Woofun AI reports that Kinetiq announced the launch of Elysium, a new Layer 2 network for Hyperliquid, on August 24, as documented by ChandlerZ for Foresight News. This initiative is designed to bridge the operational gap between HyperCore's spot order books and HIP-3 perpetual contracts by unifying token issuance, automated market maker (AMM) liquidity, and execution layers into a single pathway. A critical component of this architecture is the allocation of 50% of sequencer fees toward the buyback and destruction of KNTQ tokens, signaling a strategic shift in how value is captured and redistributed within the ecosystem. The network utilizes HYPE as its native Gas token, ensuring seamless integration with both HyperCore and HyperEVM while addressing performance bottlenecks inherent in the existing dual-blockchain structure.

Kinetiq operates as a native liquid staking and infrastructure protocol deeply embedded within the Hyperliquid ecosystem. The organization's leadership includes three publicly identified co-founders: Omnia, Magnus Lai, and Justin Greenberg, with Magnus Lai serving as Co-CEO and Justin Greenberg as CTO. Initially, the protocol concentrated on kHYPE, a liquid staking product for HYPE, before expanding its suite to include institutional-grade offerings such as iHYPE and earnings products via Earn.

Further diversification led to the creation of the HIP-3 Launch platform and the Markets perpetual contract platform. With the introduction of Elysium, Kinetiq is extending its product range to encompass a general-purpose execution layer, thereby broadening its influence from pure staking utilities to comprehensive market infrastructure. This evolution positions Kinetiq not merely as a staking provider but as a central architect of Hyperliquid's broader financial primitives.

The market context driving this development reveals a significant liquidity disparity within Hyperliquid's current architecture. While Hyperliquid has achieved substantial scale in perpetual contracts, spot and long-tail asset liquidity remain comparatively underdeveloped. Data indicates that both HyperCore's spot trading volume and HIP-2 liquidity have stagnated at multi-month lows. Data from DefiLlama as of August 25 highlights this imbalance: Hyperliquid L1 perpetual contracts recorded $43.

201 billion in trading volume over the past seven days, whereas HyperCore's spot order book generated only $1.571 billion during the same period. This represents a 27.5 times difference in volume. Even when including transactions from HyperEVM automatic market makers like Project X, which contributed $4.023 billion from Hyperliquid L1's spot DEXs, the perpetual contract volume remains 10.7 times larger. This structural gap underscores the necessity for a dedicated layer to enhance spot market depth and efficiency.

Fee revenue distribution further illustrates the dominance of derivatives over spot markets. A report by 21Shares, in collaboration with Artemis and DefiLlama, analyzed Hyperliquid's revenue streams in the first half of 2026. The data reveals that crypto asset perpetual contracts contributed 82.7% to Hyperliquid's total fees, while HIP-3 perpetual contracts accounted for an additional 11.2%. In stark contrast, spot trading and HIP-1 token deployments combined made up only 6.1% of total fees. This revenue concentration suggests that Hyperliquid's economic engine is heavily reliant on derivatives, leaving spot markets under-monetized. If Elysium can successfully increase spot assets and market making activities, it could introduce new spot order flows to HyperCore, providing essential pricing and hedging foundations for future HIP-3 markets. By rebalancing this dynamic, Kinetiq aims to unlock latent value in the spot sector.

The technical architecture of Hyperliquid presents both opportunities and constraints for high-frequency applications. Hyperliquid's official documentation indicates that HyperCore can currently process 200,000 orders per second, with single-block finality for orders, cancellations, trades, and liquidations provided by the HyperBFT consensus mechanism. HyperEVM and HyperCore share the same consensus and state mechanism, allowing smart contracts to read order book data and send operations to HyperCore via system contracts.

However, to control the impact of general computing on the trading system, HyperEVM employs two types of blocks: small blocks generated once per second with a Gas limit of 2 million, and large blocks generated once per minute with a Gas limit of 30 million. Hyperliquid states that these initial throughput settings are relatively conservative, and high demand will inevitably drive up Gas prices. This structure imposes significant cost and response time constraints on market makers and trading applications that require frequent price updates, creating a bottleneck that Elysium seeks to resolve.

Woofun AI data shows that Elysium is described by Kinetiq as a high-performance EVM chain built on the OP Stack, aiming to achieve block speeds close to those of HyperCore while continuing to use HYPE as Gas. A key technical innovation is the development of custom L1Read precompiled contracts, which will directly provide HyperCore's market data and order book information to Elysium applications. These precompiled contracts function as pre-set data interfaces on-chain, enabling developers to access Hyperliquid market data in smart contracts without relying on external oracles.

The existing L1Read can query statuses such as perpetual contract positions, spot balances, oracle quotes, and staking commitments, returning values corresponding to the latest HyperCore state at the time of HyperEVM block generation. Kinetiq plans to expand the depth of data that can be retrieved, providing market data closer to the top of the blockchain. For PropAMM, which requires frequent inventory and price updates, such interfaces are critical for determining whether market makers can hedge promptly in HyperCore after completing trades in Elysium.

The strategic vision for Elysium extends beyond mere execution speed to encompass a comprehensive token incubation and liquidity enhancement system. From AMM to perpetual contracts, Elysium will support token issuance, allowing new projects to initially launch in AMMs for long-tail assets. These projects can accumulate trading volume and initial liquidity before integrating into PropAMM, establishing HyperCore spot order books, and finally deploying perpetual contracts via HIP-3. PropAMM is an automated market making pool operated by professional market makers, where quotes can incorporate off-chain pricing models, inventory, and risk parameters, followed by on-chain settlement.

Elysium plans to allow PropAMM to directly access HyperCore data, enabling market makers to reference HyperCore's order books while quoting in Elysium and manage hedging efficiently. This mechanism connects HIP-1, which allows the deployment of native tokens, HIP-2, which provides on-chain liquidity strategies for the early spot market, and HIP-3, which enables external teams to operate their own perpetual contract markets after staking at least 500,000 HYPE tokens. By linking these capabilities, Elysium allows assets to establish price and trading records during the AMM phase before entering order books and derivatives markets.

Kinetiq's financial performance and total value locked (TVL) metrics provide context for the urgency of this expansion. According to Bankless, the supply of kHYPE decreased from a peak of 41.5 million tokens in August 2025 to 15.6 million tokens as of May 31, 2026, representing a drop of 62%.

Concurrently, the proportion of liquid staked HYPE in total staked HYPE declined from 10.42% to 4.42% during the same period. As of August 25, DefiLlama recorded a total locked value of approximately $930 million for Kinetiq's various products, reflecting a 1.5% decline over the past 30 days. These figures indicate a contraction in Kinetiq's core staking business, necessitating new revenue streams. Elysium's Launch platform has previously attempted to raise the 500,000 HYPE tokens required for HIP-3 through independent staking pools, reducing the need for project teams to lock up capital upfront. Elysium extends further upstream in the asset lifecycle, allowing projects to complete issuance and market making first before deciding whether to establish a HyperCore spot market and HIP-3 perpetual contracts. This gives Kinetiq control over three aspects: staking fundraising, market deployment, and execution layer fees.

The fee allocation model for Elysium is designed to align incentives among developers, the protocol, and token holders. According to the announced plan, 25% of Elysium's sequencer fees will be allocated to application developers who consume block space, and 25% will go into Kinetiq's treasury. The remaining 50% will be used to buyback KNTQ from the open market. The purchased tokens will then be destroyed and sent to Hyperliquid's aid fund. Kinetiq's existing Markets and Launch products already generate buyback income for KNTQ, and Elysium incorporates the fees from transaction execution into KNTQ's value capture. This mechanism creates a direct link between network usage and token scarcity.

However, the actual scale of buybacks will depend on trading volume after the network launches and the fee income after deducting operating costs. This structure aims to sustain KNTQ's value proposition by tying it to the economic activity of the new L2.

Despite the ambitious roadmap, 'Hyperliquid L2' still lacks complete technical specifications regarding security and interoperability. The OP Stack allows network operators to adjust Gas tokens, sequencer policies, data availability, and settlement configurations, meaning networks using the same framework may have different security boundaries. Standard OP Stack L2s typically submit transaction data and state commitments to Ethereum, while Elysium's customized approach for Hyperliquid remains unspecified.

Kinetiq has not yet disclosed where data will be published, how state will be submitted to Hyperliquid, fraud proof and withdrawal mechanisms, who will operate the sequencers, and how assets will be transferred between Elysium and HyperCore. These unresolved technical questions are critical, as they will determine whether Elysium can inherit Hyperliquid's security guarantees and whether market makers can complete quotes in Elysium and hedge in HyperCore within the same time frame.

Kinetiq's next step is to release technical specifications, key partners, and launch timelines for developers and traders in the near future. Until these documents are made public, the focus remains on spot trading and asset issuance, but the secure transmission of execution results back to HyperCore remains an open variable. This marks a pivotal moment for Hyperliquid's ecosystem, where architectural clarity will dictate the success of its next growth phase.