams in the industry, to launch hUSDe, a synthetic dollar backed by delta-neutral strategies on liquid assets that generate strong yields on Hyperliquid. The setup will use USDe as collateral for the perpetual positions, which will be executed on HyENA, Ethena’s decentralized perp exchange which is a HIP-3 market built on Hyperliquid. The long side will be managed through spot positions on Unit, while the short exposure will run via HyENA, creating a fully on-chain, yield-bearing stablecoin design. 

The underlying for the long spot leg could likely be deployed in DeFi through staking, LSTs or other strategies to generate even more returns.

You end up with a native Hyperliquid aligned team like Liminal working alongside Ethena, arguably the best partner for stablecoin distribution. This combination has everything needed to be a success, especially given the huge traction USDe is already seeing.

How HIP-3 Expands Liminal’s Market Opportunities

HIP-3, which is currently in its final testing phase before launch, will unlock some very exciting opportunities for Liminal. With HIP-3, builders will be able to deploy their own perpetual markets and set their own parameters, from oracle choice to collateral type. Learn more about HIP-3 here.  

The collateral side is particularly interesting.

That being said, deploying a new market requires a significant commitment: 500k $HYPE.

This is where Kinetiq comes in with their “Exchange as a Service” product, designed to help projects raise the required capital and reduce entry barriers. We recommend checking out the research from Ponyo (Four Pillars) for more detail, but the key takeaway is that Kinetiq lowers the barrier by crowdsourcing capital into isolated pools. Each pool backs one exchange, and contributors receive exchange-specific LSTs (exLSTs), which entitle them to trading fees and governance rights. Risk remains segregated, so a slashing event in one market does not affect others.

For Liminal, two aspects of HIP-3 stand out:

1) Tokenized equities
Imagine Nvidia or the S&P500 listed on Unit. HIP-3 could enable the corresponding perp markets. This would allow Liminal to offer fully on-chain, institutional-grade delta-neutral strategies for this new asset class. What makes tokenized stocks and indices particularly attractive is that they tend to be less volatile than crypto, making them easier to leverage. At the same time, demand for these assets is long-biased, which should translate into strong positive funding rates on perps. This combination is ideal for Liminal.

That said, weekends could present a challenge, since spot prices remain static while perpetual markets may still react to news. Addressing this mismatch will be essential to make these strategies fully viable.

It remains to be seen whether demand will materialize for perp equities on-chain, but we believe there will be interest. Once traders experience Hyperliquid, 24/7 perps, it’s likely they won’t want to trade elsewhere. If TradFi investors can access 24/7 liquid equity perps, the appeal could be strong. We would personally use Hyperliquid for equities if that becomes the case and if it is liquid.

Few words from Keisan about HIP-3: “Think about when equities are closed over the weekend and big news comes out, where will people look to see how they believe equities are going to move at the open?

There will only be one place: Hyperliquid”.

2) Yield-bearing collateral

• HIP-3 could enable markets that accept yield-bearing stablecoins like USDe or syrupUSDC as collateral. This adds another layer of capital efficiency, as your collateral earns yield while you trade perps.

For Liminal, this opens new forms of delta-neutral strategies. Imagine going long spot and short perps using syrupUSDC, which has delivered 7–10% since inception. You’d remain market-neutral, earn 7–10% from your perp collateral (3,5-5% total), and collect funding rates on top (around 10% for $HYPE for example). That results in attractive APY on a delta-neutral strategy.

• HIP-3 will also expand collateral options to potentially include assets like Bitcoin. That means holding BTC spot while shorting a BTC-margined BTC-PERP. Since both legs are denominated in BTC, this removes depeg and cross-asset volatility risks while reducing execution costs. In the future, introducing portfolio margin or a unified trading account (UTA) model, similar to what exists on CEXs, would make it possible to use spot assets like BTC, ETH, or HYPE directly as collateral for perp positions. This would eliminate liquidation price risks, greatly improve capital efficiency, and make the system even safer overall.

The Future of Finance on Hyperliquid ? 

In this article, we’re exploring what the future of finance could look like. Of course, this assumes many conditions, assumptions, and the most important is liquidity. Without deep markets, Liminal will not be able to execute these strategies flawlessly.

That being said, Hyperliquid has a real chance to build something very special.

If you can identify a number that people want to bet on (up or down) and provide a credible price oracle for it, you can create a market. Practically anything measurable with demand for speculation is fair game. Hyperliquid dramatically reduces the cost of building these markets: builders don’t have to worry about infrastructure, they simply plug into Hyperliquid and focus on front-end, capital, and users. Source. 

If such a future ever exist, it's likely it'd be on Hyperliquid.

And with the arrival of xTokens, Liminal could become one of the core layers powering that future. By turning complex delta-neutral strategies into simple, liquid, and composable assets, xTokens will unlock scalability, deepen liquidity, and make sophisticated yield generation accessible to anyone. They represent the bridge between professional-grade strategies and the broader DeFi ecosystem, a key step toward making on-chain finance truly efficient and open.

If you’d like to support our work while getting started with Liminal, feel free to use our referral link: https://liminal.money/join/GLCRESEARCH

It would help tremendously.

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