HLP vault

Hyperliquid's protocol-owned vault, funded by user deposits, that provides market-making liquidity and carries out liquidations. Depositors share proportionally in whatever profit or loss those activities produce.

Definition

The HLP vault is the protocol acting as a market participant with user money. Deposits are pooled and used to quote both sides of markets and to absorb liquidated positions, and the result of that activity, positive or negative, is distributed across depositors in proportion to their share.

What a deposit actually is

Not a deposit in the banking sense. It is a share in a trading operation. The value of that share moves with the vault’s performance, and there is no principal that is protected from it.

The income comes from market-making spreads, fees and the profits of taking over liquidated positions. The losses come from the same activities: inventory that moves the wrong way, and liquidations absorbed in conditions where they could not be unwound at a good price.

When the risk concentrates

Precisely when markets are most violent. A vault that backstops liquidations is at its most exposed during the moves that cause them, because that is when it inherits the largest positions into the least liquidity.

A long period of steady returns is therefore not evidence that the strategy is safe. It is evidence that the conditions the strategy is exposed to have not occurred lately.

Practical points

Withdrawals are usually subject to a lock-up or notice period, so the capital is not available on demand, and the moment you would most want to exit is the moment everyone else does too.

Published performance is historical and net of whatever the vault already lost, so the figure to look for is drawdown, not just return.

Where you will run into it

On Hyperliquid’s vault pages, and in comparisons between depositing into HLP and trading yourself, which are different risks and not different versions of the same one.