What HLP actually does with your USDC

Three jobs, one balance sheet

Market making. HLP quotes both sides of the book on many markets. It earns the spread and maker rebates, and it carries inventory it did not choose — when the market moves in one direction, HLP is usually on the other side of that move.

Liquidations. When a trader's margin runs out, HLP takes over the position and unwinds it. Most of the time this is profitable, because the position is taken at a discount. In a violent move it is not, because the discount is smaller than the gap the market opens.

Holding the residue. Whatever those two activities leave on the books, HLP holds. That is why its equity curve looks like a slow climb interrupted by sharp falls, rather than a yield.

Why the APR is the least interesting number

An APR describes a period that already happened, at the risk that period contained. HLP's returns come from being short volatility in a structural sense: it is paid steadily, and occasionally pays a lot back at once.

In the data we hold, the deepest fall from a previous peak was −$1.06M, and the vault spent 8 % of its life below a previous high. Any decision about depositing should start there, not at the 5.1 %.

What you are exposed to

Perpetual markets on assets you did not pick, including the newer commodity and equity markets deployed under HIP-3. A single market with thin liquidity and a violent gap can move HLP's balance sheet, even if you have never traded it.

You are also exposed to the withdrawal lock: the drawdown above is not something a depositor could always have exited.

Look at it as a wallet

HLP's address is public like any other. Open its live positions to see exactly what it holds right now, what that costs in funding, and how far it sits from any liquidation.

Related

All vaultsReading a drawdownHow funding worksHIP-3 marketsMethodology