NYSE Parent Company Plans to Build On-Chain Exchange on Hyperliquid: Is Wall Street’s 25-Year “Matching Engine Moat” Crumbling?

Author: Vaidik Mandloi (The Token Dispatch)

Translated by: TechFlow

TechFlow Brief: While the crypto market is celebrating Hyperliquid's token price surge and its so-called "ultimate institutional endorsement," the vast majority are ignoring the truly earth-shattering underlying rupture behind this partnership: the global financial behemoth Intercontinental Exchange (ICE), which controls the New York Stock Exchange (NYSE), is actively tearing down the technological moat that traditional exchanges have monopolized for a quarter of a century.

For the past 25 years, all major global exchanges have been telling shareholders the same story: a private central matching engine is an insurmountable moat. Yet, the alliance between ICE and Hyperliquid is tantamount to openly admitting that an exchange's true core asset has never been its underlying matching code, but rather franchise access rights and guaranteed performance trust. Facing the paradigm-shifting blow of perpetual swaps sweeping across the globe with $90 trillion in trading volume, the rollover premiums that traditional exchanges rely on to maintain their 30x high valuations are being completely dismantled by on-chain funding rates.

When the century-old parent company of the NYSE structurally devolves into a mere "application" running on decentralized blockchain, this Wall Street strategic outsourcing to crypto protocols is not only reshaping the clearing paradigm for tokenized US stocks, but also marks the formal opening of the curtain on an era where traditional finance is being consumed by the foundational primitive of perpetual contracts.

Hello,

The entire internet is currently buzzing about Hyperliquid's token price, hailing the partnership between Intercontinental Exchange (ICE) and Hyperliquid as the largest-scale institutional endorsement the crypto industry has ever received.

But in my view, everyone is looking at the wrong point entirely.

For the past 25 years, major global traditional exchanges have tirelessly instilled a myth in shareholders: proprietary matching engines are their impregnable commercial moats. However, if this core technology layer can be directly outsourced to public chain protocols, what exactly remains of a traditional exchange's moat?

I believe the business model upon which traditional exchanges survive is about to undergo a seismic shift, and this partnership is simply the first domino of the coming storm.

What Core Assets Do Exchanges Have Left?

In the early 2000s, when electronic matching completely eliminated the open outcry pits in exchange trading floors, the market widely believed that designated market makers would vanish along with them.

But no one at the time realized a crucial fact: the New York Stock Exchange (NYSE) itself is fundamentally a designated market maker. Traders on the floor once believed they were the embodiment of the exchange, but in brutal commercial reality, they were merely the execution labor most easily replaced by technology within the entire ecosystem.

While reading various reports on the deep cooperation between ICE and Hyperliquid, this history repeatedly flashes through my mind. Because almost all current crypto participants are making the same fatal mistake: they mistakenly assume traditional exchanges are selling underlying matching technology.

Let me break this down with an intuitive example: when a massive pension fund wants to trade crude oil futures, the fund manager will never search the CME screens for a specific counterparty; they don't even care who the counterparty actually is.

The reason they confidently trade on CME is that CME provides central counterparty clearing guarantees in the middle. If a counterparty defaults, CME's guarantee fund will cover the full loss; if the guarantee fund runs dry, CME's massive insurance pool and clearing members will step in to backstop it.

A highly legendary business case from the evolution of the McDonald's commercial empire perfectly echoes the transformation currently happening in exchanges.

McDonald's doesn't need to personally fry a single burger patty to make a profit. The burgers are made by franchisees around the world, while McDonald's actually earns money from the prime real estate rents beneath their feet and the crucial brand franchising rights.

Years ago, ICE CEO Jeff Sprecher had already penetrated to this business truth. To be fair, this leader might be the most underestimated commercial genius in modern financial history.

As early as 2013, Jeff Sprecher invested $11 billion to acquire the two-century-old NYSE. But he was not interested in the trading floor at all; he wanted the market data business, which now charges exorbitant terminal subscription fees from every hedge fund worldwide.

And today, he has again proactively and presciently handed over the underlying matching and clearing technology for perpetual contracts directly to a decentralized crypto protocol.

Figure: The positioning difference between software companies and financial services firms: a game between deterministic execution and probabilistic premiums

The rise and fall of CME is the most vivid example of this logic. As early as 2004, Eurex invested heavily to set up an exchange within the United States, attempting to seize market share in US Treasury futures with a more advanced electronic matching engine.

Eurex possessed faster systems and a more advanced architecture at the time, but ultimately suffered a crushing defeat with almost nothing to show. The reason is very simple: capital and clearing quotas of established financial institutions were already deeply embedded in CME's clearinghouse, and no one was willing to bear migration risks.

Since history has repeatedly proven that traditional exchanges are never selling software technology, but rather legal compliance, clearing guarantees, and franchise access rights, why exactly does ICE outsourcing its underlying technology to Hyperliquid send shivers down the spines of rival traditional exchanges?

Because an entirely new financial primitive is sweeping in with overwhelming momentum, striking at the core liquidity lifeline and valuation pillar of traditional exchanges: perpetual swaps.

The most lethal threat perpetual contracts pose to traditional exchanges lies in how they completely reconstruct the revenue logic of capital rollovers. In traditional futures markets, contracts expire every few months, and traders must constantly pay expensive trading commissions, calendar spreads, and management fees to roll positions forward to the next month.

This continuous stream of rollover income is precisely the fundamental pillar supporting CME's ability to enjoy a PE ratio of up to 30x in the US stock market, rather than the 15x valuation of traditional brokers; and perpetual swaps, through innovative funding rate mechanisms, have completely eradicated traditional rollover friction.

Jeff Sprecher keenly realized he had no choice but to fully embrace perpetual contracts. The annual global trading volume of this category in the crypto market has already broken through the staggering $90 trillion mark, and this massive trading wave ignited by retail capital is spreading irreversibly toward traditional macro assets.

Facing such towering waves, rather than spending billions of dollars and years developing continuous clearing systems from scratch, and engaging in a lengthy regulatory approval process and uncertain tech tug-of-war with startup protocols, it is better to simply integrate the entire mature on-chain matching technology directly.

But there exists an extremely intriguing structural shift here: Hyperliquid is absolutely not a traditional exchange, but a decentralized public chain protocol. On top of this protocol, anyone can permissionlessly build and launch various financial frontends and customized applications.

This means that ICE, the massive financial empire controlling the NYSE, has essentially devolved into a "decentralized application" running on someone else's underlying blockchain network at the system architecture level.

If viewed through the "Fat Protocol theory" debated in the crypto industry since Joel Monegro proposed it, this partnership presents a shocking subversive picture.

Figure: The "Fat Protocol" theoretical model in the crypto sector: the protocol layer captures the vast majority of value, while the application layer accounts for only a thin sliver

I believe Jeff Sprecher's tactical judgment is entirely correct: the brand credibility and franchising premiums possessed by traditional exchanges are thick enough that even with technology outsourcing, they can still sustain their massive business scale; and other traditional exchange peers will soon have to bow their noble heads and be forced to follow this path.

But from the perspective of long-term capital market pricing logic, this move undoubtedly sounds the death knell for high valuations of traditional exchanges. Markets previously awarded exchanges PE ratios above 30x based on the assumption that they possessed irreplaceable proprietary monopoly matching technology; and once this layer is proven to be cheaply replaceable by open-source crypto protocols, their valuation logic will inevitably suffer a permanent downward revision.

The Ultimate Primitive Devouring Modern Finance

Currently, most media outlets reporting on ICE's heavy-weight move merely view it as a single new product trial, as if ICE is simply placing another token derivative named perpetual swap onto its existing massive shelf.

But the reality is far from simple. In the underlying mathematics of financial engineering, perpetual contracts have never been just a single contract; they are the "universal matrix" of all financial derivatives.

Decentralized stablecoins like DAI are fundamentally perpetual contracts, leveraged margin futures are perpetual contracts, and even fixed-income bonds and interest rate swaps in traditional finance can be seamlessly expressed as perpetual contracts through mathematical mapping of continuous funding rates.

The underlying mathematical principle supporting this conclusion is precisely the Taylor Series. Put plainly, this means that a universal engine capable of millisecond-level funding rate settlement can theoretically approximate and synthesize any complex financial product in the modern financial system.

Figure: Taylor series mathematical expansion: using cumulative basic primitives to approximate any complex financial clearing mechanism

The direct integration between ICE and Hyperliquid is essentially connecting itself directly to the ultimate underlying network that will have the capability to route and clear all traditional financial assets globally in the future.

For this reason, CME is currently arguably the most potentially dangerous equity target in the traditional exchange sector. A careful breakdown of its income statement reveals that most of its high-profit businesses severely rely on the friction costs generated by traditional futures expiration and delivery.

If a trading venue emerges in the market that never expires, requires no cumbersome rollover fees, and boasts ample depth and extremely low capital costs, any rational institutional and retail traders will immediately shift their positions over there.

The wind vane of industry evolution is already accelerating convergence from both ends: as traditional finance compromises to crypto protocols, crypto giants are also accelerating their counterattack into traditional channels, such as leading exchange Kraken recently fully acquiring veteran futures broker NinjaTrader.

ICE is proactively implementing strategic sinking and business defense within the financial technology stack by outsourcing underlying technology to crypto protocols while firmly maintaining control over top-tier compliance access and clearing licenses.

If I were to place a long-term bet on this game, I believe Jeff Sprecher is extremely astute and seasoned from a five-year tactical perspective, but is very likely to lose everything in a fifteen-year strategic evolution.

Most crypto industry participants are currently still thrilled by the skyrocketing price of Hyperliquid platform token HYPE; but in the cold, stern skyscrapers of Wall Street, true financial behemoths are experiencing an unprecedented paradigm tremor.

Jeff Sprecher has calmly accepted the objective reality that matching technology has never been a moat, decisively integrated the industry's most efficient decentralized clearing infrastructure; and when the parent company of the world's largest traditional exchange begins migrating business onto public chains, the process of the entire modern financial system being deeply reconstructed by open-source crypto protocols is already irreversible.