Hyperliquid's dominant liquid staking protocol, Kinetiq, announced Elysium, a new Layer 2 chain designed to address HyperEVM's throughput limitations and revive stagnant spot trading. Elysium will use HYPE as its gas token and route 50% of sequencer fees to buy back and burn Kinetiq's native KNTQ token, which surged 30% on the news. The launch comes as Kinetiq seeks new revenue streams amid an 18% monthly decline in its core kHYPE total value locked.
Elysium L2 launch
- ▪Kinetiq announced the development of Elysium, a Layer 2 chain built on top of the Hyperliquid ecosystem designed to improve transaction speeds and throughput.
- ▪Elysium will use Hyperliquid's native HYPE token as its gas token to maintain composability with the broader Hyperliquid stack.
- ▪Elysium plans to introduce native oracles built on optimized Layer 1 precompiles to deliver faster and cheaper price data feeds directly to decentralized applications.
HyperEVM performance limitations
- ▪HyperEVM utilizes a dual-block design that splits transactions between fast, smaller blocks and slower, larger blocks, which limits overall execution efficiency.
- ▪HyperEVM suffers from performance limitations, including low throughput and expensive transaction fees that spike during periods of high market volatility.
Hyperliquid spot market revival
- ▪Elysium aims to revive spot trading by providing automated market makers, known as PropAMMs, with a faster execution environment and direct access to HyperCore orderbook data.
- ▪Hyperliquid's spot trading volume and HIP-2 liquidity have declined to multi-month lows, failing to match the platform's dominant position in perpetual futures.
Kinetiq TVL decline
- ▪Kinetiq's core kHYPE total value locked declined by nearly 18% over the month preceding the August 2026 announcement.
- ▪Kinetiq controls approximately 82.5% of the liquid staking market on Hyperliquid, making it the ecosystem's largest liquid staking protocol.
- ▪Kinetiq's kHYPE supply fell 62% from its August 2025 peak through May 2026, while its liquid-staked HYPE share dropped from 10.42% to 4.42% of total staked HYPE.
KNTQ sequencer fee buybacks
- ▪Kinetiq will allocate 50% of Elysium's sequencer fees to fund open-market buybacks and burns of the KNTQ token.
- ▪The price of Kinetiq's native KNTQ token surged approximately 30% following the announcement of the Elysium Layer 2 chain and its deflationary fee model.
- ▪Elysium's remaining sequencer fees will be split equally, with 25% going to developers building on the chain and 25% going to Kinetiq's treasury.
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