Hyperliquid: on-chain new arena, Decentralized Finance new ecosystem

Hyperliquid is a high-speed on-chain perpetual contract DEX, operating on its self-developed Layer 1, providing centralized exchange-level performance while maintaining on-chain transparency. Its native token $HYPE is responsible for network governance, can reduce trading fees after staking, and captures value through buybacks in listing auctions.

The core liquidity of the protocol is the HLP Vault, a hybrid vault that combines market makers and liquidity providers, accounting for over 90% of the TVL. In March 2025, Hyperliquid experienced a severe black swan event: the $JELLYJELLY manipulation incident, which nearly triggered a chain liquidation of the entire vault. The incident exposed the centralization issue in validator governance: intervention from the Hyper Foundation prevented a collapse, a move that, while ensuring survival, sparked controversy over decentralization.

However, after the crisis, Hyperliquid rebounded rapidly with whale stickiness and ecological expansion, setting new highs in trading volume, open interest, and $HYPE price. Now, the platform (including HyperEVM) has launched over 21 new dApps, covering NFT, Decentralized Finance tools, and treasury infrastructure, with features far exceeding those of perpetual exchanges.

"Degen" whale trading venue

James Wynn is a famous degen in the crypto world. He is an anonymous whale who turned $210 into $80 million in three years. His most notable achievement was turning $7,000 of $PEPE into $25 million, and he has consistently used 40x leverage to create nine-figure positions.

Wynn often publicly displays his entry points, responding in real-time to market fluctuations, even turning a blind eye to eight-digit liquidations. But the real key is not who Wynn is, but where he trades.

For Wynn and all high-leverage, high-position degens, Hyperliquid is the new arena. Anonymous whales (like "Insider Brother") are trading large positions on Hyperliquid, and their positions are now regarded by Chinese crypto media as a barometer of real-time market sentiment and the platform's dominance.

The core features of Hyperliquid

Hyperliquid is a decentralized exchange, but it does not adopt the AMM model like some DEXs. It uses a fully on-chain order book mechanism, pricing through on-chain matching rather than liquidity pools, providing a real-time trading experience similar to CEX. Limit orders, transactions, cancellations, and settlements occur transparently on-chain and can be settled within a single block.

Hyperliquid has built a dedicated Layer 1 blockchain, also named "Hyperliquid," designed for high performance. This is what enables it to execute trades at the speed and stability required by high-frequency traders.

By June 2025, Hyperliquid's market share in the on-chain derivatives market will reach 78%, with a daily trading volume exceeding $5.5 billion.

$HYPE token

The total supply of $HYPE is 1 billion coins, which will be distributed to approximately 94,000 users through a large-scale airdrop (310M, 31%) in November 2024, making it one of the projects with the most genuine user distribution in recent years. A total of 70% is allocated to community airdrops, incentives, and contributors: no VC. This is based on the clear philosophy of founder Jeffrey Yan. He is a Harvard math graduate and a former high-frequency trading engineer.

Yan has publicly stated: "Letting VCs control the network would be a scar." He hopes to build a financial system "constructed by users and belonging to users."

$HYPE not only has governance functions but is also directly used to reduce transaction fees. Users can stake $HYPE to receive fee discounts. Furthermore, $HYPE is the core of network security. Hyperliquid operates on a Proof-of-stake consensus mechanism, and staking $HYPE is not just for fee reduction or earning rewards; it is the foundation of the entire block production mechanism.

HIP-1 auction mechanism

One of Hyperliquid's most unique and often underestimated mechanisms is its auction-based listing system: HIP-1. This mechanism determines the listing eligibility of new tokens through on-chain Dutch auctions:

• The starting price is twice the last transaction price;
• Linear decline lasted for 31 hours, dropping to a minimum of 10,000 USDC;
• The first wallet address to accept the current price will gain the right to create and launch the Token.

Unlike the opaque operations and high listing fees of centralized exchanges, HIP-1 listing is completely transparent, requires no negotiation, and has no insider allocations.

Vault mechanism

Hyperliquid serves not only active traders but also provides users with a way to earn passive income through its vault system, allowing funds to participate in algorithmic trading strategies.

Currently, there are two types of vaults:

1. User-created Vaults: Anyone can initiate a vault and use the pool of funds for trading. Investors share profits and losses proportionally, while vault managers can collect 10% of the profits as a management fee.

2. HLP (Hyperliquidity Provider): The HLP treasury operates market-making strategies on Hyperliquid. Although the strategy execution is currently still conducted off-chain, its positions, orders, trading history, deposits, and withdrawals are all publicly recorded on-chain in real-time, available for anyone to audit.

Risks and Challenges of Hyperliquid

HLP accounts for over 90% of the TVL on Hyperliquid and simultaneously takes on the main liquidity source and liquidation responsibilities for the platform. Such a high concentration poses systemic risks: if HLP fails, the entire platform could collapse.

In the $JELLYJELLY incident in March 2025, this risk was laid bare. The event was a meticulously orchestrated attack that nearly caused a systemic chain liquidation of the entire HLP treasury. Ultimately, Hyperliquid issued an emergency announcement stating that it had encountered "abnormal market behavior" and quickly coordinated validator votes to delist the JELLY contract and enforce liquidation.

This incident not only challenged the stability of HLP but also shook the decentralized foundation claimed by Hyperliquid. According to on-chain data, Hyper Foundation controls the majority of validators, with a total staking ratio of 78.5%.

The revival and development of Hyperliquid

Despite experiencing the crisis of the $JELLYJELLY incident, Hyperliquid has still maintained a strong growth momentum:

1. Whale users remain active: even during the most intense moments of the crisis, Hyperliquid still maintains about 9% of the perpetual contract trading volume of a certain large centralized exchange.

2. The product ecosystem continues to expand: multiple new modules such as spot market, HyperEVM, HLP treasury, and copy trading system have been launched, building an "all-in-one Decentralized Finance trading platform".

3. The HyperEVM ecosystem is thriving: multiple DEXs, Decentralized Finance protocols, Launchpads, and other projects have been launched, forming a complete on-chain financial ecosystem.

4. Fee revenue ranks high: Among all protocols, it ranks seventh in fees over the past 30 days ($69.15 million), surpassing some mainstream public chains.

Conclusion

Hyperliquid is becoming the only required trading platform on-chain, from spot to perpetual, and across the entire ecosystem. It is not only a DEX but also a complete high-performance L1, with a self-consistent underlying architecture, user structure, and governance model.

With its market share advantage, unique economic model, top founding team, and mature product ecosystem, Hyperliquid has established a competitive barrier that is difficult to replicate. It is on the way to becoming the "on-chain Binance", with the potential to reshape the Decentralized Finance trading landscape.