Hyperliquid implements a combined margin system, leading to a structural breakthrough in the on-chain derivatives market

Hyperliquid officially launches the on-chain Portfolio Margin mechanism, which is regarded by the industry as a milestone moment for on-chain derivatives trading. Portfolio Margin originates from traditional finance and has historically unlocked over $7 trillion in incremental market capacity—that figure alone demonstrates the power of this margin system. In the current environment of liquidity pressure, Hyperliquid’s innovation may be the turning point for the bottoming and rebound of the on-chain derivatives market.

How Portfolio Margin Changes Account Structures

In the past, whether on traditional centralized exchanges (CEX) or decentralized derivatives platforms (Perp DEX), users had to switch between “spot accounts,” “contract accounts,” and “lending accounts.” Each account had its own calculation logic, limited fund flow, and low efficiency. Hyperliquid’s introduction of the Portfolio Margin completely changes this situation.

Under the new system, users no longer need to distinguish between different account types. All assets are managed within a unified investment portfolio, with spot, contracts, and lending operating in a coordinated framework. More importantly, a single fund can serve simultaneously as spot holdings and contract collateral, enabling seamless switching. When a user places an order, the system automatically determines whether there are eligible assets in the account to be called upon, and automatically borrows the necessary funds to complete the trade while ensuring account security. The entire process is almost completely transparent to the user.

This margin system also brings a hidden benefit: idle assets in the account are no longer “dead money.” As long as these assets are within the lendable range and not engaged in trading or margin collateral, the system automatically treats them as supplied funds, earning interest based on real-time capital utilization. Users do not need to manually transfer funds to lending pools or switch between multiple protocols—thus, the entire ecosystem is evolving into an organic, unified entity.

The liquidation mechanism is also reformed as a result. Under traditional methods, short-term fluctuations in a position could trigger forced liquidation; however, within the new margin framework, the system monitors the overall risk level of the entire account. As long as the combined value of spot holdings, contract positions, and lending relationships still meet the minimum maintenance requirements, even if a single position experiences extreme volatility, the account remains safe—liquidation is only triggered when overall risk exceeds a threshold.

The Evolution of Margin Systems from Restriction to Liberation in Finance

To understand why Hyperliquid’s margin upgrade is so important, we must look back at a pivotal moment in traditional financial history.

The 1929 US stock market crash was a systemic disaster. At that time, leverage trading was common—investors only needed to pay about 10% of the cash, with the rest borrowed from brokers. The problem was that this leverage had almost no upper limit and lacked unified regulation. Banks, brokers, and dealers were intertwined, with layered loans creating an extremely fragile financial structure. Behind a single stock, there were often multiple layers of debt.

In October 1929, the market finally collapsed. Stock prices plummeted, brokers began issuing margin calls, but for investors, meeting these calls was nearly impossible. Large-scale forced liquidations ensued, further driving down prices, more accounts were liquidated, and the market spiraled out of control. Prices were hammered through without any buffer. This crash not only devastated the financial system but also directly plunged the US economy into a prolonged Great Depression.

This history left a deep scar on regulators. In 1934, the US government established a regulatory framework centered on “limiting leverage,” with mandatory minimum margin requirements. The initial intent was good, but overly simplistic policies ultimately stifled liquidity—for a long period afterward, the US derivatives market was heavily constrained.

By the 1980s, the flaws of this margin system became evident. Futures, options, and interest rate derivatives grew rapidly, and institutional traders no longer just bet on market direction but employed hedging, arbitrage, spread, and portfolio strategies. These strategies are inherently low-risk and low-volatility but require high turnover to profit. Under traditional margin restrictions, capital efficiency was severely hampered, and the growth ceiling of the derivatives market became very limited.

A turning point arrived in 1988. The Chicago Mercantile Exchange (CME) first implemented the Portfolio Margin mechanism. The market response was immediate and significant. According to later statistics, the portfolio margin system ultimately added at least $7.2 trillion in incremental market capacity—more than twice the current total market cap of the entire cryptocurrency market.

The Value of Margin in the On-Chain Derivatives Market

Now, Hyperliquid has brought this proven margin system onto the blockchain. This is the first time the Portfolio Margin mechanism has truly entered the on-chain derivatives space.

The most direct impact is a significant increase in capital efficiency. With the same amount of funds under a margin system, traders can support higher trading frequency and more complex strategies. For traders requiring precise capital management, this means better returns and more flexible position adjustments.

More profoundly, this change opens a door for traditional institutions. Most professional market makers and institutional funds care less about individual trade profits and more about the overall efficiency of their capital over the long term. If a market does not support a portfolio margin mechanism, their hedging positions are viewed as high-risk projects, with high margin occupancy, making it difficult to achieve returns that compete with traditional trading platforms.

In such a scenario, even if traditional institutions are curious about on-chain markets, they are unlikely to be motivated to deploy large-scale capital. That is why, in traditional finance, portfolio margin is regarded as a “fundamental configuration” for derivatives trading platforms—only with it can platforms support genuine institutional liquidity and complex strategies.

Hyperliquid’s upgrade is essentially creating a pathway for traditional institutions to enter the on-chain market.

How Institutional Capital Reshapes the Market Margin Ecosystem

When professional market makers and large institutional funds truly enter the on-chain derivatives market, the impact is not limited to increased trading volume.

The more critical change occurs at the microstructure level. As hedging, arbitrage, and market-making activities increase, the entire market will undergo qualitative improvements. The order book becomes thicker, bid-ask spreads narrow, and liquidity becomes more predictable. Under extreme market shocks, resilience and depth will also significantly improve.

From the perspective of the margin system, the influx of institutional funds will further optimize capital allocation efficiency. More hedging positions mean risk is more diversified, and overall margin utilization will trend toward a more rational level. This, in turn, will attract more institutional participation, creating a positive feedback loop.

Currently, Hyperliquid’s margin feature is in pre-alpha testing, with relatively strict restrictions. It only supports USDC as the lendable asset and HYPE as collateral, with limits per account. This cautious rollout strategy is rational—it gives users ample time to familiarize themselves with the new system and identify potential issues.

Future plans include support for USDH as a lendable asset, BTC as collateral, and deeper integration with ecosystem components like HyperEVM and HyperCore. As supported assets increase and integration deepens, the entire margin system’s capacity will be greatly enhanced.

It is easy to imagine that when this margin mechanism matures, its role in optimizing the structure and attracting capital to on-chain derivatives markets could mirror the impact CME had in traditional finance. In an era of liquidity competition, a truly efficient margin system is the key to unlocking incremental funds.