The Secret Sauce of Hyperliquid
Author: @stacy_muur, CuratedCrypt0 Member
Translated by: zhouzhou, BlockBeats
Editor’s Note: This article was published in February 2025 when Hyperliquid attracted attention due to the “50x leverage insider whale” frequently executing contracts. Three months later, as the crypto market warmed up, Hyperliquid again stirred the market, with its token $HYPE reaching a new all-time high. This time, the attention-grabbing whale was James Wynn, a high-profile “40x leverage whale.” On May 26, James Wynn posted on social media, hinting that he would no longer participate in (or publicly engage in) contract trading. He stated:
BlockBeats previously reported that whale James Wynn had recently attracted massive attention by opening long and short positions worth over $1 billion on Hyperliquid. Wynn opened large short positions last Saturday to bet on a Bitcoin decline, and his positions exceeded $1 billion once again. Earlier today, Trump reversed his decision, delaying a 50% tariff on the EU, which caused Bitcoin to quickly rebound, leading to Wynn’s short positions being liquidated at a loss of over $15 million.
Why are whales so eager to trade on Hyperliquid? This decentralized derivatives platform offers up to 50x leverage, zero gas fees, and a fully on-chain transparent order book, making it a paradise for high-risk traders. The platform’s low-cost, high-leverage features, combined with market volatility, attract whales, making Hyperliquid the new focus for contract trading.
Background and Founding Story
In the history of decentralized finance (DeFi) derivatives, few protocols have captured more than half of the on-chain perpetual contract market, but Hyperliquid has achieved this. What is its secret?
Data shows that in a 24-hour period, the total trading volume of on-chain perpetual contracts was $14.37 billion, of which @HyperliquidX accounted for an astonishing $9.3 billion, representing a dominant 64.71% share, showcasing Hyperliquid’s absolute dominance in the market.
However, most decentralized exchanges (DEXs) have struggled to match this, typically relying on:
- Automated market maker (AMM) designs (leading to high slippage for large orders, e.g., GMX);
- Partial off-chain solutions (such as dYdX v3), which can affect transparency or add complexity to user experience.
Hyperliquid recognized this issue: if the user experience is poor or liquidity is insufficient, users will not migrate to the blockchain on a large scale. Therefore, the team focused on providing “CEX-level speed and liquidity, but fully on-chain.”
Hyperliquid’s success proves the potential of DEXs in the face of giants like Binance. Binance’s 24-hour perpetual contract trading volume is $97.22 billion, while the total DEX trading volume is only $14.637 billion, with Hyperliquid contributing $9.532 billion.
With Hyperliquid, the DEX’s trading volume reaches 15% of Binance’s; without it, this percentage would drop to 5%, leaving only $5.105 billion. This demonstrates the driving force Hyperliquid has had on DeFi trading.
This performance fulfills Hyperliquid’s core promise — to deliver CeFi-level trading experience on a completely decentralized Layer-1 platform.
Table of Contents
- Background and Founding Story
- Why Do CEXs Still Dominate?
- Prioritizing User Experience from Day One
- 1. Perpetual Contract DEX
- 2. Spot Exchange
- 3. Hyperliquid HLP (Liquidity Pool)
- 4. Vaults (Copy Trading)
- 5. HIP-1 and HIP-2 Token Standards
- Hyperliquid’s Technical Core
- HyperBFT Key Optimization
- HyperEVM: Full Layer-1 Capabilities
- How Hyperliquid Compares to Other Platforms?
- Hyperliquid vs. Other DEXs
- Comparing to CEXs
- Hyperliquid’s Community: A Trading Platform Built for Traders
- Community-First Token Distribution
- Listening to Users
- Assistance Fund
- What This Means for End Users
- User-Centered Product Design
- The Path to Decentralization
- What Is the Secret Sauce of Hyperliquid?
Founding Team
Hyperliquid was founded by @chameleon_jeff (Harvard graduate, former Hudson River Trading quant trader) and a small engineering team from top universities like MIT and Caltech. Between 2020 and 2022, they were involved in high-frequency trading (HFT) and switched to decentralized solutions after the collapse of FTX. Witnessing billions of dollars disappear due to centralized custodianship, their goal became clear: to create a self-custodial alternative without sacrificing performance, and to fund the project “without VC funding” to ensure long-term alignment with users and traders rather than catering to short-term investor interests.
Despite major centralized exchanges (CEXs) like FTX collapsing, user trading habits didn’t immediately shift to DeFi. Many traders still use centralized platforms like Binance, not because they ignore custody risks, but because CEXs always offer:
- Fast and familiar interfaces;
- Deep liquidity;
- Advanced trading features (stop orders, professional candlesticks, etc.);
- No gas fees, cross-chain accessibility;
- Low barriers to entry and easy trading experience.
The chart above shows data from the collapse of FTX in 2022 (November to December) and projected data for 2025 as of March 6. Hyperliquid recognized this shortcoming: if the user experience is poor or liquidity is insufficient, users won’t migrate to the blockchain on a large scale. Therefore, the team focused on creating “CEX-level speed and liquidity, but fully on-chain.”
Hyperliquid’s Product Matrix
Hyperliquid’s core product is its perpetual contract DEX, using a fully on-chain central limit order book (CLOB), supporting:
- BTC, ETH with up to 50x leverage;
- SOL, SUI, kPEPE, XRP with up to 20x leverage;
- Small market cap tokens with up to 3x leverage.
Hyperliquid was built from the ground up to provide more openness than off-chain solutions offered by competitors and was designed specifically for high-frequency trading (HFT) needs. Its features include:
- Sub-second trade confirmation;
- Processing 100,000 orders per second;
- No gas fees or near-zero gas fee order and cancellation experience.
These key factors make its user experience comparable to CEXs.
Advanced Trading Mechanisms
- Atomic operations: Atomic liquidation based on the latest oracle price, with atomic funding rates distributed hourly;
- Asset security checks: Platform verifies asset security at the end of each block;
- Order prioritization: Prioritizes cancellations and limit orders, protecting market makers from malicious liquidity effects.
As of last week, Hyperliquid Perps traded $66.5 billion, nearly 7 times the $9.7 billion of the second-ranked Jupiter, and more than the combined total of the next 14 competitors ($33.6 billion). Hyperliquid dominates 66% of the total trading volume of the top 15 perpetual exchanges.
Hyperliquid’s spot exchange launched in mid-2024, initially supporting over 20 native assets, such as HYPE and memecoins.
Compared to Hyperliquid’s massive $1.06 trillion perpetual contract market, spot trading started small but grew rapidly. By early 2025, with key updates (especially the launch of BTC), Hyperliquid is gradually becoming a strong competitor in on-chain spot trading.
Returning to mid-2024, Hyperliquid’s spot trading was limited to its own tokens and a few other assets (like RAGE). This limited range of assets discouraged many professional traders who preferred mainstream assets like BTC, not just speculative tokens.
Messari analyst MONK predicted in a report that adding BTC would completely change the game, making Hyperliquid a one-stop platform for both spot and derivative trading, challenging centralized exchanges. This prediction was quickly validated on February 15, 2025, when the Unit team launched the ability to directly trade BTC spot on the Hyperliquid order book.
What does this mean?
Surging Trading Volume
Before the launch of BTC, Hyperliquid’s spot trading was only a small fraction of the $63 billion monthly BTC perpetual contract trading volume. Messari expects that with the introduction of appropriate assets, spot trading volume could reach 20%-30% of perpetual contract trading volume, with a potential increase of billions of dollars. With BTC spot trading now online, other DEXs have a monthly BTC trading volume of $33 billion, and Hyperliquid is rapidly capturing this market share.
More Assets Coming Soon
Unit’s solution not only supports BTC but also lays the foundation for bringing ETH, SOL, and even real-world assets in the future. This could make Hyperliquid the core market for trading crypto assets spot.
HLP – Liquidity Pool
HLP is a liquidity pool where users can deposit funds (mainly USDC) as counterparties for derivative traders and share in the profits from trades.
Purpose: To provide passive income opportunities for users who do not want to trade actively, following the model of “the house always wins,” allowing depositors to benefit from trading activity.
Core Features:
- Deposited funds are lent to traders for leveraged trading;
- Profits vary, but annualized returns reached 54% by the end of 2024.
Hyperliquid also offers copy trading (Vaults), allowing users to allocate funds to professional traders’ strategies for automatic trading.
Purpose: To allow average users to profit from top traders’ expertise without directly managing trades themselves.
Core Features:
- Anyone can create a Vault and manage funds, with managers required to hold at least 5% of the position and receive a 10% profit share;
- Users can browse different Vaults’ performance and select investments for profit-sharing.
Innovative Token Standards
Hyperliquid introduced two innovative token standards to enhance its ecosystem:
- HIP-1: A native token protocol that allows users to issue custom tokens on Hyperliquid L1 (e.g., PURR, a meme coin launched as a proof of concept);
- HIP-2: A liquidity solution that provides market-making strategies for tokens issued by HIP-1, ensuring liquidity without relying on external platforms like Raydium (unlike Pump.FUN).
Core Features:
- HIP-1 tokens can be directly used for spot and perpetual contract trading on Hyperliquid;
- HIP-2 provides liquidity support through customized market-making by the Hyperliquid team, using its quantitative trading abilities.
Example: PURR has a native ledger, spot order book, built-in oracles, and perpetual contract trading, demonstrating how these standards build a composable trading ecosystem.
From perpetual contracts to spot trading, all of Hyperliquid’s
Products Built on Custom Blockchain – Hyperliquid Layer1
On February 18, 2025, HyperEVM was officially launched on the mainnet.
Hyperliquid’s blockchain currently handles over 20,000 transactions per second (TPS), supporting a robust ecosystem including perpetual contract trading and the BTC spot market. Based on the HyperBFT consensus, its Layer 1 (L1) has evolved from a specialized trading platform to a general-purpose blockchain.
Major TPS Improvement
Previously limited by Tendermint, which only supported 20,000 orders per second, the upgrade now allows for 200,000 orders per second.
Faster Processing Speed
The consensus process no longer blocks execution, allowing transactions to be continuously ordered without waiting for the current block to be processed.
Lower Latency
Confirmation times are faster and more stable, with only network latency affecting them.
Optimistic Response
The block generation speed depends on the communication efficiency of the validators.
HyperEVM integrates the general-purpose EVM network into the Hyperliquid blockchain, forming a dual-VM architecture:
- Native VM: Optimized for high-performance trading.
- EVM Layer: Supports permissionless third-party development.
The upgrade of HyperBFT, along with the introduction of BTC spot trading, gradually makes Hyperliquid a more powerful and versatile trading platform.
Fully On-Chain vs. Partially Off-Chain
Hyperliquid uses a fully on-chain Central Limit Order Book (CLOB), whereas many DEX competitors (such as dYdX v4) still rely on partially off-chain order books. Hyperliquid’s solution ensures verifiable and transparent matching engines, preventing issues like front-running and dark pool practices.
Perpetual Contract Market Dominance
As of February 2024, Hyperliquid holds 56% of the on-chain derivatives DEX trading volume. Since July 2024, its monthly perpetual contract volume surpassed major competitors. In January 2025, Hyperliquid’s monthly perpetual trading volume reached $196 billion, while the combined total of the other four major protocols was only $60 billion.
Performance and Market Maker Priority
Hyperliquid’s custom Layer-1 and consensus mechanism (HyperBFT) enable it to handle sub-second latencies and around 100,000 orders per second. This is tailor-made for high-frequency trading. Other DEXs built on general-purpose blockchains must share block space with many other trades, making it harder to maintain high throughput.
Volume Gap and Growth Trajectory
While Hyperliquid is still smaller than top centralized exchanges like Binance, it has closed the gap in certain months. By March 2025, its trading volume accounted for more than 26% of the total trading volume compared to Binance’s top 100 spot pairs. This comparison highlights how an on-chain, high-performance perpetual contract exchange can effectively challenge and even dominate centralized spot markets.
On-Chain Transparency vs. Centralized Control
CEXs typically have proprietary off-chain engines, which may involve opaque practices around order routing, fees, or front-running. Hyperliquid’s fully on-chain design allows anyone to verify transactions instantly.
Future Goals – “On-Chain Binance”
Analysts describe Hyperliquid’s bullish case as developing into an on-chain Binance equivalent. It already offers perpetual contracts and an expanding spot market, recently launching spot BTC, and HyperEVM is now running on the mainnet, beginning to attract broader DeFi applications.
After becoming a leader in DeFi derivatives, Hyperliquid’s rapid success is not only due to its performance but also proves its community-first approach.
Risk-Free Investor Shares
The Hyperliquid team has funded development through self-raised funds, avoiding the distribution of shares to private investors. This ensures that tokens are not diluted by large venture capital stakes, in contrast to competitors like dYdX (over 50% allocated to investors) or GMX (30% allocated to insiders).
Generous Airdrop
Genesis Airdrop (31% of supply): Distributed to 94,000 early users, averaging about $45,000 per person. This rewards true users, not speculators.
Points Program: The opaque reward mechanism prevents Sybil attacks and favors loyal users over bots.
76% of Community Allocation: More than three-quarters of the $HYPE tokens are allocated to the community (airdrop + incentives), ensuring alignment with long-term growth.
Direct feedback built a community with shared interests. The team contacted traders like @HsakaTrades (500k+ followers) and @burstingbagel, and based on feedback, built Vaults (e.g., 20%+ annual yield delta-neutral strategies) and HLP. Since 2024, over 50% of feature updates have come from user requests, making traders co-creators rather than just users.
Building Trust Through Reliability
A reliable product retains users in a skeptical market. Traders initially came for the airdrops but stayed because Hyperliquid offers sub-second deposit speeds, deep liquidity in HLP, and 99.9% uptime, unlike competitors that experience frequent downtimes.
Hyperliquid is not the first DEX to offer perpetual contracts, but by optimizing trading speed (sub-second order execution), liquidity (HLP pools over $540 million), and user experience (solving withdrawal delays ignored by competitors), it has achieved 100,000 trades daily, successfully overcoming doubts about the demise of the derivatives market by dYdX or GMX.
Transaction Fees and Aid Fund
When traders use the Hyperliquid platform, they pay trading fees, a portion of which is allocated to the Aid Fund (AF). This fund continuously buys HYPE tokens from the market, creating sustained buying pressure. As trading volume increases, more fees flow into the AF, further driving the demand for HYPE. As of now, the AF has accumulated 16.63 million HYPE tokens, accounting for 4.97% of the circulating supply, with an estimated value of $267.24 million. Hyperliquid’s rapid growth is evident, with perpetual trading volume reaching $196 billion in January 2025.
Self-Reinforcing Cycle
For HYPE holders and traders, this system creates a self-reinforcing value cycle. As Hyperliquid’s trading activity grows, the purchasing power of the Aid Fund increases, ultimately benefiting long-term token holders.
Self-Reinforcing Cycle: More trades → More fees → More buybacks → Token value increases.
Gas-Free Transactions
Gas fees are only incurred when transactions lead to state inflation (e.g., spot listings or transfers to new wallets).
No KYC Required
Register via email or cryptocurrency wallets like MetaMask.
Intuitive Interface
The design accommodates both beginners and advanced traders, with an interface similar to centralized exchanges like Binance.
Near-Instant Settlements
Sub-second block times support real-time transactions.
High Throughput
Handles over 200,000 transactions per second, even during peak activity.
Easy Fund Deposit
Deposit USDC via Arbitrum (native multi-chain support planned for the future).
Gamified Design
Leaderboards and competitive rewards (e.g., airdrops for top traders) create a sticky, active community.
Validator Expansion and Decentralization
While Hyperliquid’s L1 was initially operated by a team-run validator (for performance optimization and rapid iteration), it is gradually evolving toward a multi-validator network and decentralized node framework:
- Expanding the validator set (from 16 to over 100 nodes).
- Read-only nodes: Third parties can validate the chain’s state and block production using already running nodes.
Long-term Deployment Plan: As the ecosystem develops, the team plans to introduce stronger staking and validator onboarding mechanisms, moving toward a trustless model similar to leading proof-of-stake networks.
Incentive Alignment
Since fees currently flow to the protocol’s treasury and LP providers (rather than the founding team), the team’s future rewards are tied to the upcoming token, aligning with long-term chain performance and decentralization goals.
Looking Ahead
Hyperliquid is evolving from a specialized perpetual contract DEX to a complete exchange ecosystem. With the addition of BTC spot trading, HyperEVM’s launch on the mainnet, and validator set expansion, its ambition to become an “on-chain Binance” is clear. Combining CeFi’s high performance with DeFi’s transparency, it has already captured 64.71% of the on-chain perpetual contract trading volume, proving how a successful community-driven approach can drive DEX to challenge even the largest centralized platforms.
Key Points for the Future
- No VC, self-funded model: Ensures users own tokens and minimizes private sale dilution, prioritizing true trader interests over short-term investors.
- User-centric token distribution: Generous airdrops (31% of supply to early users, 76% total to community), dynamic points program to prevent Sybil attacks, and an aid fund benefiting holders via token buybacks.
- High-performance Layer-1 (HyperBFT + HyperEVM): Sub-second confirmations, 100k+ order throughput, and EVM compatibility offer speed and composability for future DeFi expansion.
- Fully on-chain CLOB: Transparent order matching and minimal slippage bridging liquidity gaps typically binding traders to CeFi.
- Spot and perpetual contracts in one place: Seamless access to core markets, new BTC spot, and strong perpetual products. Users can manage spot and leveraged positions on one platform.
- Community-driven feature development: Direct feedback loops (requests for Vaults, HLP improvements, cross-chain bridging) let traders engage and shape ongoing enhancements.
- Long-term decentralization vision: Expanding validator sets, opening read-only nodes, and a fee structure with no team profits ensures incentive alignment and gradual trustless migration.
By combining technological excellence, community-first incentive mechanisms, and uncompromising user experience, Hyperliquid has outlined the blueprint for DeFi success. Its “secret” is the perfect blend of institutional-grade performance and grassroots user engagement—this combination is redefining on-chain trading and paving the way for a broader decentralized finance future.
Original link: This article is authorized to be republished by BlockBeats, written by LIDONG.
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