On May 2025, the Hyperliquid Policy Center (HPC) and trade[XYZ] submitted a comment letter to the SEC. Their claim: Pre-IPO perpetual (IPOP) markets on Hyperliquid discovered IPO prices that were 10.8% to 38.4% lower than the actual opening prices. That’s a remarkable number. If true, it suggests a systemic undervaluation in traditional IPO pricing—a billion-dollar inefficiency hiding in plain sight.
But the data comes from the proposers themselves. No third-party verification. No independent audit of the five markets that completed their full lifecycle. The code doesn’t lie, but the narrative around it often does.
Context: What is IPOP?
IPOP stands for Pre-IPO Perpetual. It’s a synthetic perpetual swap that tracks the price of a company’s shares before its official IPO. The contract explicitly states: “IPOP does not grant holders any shares, allocation, voting rights, or other rights against the issuer.” It’s a pure derivative—a bet on the IPO price, not a trade in the underlying equity.
The proposal was jointly submitted by HPC (Hyperliquid’s official policy arm) and trade[XYZ], a market maker operating within the Hyperliquid ecosystem. They argue that IPOP provides continuous price discovery during the pre-IPO window, and that the five completed markets prove the concept. The underlying blockchain is Hyperliquid’s own Layer-1, which runs an on-chain order book for perpetual swaps.
Core: The On-Chain Evidence Chain
Let’s strip away the marketing. The IPOP is a synthetic asset that lives entirely on-chain. Its price is determined by the funding rate mechanism—a periodic payment between long and short positions that forces convergence toward the expected IPO price. This is not free-market price discovery in the textbook sense. It’s an engineered convergence driven by arbitrageurs betting on the final IPO number.
From my years auditing DeFi derivatives, I’ve seen the same pattern: a synthetic product that claims to discover a “fair” price, but the price is actually a function of the market’s expectation of the underwriter’s decision. The 10.8%-38.4% spread is not a measure of IPOP’s accuracy; it’s a measure of the market’s discount for the risk that the IPO price might be lower than the pre-IPO hype.
More importantly, the five markets were operated by a single market maker: trade[XYZ].
That’s a concentration risk. If trade[XYZ] pulls out during a volatile pre-IPO window, the entire price discovery mechanism collapses. The SEC’s primary concern is market integrity. A single-market-maker structure is a red flag.
Metadata holds the provenance the price ignored. The IPOP contracts themselves are transparent: they are simple perpetual swaps with no delivery mechanism. But the data behind the claimed 10.8%-38.4% spread is opaque. No raw trade-by-trade records. No funding rate history. No verification of the sample selection. The proposers chose the five markets that showed the largest spread. That’s cherry-picking, not data science.
Contrarian: Correlation ≠ Causation
The common narrative is that IPOP improves price discovery for IPOs. The contrarian take: IPOP is a prediction market, not a price discovery tool. It’s a bet on the outcome of an IPO, analogous to betting on an election. The lack of delivery means there is no underlying asset to trade. The “price” is simply the market’s expectation of the underwriter’s behavior.
This distinction matters for regulation. If IPOP is a prediction market, it falls under the CFTC’s jurisdiction (as with Polymarket). If it’s a securities derivative, it falls under the SEC. The proposers are trying to have it both ways: they claim it’s not a security (because no rights to shares) but they submit it to the SEC for approval. That’s a strategic ambiguity.
Furthermore, the claim that IPOP found a “fairer” price is misleading. The traditional IPO discount is a feature, not a bug. Underwriters deliberately price IPOs below the expected market price to ensure a successful debut and reward institutional investors. A synthetic market that shows a lower price is not discovering a hidden truth; it’s revealing the market’s expectation of the discount. The SEC’s stance on “price discovery” has always been tied to the actual trading of securities, not synthetic bets on their outcomes.
Takeaway: The Next-Week Signal
The SEC’s response will be the real tell. If they request additional data or a no-action letter, it signals a willingness to engage. If they ignore the letter or issue a statement of concern, the IPOP model is effectively dead for US retail. The proposal is a test case for DeFi’s regulatory integration. Watch for the SEC’s next public comment period.
Tracing the ghost liquidity behind the synthetic price discovery: the real value in IPOP is not the price accuracy, but the precedent it sets for regulatory acceptance of non-delivery derivatives. The code doesn’t lie—but the narrative around it often does. The question is whether the SEC will buy the narrative or demand the raw data.