Incentive exhaustion cuts LIT’s perp dominance to 8.1%, Hyperliquid rises
Lighter (LIT) saw its DeFi perpetuals market share fall from a peak near 60% in December 2025 to about 8.1% by mid-February 2026 after a post-airdrop incentive unwind. Aggressive liquidity incentives and zero-fee trading initially attracted short-horizon, yield-driven traders, driving sector turnover to $7.9 trillion late 2025 and Lighter’s temporary dominance. When the LIT airdrop landed on December 30, many participants sold, pushing LIT down ~45% by mid-January and causing repeat trading volumes to evaporate. Total daily perp volumes contracted to roughly $15–20 billion, and the broader market expanded (total perps volume doubled to $14 trillion over six months), which amplified share dilution. As Lighter’s speculative flow drained, Hyperliquid (HYPE) reclaimed market share—holding ~23.4% share and capturing ~70% of Open Interest—while Paradex, DYDX, Aster and EdgeX absorbed incremental flows during volatility spikes. On-chain moves amplified uncertainty: large transfers of LIT (including ~10 million associated with Justin Sun and other wallets) flowed into exchange hot wallets, while market makers such as Wintermute accumulated inventory and HTX routed millions into zkLighter infrastructure. The net effect: incentive exhaustion and post-airdrop exits materially weakened Lighter’s speculative volume, enabling Hyperliquid and other venues to seize derivatives leadership; however, Lighter retains structural depth in BTC and ETH contracts, holding over 50% Open Interest in key pairs. Primary implications for traders: elevated exchange rotation risk, potential short-term sell pressure from concentrated token holdings, and opportunities in venues offering better rebates, latency or incentives.
Bearish
The news signals a negative market development for LIT-driven speculative volume and short-term price sentiment. Incentive exhaustion and a large post-airdrop sell-off caused a sharp contraction in repeat trading volume and market share—from ~60% to ~8.1%—which directly reduces fee and flow-driven liquidity on Lighter. Concentrated on-chain transfers (including ~10 million LIT tied to Justin Sun and additional wallet clusters) into exchange hot wallets increase the risk of further sell pressure during volatility. Comparable past events (e.g., token airdrops and incentive removal on other venues) often produced transient but pronounced outflows, margin calls, and temporary price collapses for the token and venue activity, while competitors with stronger rebates, latency or maker incentives captured migrated flow. For traders: short-term implications are bearish for LIT price and Lighter’s trading volumes—expect elevated volatility, potential forced selling, and continued exchange-share reallocation. Medium-to-long-term outcomes are mixed: if Lighter preserves depth in BTC/ETH contracts and reintroduces sustainable incentives or product improvements, some market share could be recovered; otherwise, liquidity concentration may permanently shift to competitors like Hyperliquid. Trade strategies to consider: avoid aggressive long exposure to LIT until on-chain selling subsides, monitor exchange hot wallet movements and open interest shifts, and consider arbitrage or market-making opportunities on platforms gaining share.