Hyperliquid HIP-3 Perpetual Futures: Highlighting SK Hynix ADR Premium Arbitrage

Written by Eren, Four Pillars

Compiled by AididiaoJP, Foresight News

After the ADR listed on Nasdaq, the price gap between the ADR (SKHY) and the underlying shares (SKHX) widened sharply. During this period, TradeXYZ, the HIP-3 builder on Hyperliquid, launched perpetual futures markets for both. The funding rates of these two markets clearly illustrate what stock perpetual futures actually provide, what the market still lacks, how they interact with the underlying spot market, and where the strongest demand is drawn.

Note: ADR (American Depositary Receipt) is a certificate issued by U.S. banks representing shares of foreign companies, enabling U.S. investors to trade them in U.S. markets such as Nasdaq using U.S. dollars. ADR (SKHY) is the ADR ticker for SK hynix, listed on Nasdaq, where each SKHY share represents 1/10 of one underlying share (SKHX); the underlying share (SKHX) is the original stock or related instrument traded in South Korea. After listing, due to strong demand in the U.S. market, liquidity differences, and limited arbitrage opportunities, the price gap between SKHY and its underlying shares has widened significantly.

On July 9, SK Hynix sold 177.9 million American Depositary Receipts (ADRs) at $149 per share, raising $26.5 billion. This marked the largest ADR offering by a foreign company in history, surpassing Alibaba’s $21.8 billion record in 2014. The subscription book was more than seven times oversubscribed, and the Nasdaq opening price on July 10 was $170.

Subsequently, the price gap between the ADR (SKHY) and the underlying shares (SKHX) widened sharply. The premium timeline is as follows:

• July 13: The ADR premium, initially around 3% above the issuance price, widened to 25.6%, while the underlying shares plunged 15.4%. The KOSPI index also fell more than 8% intraday, triggering a circuit breaker, but the ADR declined only 9.3%.
• July 14: ADR surged 27% to close at $193.92, with the premium over the underlying shares rising to 51%.
• July 15: ADRs, which had surged the previous day, fell 9% to close at $176.46, while the underlying shares rebounded 8.8%. The premium of ADRs over the underlying shares narrowed from 51% to 30.7%.

The premium arises because arbitrage channels are closed. In an efficient market, institutions would buy the cheaper underlying shares, convert them into ADRs, and sell the ADRs to increase supply and eliminate the price discrepancy.

However, this channel is currently not open. This ADR was not created by depositing existing shares, but rather by issuing 17.79 million new shares to the depositary bank (Citibank), with the underlying shares scheduled for additional listing on the Korea Exchange on July 29. The Korean Securities Depository stated that requests for conversion between the underlying shares and the ADRs can only be processed after this date.

In addition, the issued ADRs represent less than 3% of SK Hynix's total shares. U.S. institutional demand has met a supply that cannot expand, causing the spread to widen.

During the same period, TradeXYZ, the HIP-3 builder on Hyperliquid, enabled perpetual futures markets for both assets. SKHX, which tracks the underlying stock, has been trading for some time, while SKHY, which tracks the ADR, launched the day before listing as a pre-IPO contract and converted to a standard contract at the start of Nasdaq trading.

As the gap between the underlying shares and ADRs widened, funding rates in the two markets diverged in opposite directions. On the 13th, as the underlying shares plummeted, the SKHX funding rate surged to +0.10% per hour, while the SKHY funding rate fell to -0.065%.

A positive funding rate means longs pay shorts, while a negative rate indicates the opposite. This suggests that longs are flooding the underlying asset side, while shorts are flooding the ADR side. This combination points to a single position: a trade betting on premium narrowing executed on Hyperliquid.

This event validated several assumptions about stock perpetual futures through a single case study. It directly demonstrated what stock perpetual futures actually provide, what the current market lacks, their relationship to the underlying market, and which markets generate the strongest demand for them:

• The ability to bypass spot market frictions: Betting on a narrowing premium requires buying the underlying shares and shorting the ADR. In the spot market, this demands won-denominated funds, a foreign investor account, settlement infrastructure, and ADR borrowing. In perpetual futures, it can be achieved simply by using USDC as collateral and trading two contracts on a single platform.
• Missing funding rate tool: The current two-sided betting position structure is suboptimal. Even when a premium persists, funding fees accumulate hourly, eroding collateral. In spot arbitrage, once the underlying shares are converted into ADRs, the spread can be immediately locked in as realized profit—but perpetual futures lack this forced convergence mechanism. SKHX converges to the underlying index, and SKHY converges to the ADR index, yet neither can narrow the gap between the two indices. Perpetual futures reflect the spread in the underlying market but do not resolve it. Even if the directional view is correct, delayed convergence can erode returns through accumulated holding costs. Ultimately, it is a structure that simultaneously carries the view that “the premium will narrow” and the burden of holding costs.
• To separate the two, the funding rate itself must be traded as a standalone market. For example, Pendle’s Boros tokenizes the funding rate into YU (Yield Units), splitting it into fixed and floating components. Positions that pay funding rates, such as SKHX longs, can buy YUs on Boros that receive the floating funding rate to offset their costs. This achieves a hedge that converts variable costs into fixed costs. The cost itself does not disappear, but future expenses can be locked in at entry, enabling better position sizing management. However, Boros currently supports only mainstream assets such as BTC and ETH, and HIP-3 stock perpetual futures are not yet included. Therefore, trading this spread currently entails exposure to funding rate volatility.
• The leading indicator function of perpetual futures: TradeXYZ’s SKHY pre-IPO market pointed to $164 three hours before Nasdaq’s open, $169.80 one hour before, $169.92 one minute before, while the actual opening price was $170. The SKHY market also trades during nights and weekends when KRX is closed, with Korean traders using its price as a leading indicator for the next day’s open. Perpetual futures no longer merely serve as derivatives tracking underlying assets—they now generate price discovery during periods when the original market is closed.
• Market value inversely proportional to underlying asset accessibility: These are two futures contracts tied to the same company, but SKHY’s funding rate remains near zero except during periods of sharp spread widening, such as on the 13th. The reason is that physical ADRs for Nasdaq are available, and U.S. options became listed starting on the 14th, allowing arbitrageurs to capture the basis. SKHX, however, lacks hedging tools, making the funding rate the sole mechanism for market clearing—thus making it the single largest contract, accounting for 33% of total HIP-3 trading volume and 50% of stock perpetual futures volume. Listing perpetual futures for liquid U.S. large-cap stocks is essentially rebuilding something that already exists. The more restricted the access, the higher the value of the perpetual futures contract.

The key node to watch is July 29, when the original shares will be additionally listed on a Korean exchange and the conversion mechanism between the original shares and ADRs becomes available, partially reopening the blocked arbitrage channel.

However, even with the channel open, asymmetry remains: ADR redemption into underlying shares is unrestricted, but conversion of underlying shares into ADRs is limited to the issuance cap, which is required to compress the premium.

Therefore, it remains uncertain whether the premium will narrow sharply, but even so, Hyperliquid is still the only place where this spread can be traded.