Hyperliquid unveils a major move "Combined Margin," can it bring in additional funds?

Author: Jaleel加六

This is one of the most significant upgrades Hyperliquid has ever had.

In the past, various DeFi protocols and Perp DEXs in the crypto market have been upgrading, all essentially addressing the same issue: how to make limited funds generate greater liquidity. Traditional financial derivatives markets have had an extremely effective solution: Portfolio Margin. This mechanism once brought over $7 trillion in incremental volume to traditional derivatives markets, fundamentally changing the game for institutional trading.

Now, Hyperliquid has brought it on-chain. In today’s liquidity-constrained environment, this could be a turning point for a new boom in on-chain derivatives markets.

What is Hyperliquid’s Portfolio Margin

Let’s start with the most straightforward change.

In most past CEXs and Perp DEXs, we differentiate between “spot accounts,” “contract accounts,” “lending accounts,” and so on, each with its own calculation method. But after Hyperliquid introduces Portfolio Margin, these accounts no longer need to be distinguished.

The same funds can be held as spot assets and used directly as collateral for contracts. If the available balance isn’t enough when placing an order, the system will automatically assess whether you have assets that meet the criteria in your account, then borrow the necessary funds within a safe range to complete the trade—almost seamlessly.

Even better, the “idle funds” in the account will also earn interest automatically.

In a Portfolio Margin account, as long as an asset is within the borrowable range and isn’t being traded or used as margin, the system will automatically treat it as supplied funds and start earning interest based on the current utilization rate. Most HIP-3 DEXs will be included in the portfolio margin calculation, eliminating the need to deposit assets into a separate lending pool or switch between protocols frequently.

Coupled with HyperEVM, this mechanism opens up more possibilities: in the future, more on-chain lending protocols can be integrated, and new asset classes and derivatives in HyperCore will also support portfolio margin gradually. The entire ecosystem is evolving into an organic whole.

Naturally, the liquidation process has also changed.

Hyperliquid no longer sets strict liquidation lines for individual positions but monitors the overall safety status of the entire account. As long as the combined value of spot holdings, contract positions, and loans still meets the minimum maintenance requirements, the account remains safe. Short-term fluctuations in a single position won’t trigger liquidation immediately; only when the overall risk exposure exceeds a threshold will the system intervene.

Of course, in the current pre-alpha stage, Hyperliquid is quite conservative. Borrowable assets, available collateral, and account limits are capped, and once these are reached, the system reverts to normal mode. Currently, only USDC can be borrowed, and HYPE is the only collateral asset. The next phase will add USDH as a borrowable asset and BTC as collateral. This stage is more suitable for small accounts to familiarize themselves with the process rather than pursuing large-scale strategies.

Before discussing the significance of Hyperliquid’s Portfolio Margin upgrade, we need to look back at what the Portfolio Margin mechanism has experienced in traditional finance and its impact, to better understand why this is one of Hyperliquid’s most important upgrades.

How Portfolio Margin Saved the Traditional Financial Derivatives Market

The 1929 stock market crash was another well-known systemic financial collapse before the 2008 financial crisis.

In the 1920s America, the post-war prosperity and rapid industrialization were in full swing. Automobiles, electricity, steel, radio—almost every emerging industry showcased the era’s prosperity. The stock market became the most direct way for ordinary people to participate in this boom, and leverage was perhaps more common than today.

At that time, a very common practice for stock buying was called “on margin.” You didn’t need to pay the full amount; you only needed to put up about 10% of the cash, with the rest borrowed from brokers. The problem was, this leverage had almost no upper limit and lacked unified regulation. Banks, brokers, and dealers were intertwined, with layered loans, many of which were short-term borrowings from other sources. Behind a single stock, there could be multiple layers of debt.

Starting in spring and summer of 1929, the market experienced multiple violent swings, and some funds began to quietly withdraw. But the mainstream sentiment was still: “This is just a healthy correction. After all, the US economy is strong, industry is expanding, production is growing—how could the stock market really crash?”

But crashes are hard to predict. On October 24, 1929, the market opened with unprecedented selling pressure. Stock prices plummeted rapidly, and brokers began issuing margin calls. But for investors, this was very difficult to fulfill. Large-scale forced liquidations ensued, pushing prices down further, which triggered more accounts to be liquidated. A chain reaction spiraled out of control, with stock prices crashing through multiple layers of support without any buffer.

Unlike 2008, there was no single iconic institution like Lehman Brothers collapsing; almost the entire financing system collapsed together. The stock price collapse quickly propagated to brokers, then to banks. Banks failed due to securities losses and bank runs, companies lost their financing sources, and began layoffs and closures. The stock market crash didn’t stop within the financial system but dragged the US economy into a prolonged Great Depression.

In this context, regulators developed an almost instinctive fear of “leverage.” For those who experienced that crash, the only reliable solution was to simply and crudely restrict everyone’s borrowing ability.

Thus, in 1934, the US government established a regulatory framework centered on “limiting leverage,” with mandatory minimum margin requirements. Like many regulations, the initial intention was good, but overly simplistic, ultimately stifling liquidity. It can be said that since then, the US derivatives market operated under “shackles” for a long time.

This contradiction was only addressed in the 1980s.

Futures, options, and interest rate derivatives rapidly developed, and institutional traders no longer simply bet on direction but used hedging, arbitrage, spread, and portfolio strategies extensively. These strategies are inherently low-risk and low-volatility, but rely on high turnover to generate income. Under these shackles, capital efficiency was severely limited. Continuing with this approach, the growth ceiling of the derivatives market was very low.

Against this backdrop, the Chicago Mercantile Exchange (CME) took a crucial step in 1988 by implementing the Portfolio Margin mechanism.

The impact on market structure was immediate. According to later statistics, the Portfolio Margin mechanism ultimately added at least $7.2 trillion in incremental volume to the traditional financial derivatives market.

This is an enormous figure—today’s total crypto market cap is only about $3 trillion.

What does this mean for on-chain derivatives markets

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

The first impact is a significant increase in capital efficiency for crypto funds. With Portfolio Margin, the same amount of capital can support more trading activity and accommodate more complex strategies.

More importantly, this change opens up new possibilities for a large category of institutions that previously only engaged in traditional finance. As mentioned earlier, most professional market makers and institutional funds are not primarily concerned with individual trade profits but with the overall capital utilization over time.

If a market doesn’t support portfolio margin, their hedging positions are viewed as high-risk, with high margin requirements, making returns hard to compare with traditional trading platforms. Under such conditions, even if they are interested in on-chain markets, it’s difficult to scale up their investments.

This is why, in traditional finance, Portfolio Margin is regarded as the “core configuration” for derivatives trading platforms. With it, institutions can support long-term liquidity and strategic positions. Hyperliquid’s upgrade is fundamentally about attracting these traditional institutions and funds.

When such capital enters the market, the impact is not just on trading volume. A deeper change is the transformation of market structure. The proportion of hedging, arbitrage, and market-making funds will increase, leading to a thicker order book, narrower bid-ask spreads, and more resilient and manageable depth during extreme market conditions.