Original Article Title: The Secret Sauce of Hyperliquid
Original Article Author: @stacy_muur, CuratedCrypt0 Member
Original Article Translation: zhouzhou, BlockBeats

Editor's Note: Why are whales so keen on Hyperliquid, the decentralized derivatives platform known for its up to 50x leverage, zero Gas fees, and on-chain transparent order book, becoming a paradise for high-risk traders? Recently, according to blockbeat flash news, several whales opened high-leverage long and short positions after Trump announced a strategic crypto reserve, netting hundreds of millions of dollars. The platform's low-cost, high-leverage features, coupled with market volatility, have made whales flock to it, making Hyperliquid the new focus of contract trading.

Below is the original article content (slightly reorganized for better readability):

In the history of DeFi derivatives, few protocols have been able to dominate over half of the on-chain perpetual contract market, but Hyperliquid has achieved this. What is its secret?

Data shows that in the last 24 hours, the total trading volume of on-chain perpetual contracts was $143.7 billion, with @HyperliquidX accounting for a staggering $93 billion, representing a market share of 64.71%, showcasing Hyperliquid's absolute dominance in the market.

However, most DEXs have struggled to match in these aspects, usually relying on:

· AMM design (leading to high slippage on large orders, e.g., GMX);

· Partial layer 2 solutions (like dYdX v3), which can affect transparency or increase user complexity.

Hyperliquid recognized this issue: if the user experience is poor or liquidity is insufficient, users will not massively migrate on-chain. Therefore, the team is committed to providing "CEX-level speed and liquidity but fully on-chain."

Hyperliquid's success has demonstrated the potential of DEXs when facing giants like Binance. Binance's 24-hour perpetual contract trading volume is $972.2 billion, while the overall DEX trading volume is only $146.37 billion, with Hyperliquid contributing $95.32 billion.

With Hyperliquid, the DEX's trading volume can reach 15% of Binance's; without it, this ratio would drop to 5%, leaving only $51.05 billion. This demonstrates Hyperliquid's driving force for DeFi transactions.

This performance delivers on Hyperliquid's core promise — to provide a CeFi-level trading experience on a fully decentralized Layer-1.

Background and Founding Story

Origin and Team Composition

Hyperliquid was founded by @chameleon_jeff (a Harvard graduate and former Hudson River Trading quantitative trader) and a small engineering team from top-tier institutions such as MIT, Caltech, and others.

They were previously involved in high-frequency trading (HFT) from 2020 to 2022 and shifted to trustless solutions after the FTX collapse. Seeing billions of dollars disappear due to centralized custody, their goal became clear: to build a self-custodial alternative without sacrificing performance. They chose a "no VC, self-funded" approach to ensure long-term alignment with user and trader interests, rather than catering to short-term investor interests.

Why Can CEXs Still Dominate?

Despite major CEX failures like FTX, user trading habits did not immediately shift to DeFi. Many traders still use centralized platforms like Binance, not because they overlook custody risks, but because CEXs always provide:

· Fast and familiar interfaces

· Deep liquidity

· Advanced trading features (stop-loss orders, professional K-line charts, etc.)

· No Gas fees, cross-chain interoperability

· Low barriers and a convenient trading experience

The year 2022 refers to the period after the FTX collapse (November to December). The 2025 data is an estimated value as of March 6. Hyperliquid recognized this shortcoming: if the user experience is poor or liquidity is lacking, users will not migrate to the chain on a large scale. Therefore, the team is dedicated to building "CEX-level speed and liquidity but fully on-chain."

Product Development Prioritizing User Experience from Day One

Let's take a look at Hyperliquid's product matrix:

1. Perpetual Contract DEX

Hyperliquid's core product is its Perpetual Contract DEX, featuring a fully on-chain Central Limit Order Book (CLOB), supporting:

· Up to 50x leverage on BTC, ETH

· Up to 20x leverage on SOL, SUI, kPEPE, XRP

· Up to 3x leverage on small-cap tokens

Hyperliquid is built from the ground up to provide greater composability than competitor layer-two solutions and is specifically designed for high-frequency trading (HFT) needs. Key features include:

· Sub-second trade confirmation

· Processing 100,000 orders per second

· Gas-free or near-zero gas order and cancel experience

These key factors make its user experience on par with CEX.

Advanced Trading Mechanisms

· Atomic Operations: Settlement based on the latest oracle prices supporting atomic settlement and hourly distribution of the funding rate

· Asset Safety Checks: Platform conducts asset security validations at the end of each block

· Order Priority: Prioritizing cancellation over order-only limit orders to protect market makers from malicious liquidity attacks

As of last week, Hyperliquid Perps' trading volume reached $665 billion, nearly 7x that of the second-ranking Jupiter ($97 billion), and surpassing the next 14 competitors combined ($336 billion). Hyperliquid accounts for 66% of the total trading volume of the top 15 perpetual exchanges.

2. Spot Exchange

Hyperliquid's spot exchange went live in mid-2024, initially supporting over 20 native assets like HYPE, memecoin, and more.

Compared to Hyperliquid's massive $1.06 trillion perpetual contract market, the spot exchange started smaller but has been growing rapidly. By early 2025, with key upgrades (especially BTC listing), Hyperliquid is gradually becoming a strong contender in on-chain spot trading.

Looking back to mid-2024, Hyperliquid's spot trading was limited to its native token and a few other assets (such as RAGE). This limited asset range deterred many professional traders who preferred mainstream assets like BTC rather than just speculative tokens.

Messari analyst MONK predicted in his report that if Hyperliquid were to add BTC, it would completely change the situation, turning it into a one-stop platform that covers both spot and derivative trading, challenging centralized exchanges. This prediction was quickly validated on February 15, 2025, when the Unit team launched the functionality to directly trade BTC spot on the Hyperliquid order book.

What does this mean?

· Surge in Trading Volume: Prior to BTC's listing, Hyperliquid's spot trading volume was only a small fraction of the $630 billion monthly BTC perpetual contract trading volume. Messari estimated that by introducing the right assets, spot trading volume could reach 20%-30% of the perpetual contract trading volume, potentially adding billions of dollars. With BTC spot now live, other DEXs already had $330 billion monthly BTC trading volume, and Hyperliquid is quickly capturing this market share.

· More Assets to Come: Unit's roadmap not only supports BTC but also lays the foundation for the future introduction of ETH, SOL, and even real-world assets. This could position Hyperliquid as a central market for cryptocurrency spot trading.

3. Hyperliquid HLP (Liquidity Pool)

HLP is a liquidity pool where users can deposit funds (mainly USDC) to act as counterparties to traders on the derivatives exchange and receive a share of the trading profits.

· Purpose: To provide passive income opportunities for users who do not want to actively trade, following the "house always wins" model, allowing depositors to benefit from trading activity.

· Key Features:

 Funds deposited by users are lent to traders for leverage trading.

 Earnings are variable, but by the end of 2024, the annualized return rate had reached 54% at one point.

4. Vaults (Copy Trading)

Hyperliquid offers the Vaults feature, allowing users to allocate funds to professional traders' strategies for automatic trading.

· Purpose: To enable regular users to benefit from top traders' expertise without needing to trade directly themselves.

· Key Features:

  Anyone can create a Vault and manage funds, with managers needing to hold at least a 5% position and receiving a 10% profit share.

  Users can view different Vault performances, choose investments, and participate in profit sharing.

5. HIP-1 and HIP-2 Token Standards

Hyperliquid has introduced two innovative token standards to enhance its ecosystem:

· HIP-1: Native token protocol allowing users to mint custom tokens on Hyperliquid L1 (e.g., PURR, a meme coin introduced as a proof of concept).

· HIP-2: Liquidity solution providing market-making strategies for HIP-1 minted tokens to ensure liquidity without relying on external platforms like Raydium (unlike Pump.FUN).

Key Features:

· HIP-1 tokens can be directly used for spot and perpetual contract trading on Hyperliquid.

· HIP-2 offers custom market-making by the Hyperliquid team leveraging their quant trading capabilities to provide liquidity support.

Example: PURR features a native ledger, spot order book, built-in oracle, and perpetual contract trading, demonstrating how these standards build a composable trading ecosystem.

Hyperliquid's Technical Core

From perpetual contracts to spot trading, all of Hyperliquid's products are built on its custom blockchain — Hyperliquid Layer1. On February 18, 2025, HyperEVM officially launched on the mainnet.

Hyperliquid's blockchain can currently process over 20,000 transactions per second (TPS), supporting a robust ecosystem including perpetual contract trading and the BTC spot market. Based on HyperBFT consensus, its L1 has evolved from an initial professional trading platform to a general-purpose blockchain.

HyperBFT Key Optimization

Significant TPS Increase: Previously limited by Tendermint, supporting only 20,000 transactions per second, the upgrade now can process 200,000 transactions per second.

Faster Processing Speed: The consensus process will not be blocked by execution, transactions can be continuously ordered without waiting for the current block to be executed.

Lower Latency: Confirmation time is faster and more stable, only affected by network latency.

Optimistic Response: Block generation speed depends on the validators' communication efficiency.

HyperEVM: Full Layer-1 Capability

HyperEVM integrates a general EVM network into the Hyperliquid blockchain state, forming a Dual VM Architecture:

Native VM: Optimized for high-performance transactions.

EVM Layer: Supports permissionless third-party development.

With the upgrade of HyperBFT and the introduction of BTC spot trading, Hyperliquid is gradually becoming a more powerful and versatile trading platform.

How Does Hyperliquid Compare to...

Hyperliquid vs. Other DEX

On-chain Fullness vs. Off-chain Partiality

Hyperliquid adopts an on-chain Central Limit Order Book (CLOB), while many DEX competitors (such as dYdX v4) still rely on off-chain partial order books. Hyperliquid's approach ensures verifiability and a transparent matching engine, avoiding dark pool operations and front-running issues.

Dominance in Perpetual Contract Markets

As of February 2024, Hyperliquid has captured 56% of on-chain derivatives DEX trading volume. Since July 2024, its monthly perpetual contract trading volume has surpassed major competitors. In January 2025, Hyperliquid's monthly perpetual trading volume reached $196 billion, while the sum of the other four protocols was only $60 billion.

Performance and Market Maker Priority
Hyperliquid's custom Layer-1 and consensus mechanism (HyperBFT) enable it to achieve sub-second latency and a transaction throughput of around 100,000 trades per second. This is specifically tailored for high-frequency trading. Other DEXs based on general-purpose blockchains need to share block space with many other transactions, making it more challenging to maintain high throughput.

Comparison to CEX

Transaction Volume Discrepancy and Growth Trajectory

· While Hyperliquid is still smaller than top-tier CEXs like Binance, it has narrowed the gap in certain months, with its transaction volume share exceeding 26% of the displayed total volume by March 2025 (compared to Binance's top 100 spot trading pairs). This comparison highlights how an on-chain high-performance perpetual contract exchange can effectively challenge or even dominate centralized spot markets.

On-Chain Transparency vs. Centralized Control
CEXs usually have proprietary off-chain engines, potentially creating opacity in order routing, fees, or front-running. Hyperliquid's fully on-chain design allows anyone to verify transactions in real-time.

Future Goal: "On-Chain Binance"
Analysts have described the bullish case for Hyperliquid as evolving into an on-chain Binance analogy. It has already offered perpetual contracts and a growing spot market, recently launched spot BTC, and with HyperEVM now live on the mainnet, it is beginning to attract a broader range of DeFi applications.

After becoming a product leader in the DeFi derivatives space, Hyperliquid's rapid success is not only dependent on its performance but also demonstrates its community-first philosophy.

Hyperliquid Community: A Trading Platform Built for Traders

Community-First Token Allocation

· Risk-Free Investor Ownership: Hyperliquid's team conducted development through self-funding, avoiding scenarios where private investors dominate token distribution. This ensures that the tokens are not diluted by large VC stakes, setting it apart from competitors like dYdX (over 50% to investors) or GMX (30% to insiders).

· Generous Airdrop:

Genesis Airdrop (31% of the supply): Distributed to 94,000 early users, with an average of about $45,000 each. This was to reward actual users, not speculators.

Reward Program: An opaque reward mechanism that deters Sybil attacks, favoring loyal users over bots.

76% Community Allocation: Over 3/4 of the $HYPE tokens allocated to the community (airdrops + incentives), ensuring alignment with long-term growth.

Listening to Users
Direct feedback has built a community with shared interests. The team reached out via DMs to traders like @HsakaTrades (500k+ followers) and @burstingbagel, basing Vaults (e.g., Delta-neutral strategies with 20%+ APY) and HLP on feedback. Since 2024, over 50% of feature updates have come from user requests, making traders co-creators, not just users.

· Building Trust Through Reliability
A reliable product can retain users in a skeptical market. Traders initially came for the airdrop but stayed because Hyperliquid offered 1-second deposit times, deep HLP liquidity, and 99.9% uptime, unlike competitors that often suffered downtime.

Hyperliquid wasn't the first DEX to launch perpetual contracts, but by optimizing trade speed (sub-second order execution), liquidity (HLP pools over $5.4B), and user experience (addressing withdrawal delays competitors ignored), it achieved 100,000 daily trades, dispelling doubts that "dYdX or GMX have ended the derivatives market."

Aid Fund

When traders use the Hyperliquid platform, they pay transaction fees, with a portion going 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 boosting HYPE demand. To date, AF has accumulated 16.63M HYPE tokens, 4.97% of the circulating supply, valued at approximately $2.6724B. The rapid growth of Hyperliquid is evident, with perpetual trading volume alone reaching $196B in January 2025.

What Does This Mean for End Users
For HYPE holders and traders, this system creates a self-reinforcing value loop. As Hyperliquid trading activity grows (as shown in the diagram below), the purchasing power of the aid fund will also grow, ultimately benefiting long-term token holders.

Self-Reinforcing Loop: More Trades → More Fees → More Buybacks → Token Value Appreciation.

User-Centric Product Design

· Gasless Transactions: Gas fees are incurred only when transactions trigger state mutations (e.g., spot listing or transferring to a new wallet).

· No KYC Required: Register through email or a crypto wallet (such as MetaMask).

· Intuitive Interface: Designed for both beginners and advanced traders, the interface resembles that of centralized exchanges (e.g., Binance).

· Near-Instant Settlement: Sub-second block times support real-time transactions.

· High Throughput: Processes over 200,000 transactions per second, even during peak activity without delays.

· Easy Fund Deposits: Deposit USDC via Arbitrum (future plans to support native multi-chain).

· Gamified Design: Leaderboards and competitive rewards (e.g., airdrops to top traders) foster a highly engaged, active community.

Decentralization Path

While Hyperliquid's L1 initially operated by team-run validators (for performance optimization and rapid iteration), it is gradually moving toward a multi-validator network and a distributed node framework:

· Expanded Validator Set (from 16 to over 100 nodes).

· Read-Only Nodes: Third parties can run nodes to validate the chain's state and block production.

· Long-Term Deployment Strategy: With ecosystem growth, the team plans to introduce stronger staking and validator onboarding mechanisms, progressing toward a trustless model akin to leading proof-of-stake networks.

· Team Incentive Alignment: Because fees currently flow to the protocol treasury and LP providers (not the founding team), the team's future rewards are tied to the upcoming token launch, aligning with long-term chain performance and decentralization goals.

Looking ahead, Hyperliquid is evolving from a specialized perpetual contract DEX into a full-fledged exchange ecosystem. With the addition of BTC spot trading, the launch of HyperEVM on the mainnet, and the expansion of the validator set, its ambition is evident as it aims to become the "on-chain Binance."

It combines CeFi's high performance with DeFi's transparency, already occupying 64.71% of on-chain perpetual contract trading volume, demonstrating how a successful community-driven approach can propel a DEX to challenge even the largest centralized platforms.

What Is the Secret to Hyperliquid's Success?

1. VC-Free, Self-Funded Model: Ensuring users hold the token, reducing private sale pressure, prioritizing the interests of true traders over short-term investors.

2. User-Centric Token Distribution: Generous airdrops (31% of the supply allocated to early users, around 76% overall allocated to the community), a dynamic scoring system to prevent Sybil attacks, and a treasury fund benefiting holders through token buybacks.

3. High-Performance Layer-1 (HyperBFT + HyperEVM): Sub-second confirmations, 100k+ order throughput, and EVM compatibility provide a blend of speed and composability for the future of DeFi expansion.

4. Fully On-Chain CLOB: Transparent order matching and minimal slippage bridge the liquidity gap that typically binds traders to CeFi.

5. Spot and Perpetual Contract One-Stop Service: Seamless access to core markets: newly listed BTC spot and robust perpetual products. Users can manage spot and leverage positions on one platform.

6. Community-Driven Feature Development: Direct feedback loop (user requests for Vault, HLP enhancements, cross-chain bridging) allows traders to engage and shape ongoing improvements.

7. Long-Term Decentralization Vision: Gradual validator set expansion, open read-only nodes, a fee structure with no team profit, ensuring incentive alignment and progressive trustlessness.

By combining technological excellence, community-first incentive mechanisms, and uncompromising user experience, Hyperliquid has outlined a blueprint for DeFi success.

Its "secret" fundamentally lies in the perfect blend of institutional-grade performance and grassroots user engagement—this combination has redefined on-chain trading and paved the way for a broader future of decentralized finance.

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