In a significant development for the decentralized finance (DeFi) space, Hyperliquid has launched native staking on its mainnet. This feature enables users to earn rewards by securing the network and supporting its operations.
Background: Understanding Native Staking
Native staking is a feature that allows users to lock up their tokens in support of a network’s operations. In return for their participation, participants can earn rewards, typically in the form of additional tokens. This mechanism helps to secure the blockchain by validating transactions and ensuring the integrity of the network.
Hyperliquid’s Native Staking Feature
According to an announcement made on December 30, Hyperliquid has introduced native staking on its mainnet. Users can now select validators based on various metrics such as uptime, commission, reputation, and community contributions. The feature debuted with 16 validators.
The Hyperliquid protocol offers decentralized trading for crypto assets, which has amassed over $12 billion in trading volume in December alone. This significant growth has generated more than $8.6 million in cumulative revenue, as reported by DefiLlama.
Benefits of Native Staking
Native staking provides several benefits to users, including:
- Increased security: By locking up tokens, users help to secure the network and ensure its integrity.
- Rewards: Participants can earn rewards in the form of additional tokens for their contributions.
- Improved network performance: Native staking helps to validate transactions and support the network’s operations.
Hyperliquid’s Tokenomics
The Hyperliquid native token airdrop went live in late November, when its community received 310 million HYPE tokens, or 31% of its supply. Since then, the price of HYPE has skyrocketed from nearly $3.90 on Nov. 29 to trade around $26.80 at the time of writing.
The protocol has allocated a significant portion of its remaining supply for future emissions and community rewards, including:
- 38.8%: Allocated for future emissions and community rewards
- 6%: Reserved for the Hyper Foundation treasury
- 0.3%: Set aside for grants
- 23.8%: Assigned to core contributors under a one-year lock period
Decentralized Exchanges Reach Record Highs
The decentralized exchanges (DEX) sector, including Hyperliquid, reached a record high in December with a monthly trading volume of $462 billion. This significant growth is largely driven by anticipation of a more favorable regulatory regime in the United States in 2025.
Taxation on Staking Rewards: A Concern for the Industry
While the industry is anticipating a more favorable environment for digital assets in the US, there are still many hurdles to overcome. For instance:
- US Internal Revenue Service (IRS): The agency has recently reaffirmed that rewards earned from staking activities do not constitute new property and should be taxed upon receipt.
- Final regulations: The IRS disclosed final regulations covering decentralized protocols on December 27, which classified front-end protocols facilitating crypto trading as brokers. This means that the disclosure of gross proceeds from digital asset transactions is required, along with details about the taxpayers involved.
Conclusion
The launch of native staking on Hyperliquid’s mainnet marks a significant development for the DeFi space. As users can now earn rewards by securing the network and supporting its operations, this feature has the potential to attract more participants and contribute to the growth of the ecosystem.
However, the industry still faces several challenges, including taxation on staking rewards. The recent reaffirmation by the IRS that rewards earned from staking activities are taxable upon receipt highlights the need for clearer guidelines in this area.
As the DeFi space continues to evolve, it is essential for users and stakeholders to stay informed about the latest developments and regulations affecting the industry.
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