In today’s edition, we cover yesterday's index moves, crypto sector rotation into AI themes, hashprice dynamics and miner valuations amid the HPC pivot narrative. We then dig into Kinetiq's Markets.xyz upcoming launch, HIP-3 deployer economics, revenue projections under Growth Mode and the protocol's dominant LST positioning.

Gold outperformed the session, finishing up roughly +0.3%. Equities finished lower yesterday, with the S&P 500 flat and Nasdaq 100 down 0.6%, both clawing back losses after being further down earlier in the day. BTC painted a more volatile picture, plunging -2% before a sharp reversal that brought it back to -0.3% by the close. The move came as markets positioned cautiously ahead of Friday's December payrolls report, with softer labor data earlier in the week reinforcing the “low-hire, low-fire” narrative. 

Diving deeper into crypto sectors, the session painted a clear bifurcation between AI-adjacent themes and the rest of the complex. AI (+4.9%) and Crypto Miners (+4.2%) led the tape by a wide margin as AI plays regained momentum. Launchpads (+1.1%) and RWA (+0.4%) also held up. On the other side, Perps (-4.4%) and DEXs (-3.7%) were the clear laggards, with Modular (-2.8%), DeFi (-2.7%), and the Ethereum ecosystem (-2.1%) also struggling to find a bid. Hence, capital is rotating toward compute narratives while trading infrastructure continues to bleed.

Within the AI index, SN115 (+5.1%) and TAO (+5.0%) led the session, with FET (+4.1%) close behind as all three caught a sharp bid before fading off highs. BDX (+1.9%) and VIRTUAL (+1.4%) also finished green, as VIRTUAL gave back the bulk of its intraday gains after spiking near +5%. On the weaker end, 0G (-5.5%) grinded lower throughout the day, while AR (-2.2%), NEAR (-1.9%), and ICP (-1.6%) all closed in the red.

— Sam

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Hash price has bounced off November lows but remains near historically depressed levels. At roughly $40 PH/s, it's up from the ~$35 trough in November but still below breakeven for less efficient operators. The recovery has tracked a pullback in network hash rate from October's all-time highs above 1,100 EH/s, as older rigs came offline in response to BTC's recent pullback. Hash price compresses when network hash rate grows faster than BTC price, and only rising prices or network attrition can reverse the trend.

Despite falling margins, miner equities have largely decoupled from hash price. The WGMI index has diverged sharply since mid-2025, rallying even as mining economics deteriorated. The market's willingness to underwrite the AI/HPC pivot explains the gap. However, hashprice still currently drives the majority of cash flows for most operators. Prolonged weakness at current levels will eventually weigh on miners’ balance sheets, and any sustained pullback in hash price would pressure the equities regardless of the AI narrative.

Since our November deep dive, EV/EBITDA (BTC adj.) multiples across the sector have compressed. WULF still commands the richest valuation at ~40x, reflecting near-term HPC earnings growth expectations. Meanwhile, MARA and HIVE, names that remain more tethered to pure-play bitcoin mining, trade around 5x. IREN has pulled back but, in our view, still presents value given its contracted HPC pipeline and the magnitude of its recent de-rating.

The valuation dispersion increasingly maps to megawatt capacity rather than hash rate. As we noted previously, the correlation between gross MW targets and EV/EBITDA stems from markets rewarding scale in power infrastructure amid growing fears of electricity constraints for AI workloads. Names like CIFR (~4 GW pipeline) and IREN (~3 GW by 2027) trade at premiums with smaller footprints, while pure-play miners without credible HPC pivots remain stuck on legacy multiples.

— Sam

Markets by Kinetiq

Markets.xyz, Kinetiq's HIP-3 builder-deployed perpetuals venue, is set to launch on Jan. 12, 2026. The platform is Kinetiq's direct entry into Hyperliquid's HIP-3 deployer ecosystem and its clearest path to scalable, activity-linked revenue beyond its liquid staking core.

The venue will use USDH as collateral (similar to Felix) and integrate Kaiko as its oracle provider, enabling real-time pricing across both crypto and equities. Markets will launch with seven products spanning global indices: US500, EUR, BABA, USTECH, SMALL2000, USBOND, and USENERGY. Internally, we’ve used Felix and Ventuals as comparable benchmarks, and projected daily volume as roughly $6.4M, or approximately $2.3B annually.

Users can participate through kmHYPE, a reward-accruing LST with a fixed 888K circulating supply that represents the HYPE staked to back Markets. The venue allocates 10% of deployer revenue to kmHYPE holders, with the remaining 90% retained by Kinetiq and flowing into the broader KNTQ value accrual framework through buybacks and treasury. Minting kmHYPE was reserved for KNTQ holders, who also have governance authority over Markets. kmHYPE minting is now closed.

The frontend, developed in partnership with PvP, is set to become one of the more feature-rich interfaces for Hyperliquid markets. PvP was originally a perpetuals trading Telegram bot, which later acquired Hyperdash, a Hyperliquid-focused perpetuals analytics platform. Markets is set to offer orderbook analytics with liquidation and stop heatmaps, trader PnL calendars, social analytics and leaderboards, advanced algorithmic order types unavailable on Hyperliquid's native frontend, and gamified rebate systems.

Kinetiq enters this market from a position of dominance in the underlying staking layer. The protocol currently holds approximately $610M of the $739M total Hyperliquid LST TVL, representing roughly 82.5% market share. This distribution moat, combined with zero insider token unlocks until late November 2026 and a potential 6.2% buyback yield from staking revenue, creates a relatively clean setup heading into the Markets launch. 

One important consideration is that the near-term revenue outlook remains relatively tempered by Hyperliquid's Growth Mode, which reduces deployer fees by approximately 90%. However, if fee structures normalize, deployer revenue could scale meaningfully, shifting Kinetiq’s revenue model from a low-margin LST utility toward a scalable deployer and builder layer, strategically positioned atop Hyperliquid’s most valuable layers.

— Boccaccio

1. The Privacy Primitive: FHE Comes to Mainnet

Blockworks Research published a report analyzing fully homomorphic encryption (FHE) as an emerging solution for onchain confidentiality. The report identifies key demand drivers, including confidential DeFi, private payments, sealed-bid auctions and private AI inference. While constructive on FHE's potential, the analysis highlights significant challenges: FHE operations remain 1,000x to 1,000,000x more expensive than plaintext computation, making hardware acceleration via ASICs (expected 2027-2028) critical for mainstream adoption.

2. There is a third way in DeFi lending

Silvio writes about Sky's SubDAO lending architecture as a third approach beyond monolithic and isolated models, generating approximately $168M in annualized earnings with exceptional 1.8% margins by allocating USDS liquidity to specialized SubDAOs that access undercollateralized credit at governance-defined rates. Spark, the first SubDAO, borrows from Sky at rates between Aave's supply and borrow rates while deploying capital across offchain yield, Morpho vaults, Sparklend markets and direct liquidity vaults. The model avoided Oct. 10 liquidation setbacks by concentrating in bluechip assets, though challenges remain in growing USDS adoption beyond its current investment product positioning and managing governance overhead across multiple SubDAOs.

3. Do Buybacks Make Sense? | Lucas Bruder 

This episode of Lightspeed features Lucas from Jito discussing Solana validator behavior and the token buyback debate. Lucas unveils Jito's new IBRL dashboard, which exposes how validators pack transactions across millisecond time slices per slot, revealing that some validators backload transactions to capture higher fees at the expense of network latency. The dashboard implements a scoring system based on slot timing, vote packing and transaction distribution, with validators like Helius distributing transactions uniformly while others concentrate them at slot end. This behavior creates cascading delays as validators process concentrated transaction batches, though social pressure from data transparency could mitigate issues before protocol solutions like MCP arrive. Lucas also discusses prop AMM expansion for perps, highlighting their superiority over CLOBs for oracle price encoding and BAM's role in fast cancellations and liquidations. 

4. Agentic Payments and Crypto’s Emerging Role in the AI Economy

Galaxy Research published a research report examining x402, a protocol launched by Coinbase that enables AI agents to make crypto payments through standard HTTP interactions. The report explains how x402 uses the dormant "HTTP 402 Payment Required" status code to allow agents to pay for APIs, data access and digital services using stablecoins. It analyzes the emerging agentic payment stack, compares x402 to traditional payment solutions like Stripe's Agentic Commerce Protocol, and concludes that blockchain-based payments will likely augment rather than replace incumbent systems — quietly powering applications without explicitly identifying as "crypto."