A Deep Dive into Hyperliquid's Success and Concerns

1. Research Background I've recently researched nearly every Perps (perpetual trading platform) on the market. The fivefold growth of the Hype market reaffirms my judgment of its core value when I first researched it last year. Furthermore, the recent entry of aster, antex, dydxV4, and even Sun Ge's sunPerps, which has shaken the market, are gradually ushering in an explosive growth period for the Perps market. Furthermore, major exchanges are scrambling to list Hype and its perpetual trading capabilities. Yesterday, news broke that Metamask, following Phantom, is another major wallet platform planning to integrate Hyper's perpetuals. Circle has also become a validator, addressing concerns about its core decentralization. Hyperliquid itself has also been diligently improving its openness, particularly with the gradual rollout of HyperEVM and HIP2/3/4.

1.1 Three Elements of a New Track

At this point, Perps essentially possesses the three key elements of a new track.

In fact, looking back at any major track wave in history, we can see that it's often the new leading platform, new wealth opportunities, and new narrative contexts that converge to create peaks. Subsequent platform airdrop strategies, the gradual development of platform complexity, and the decline in user perception of freshness eventually lead to troughs.

This process has actually gone through many waves. Typical scenarios are as follows. The following modules have been analyzed in previous WeChat articles by "Fourteen Gentlemen." Interested parties can check them out:

• The ICO craze of 2017, corresponding to the platform CEX. Basic demand is uncontroversial, and many are now thriving. The DeFi Summer of 2021, corresponding to platforms like Uniswap, lending, and stablecoins, is similar to the above. The NFT of 2022, while the protocol itself existed long ago, reached its peak thanks to OpenSea. Its fundamental principle was pricing through transactions, with price-based dissemination leading to price-driven price fluctuations. Its decline stemmed from hubris, with its airdrop strategy and royalty structure leading to a price-driven death spiral – a self-inflicted fate. The Inscription of 2023, corresponding to the platform Unisat, was short-sighted. At its peak, it focused on asset issuance, not application development, resulting in a short lifespan for its narrative. When other new narratives emerged, RWA and perps stole the spotlight, preventing recent trends like Alkanes and BRC2.0 from reclaiming their popularity – also a self-inflicted fate. The meme of 2024, its corresponding pump platform, and this year's dark horse, Axiom, contributed to this wave's unusually longevity. This stems from the chain's inherent trading advantages, the constant influx of trading users, and the new users brought by the wave of compliance, which has boosted its lifespan. Finally, in the past 25 years, there have been both RWA (focused on stocks) and Perps (led by Hyperliquid). 2. Explaining the Key Steps in Hyperliquid's Development 2.1 Current Development Status Objectively speaking, the system remains relatively centralized, theoretically capable of being altered by disconnecting the network. Furthermore, hacker funds are also involved, which presents a significant obstacle for many exchanges in terms of compliance and attracting attention. However, the data is highly contradictory. Hyperliquid currently has approximately 10,000 to 20,000 daily active users, out of a total user base of approximately 600,000. Of these, 20,000 to 30,000 core users contribute nearly $1 billion in revenue, a significant portion of which comes from the United States. It has accumulated over $3 trillion in trading volume, with an average daily trading volume approaching $7 billion. It currently supports Perps trading for over 100 assets. Looking at these numbers, one can only say they're truly impressive. While the user base may appear small, they comprise some of the most capital-generating individuals. 2.2 Major Updates and Interpretations The specific timeline is as follows: March 25th: Opening the connection between HyperCore and HyperEVM, theoretically allowing users to trade Core tokens from the EVM (at that time, only for trading). April 30th: Launched the read precompile function, enabling HyperEVM smart contracts to read state from HyperCore. May 26th: Small block time was halved to 1 second, increasing HyperEVM throughput. June 26th: The HyperEVM block was updated to remove the previous sorting of published orders to improve integration with HyperCore. On July 5th, HyperEVM updated with a new precompiler called CoreWriter. This allows HyperEVM contracts to be written directly to HyperCore, enabling functionality such as placing orders, transferring spot assets, managing treasury bonds, and staking HYPE. Recently, Builder core and Hip4 have also entered the data prediction market. This move was completely unexpected by the market and demonstrates that the founders have a very individual perspective on industry pain points, which often leads to platform polarization. How should this series of updates be understood?

  First of all, compared with last year, Hyperliquid has now opened up its core order operation capabilities

  HyperEVM

  especially the dual-chain architecture based on EVM. The logic is outrageous. Under the premise that HyperCore is not open (cannot be deployed), a large number of pre-compiled contracts are added through HyperEVM and connected to HyperCore's built-in. In theory, it has the access basis of wallets (phantom, metamask) and exchanges, and in theory can realize EVM transaction operations to execute Core's order asset buying and selling capabilities.

  There is an official picture that shows the positioning of hyperEVM in the system

  

  It can be seen that HyperCore and HyperEVM writes and reads are uniformly confirmed by HyperBFT. The specific mechanism of the validator's confirmation information mechanism is not public, and there is no cross-chain bridge or delayed synchronization. The dynamics that can be observed through on-chain transactions are that HyperEVM can influence HyperCore. This is done through system contracts (0x333…3333, CoreWriter.sendAction(...)), which can execute orders, liquidations, and lending operations. The status (of the previous block) fed back by HyperCore can be read by HyperEVM's smart contracts.

  • User data - positions, balances and vault information

  • Market data - mark price and oracle price

  • Staking data - delegation and validator information

  • System data - L1 block number and other core indicators

  The information is essentially received by the EVM system contract, generating corresponding receivables or events and records. Furthermore, in the EVM, precompiled contracts (0x000…0800) can call perp positions or oracle prices (oraclePx). Secondly, the implementation of HIP2 and HIP3 is changing the platform positioning of Hyperliquid. Hyperliquidity is an on-chain liquidity mechanism built into Hypercore. It automatically places buy and sell orders based on the current price of the token, maintaining a narrow price spread of approximately 0.3% without manual intervention. This mechanism, built into the block logic, enables native liquidity insertion without the need for AMMs or third-party bots. For example, when the PURR/USDC spot market launched, Hyperliquidity immediately issued a seed trade with initial depth, enabling real trading before regular user liquidity arrived. The Builder core is a highly valuable mechanism, allowing DeFi builders (developers, quantitative teams, and aggregators) to charge additional fees as service revenue when placing orders on behalf of users. The application scenario for this system is clear: it's a move to free up profits and embrace ecosystem co-construction.

  • **Quantitative strategy hosting:** The quantitative team helps users place perp positions and collects management fees through the builder fee, forming a compound profit model of "revenue sharing + builder fee".

  • **Aggregators/trading routers:** For example, 1inch and Odyssey have integrated perp trading services on Hyperliquid and can charge a builder fee as a routing revenue model.

  The initial launch has already brought dividend income exceeding tens of millions of US dollars to some projects, demonstrating the effect of Hyper's deep accumulation of funds at the platform level.

  In fact, opening up depth is not just Hyper. Previously, Uniswap v4 also attempted to do this through hooks, but v4 did not take off, and most users are still accustomed to v2 and v3. This may be due to the limited historical baggage and strong centralized decision-making. 3 Summary and Comments 3.1 There are many advantages; let's explore them one by one. Hyperliquid's primary advantage lies in its strong early product capabilities, as it addressed two user pain points: The trading needs of non-compliant users, a feature that has become even more rare amid this year's surge in compliance. Advanced traders demand high leverage and high transparency. The former brings exposure to KOLs, while the latter is often overlooked by market incumbents, catching many CEXs off guard. Secondly, the team's background itself. Their biggest advantage here is their small size, which reduces communication gaps, wear and tear, and results in high efficiency. With a team of just over a dozen people, excluding 3-4 product operations and business development staff, and excluding the front-end and back-end teams, just 3-4 people can build a high-performance chain with a throughput of 20Wtps. Compared to many traditional blockchain teams at major companies, which can even produce a lot of palace intrigue, this is far superior. Regarding their background, their market-making foundation, established in 2020, actually provided excellent initial depth. Many details also reveal that their matching logic goes beyond the simple time-based and amount-based settlements of other order book systems. However, the data is insufficient, so I'll add more information when I conduct a comparative analysis of multiple Perps platforms. Then there's the trend. While typical projects must adapt to the market, when a platform reaches peak popularity, the market can adapt to it. Hyperliquid is currently experiencing this kind of treatment. This is partly due to the openness introduced in the aforementioned updates, which first allows for diverse ecosystems to enter the market. This contrasts with many other platforms in the past, which often sought to do everything themselves, reap all the benefits, single-handedly criticize OpenSea, and even impose mandatory royalty systems, forcing the market to follow the leader. Each initiative incurs high, fixed costs, interfering with the flow of goods and affecting true market pricing, ultimately becoming a family heirloom. Hype, on the other hand, opened up the EVM and all its various Dex/Peps APIs, quickly leading to a flood of derivative products on the market. Hyperliquid's generosity is evident in its airdrops; from the outset, it was impossible to follow a compliant approach. Therefore, it won't attempt to embrace the prospect of a IPO, and will naturally hold onto its profits. It will then stake its Hyper tokens back through the Hyperliquid Token (HLP) mechanism, releasing them for profit, allowing the official token to be decentralized and earning the market's highly sought-after decentralized reputation. Its openness has attracted market acclaim. Phantom, from a decentralized wallet perspective, first integrated its perps capabilities. This is not a difficult task, primarily requiring significant adaptation and development costs. Recently, there are rumors that Metamask is also integrating. This also shows that even decentralized wallets that haven't updated for over six months, after missing out on the inscription, have learned to capitalize on the annual narrative. Finally, he pushed for the inclusion of giants like Circle as validators, bringing decentralized security and filling his decentralization gap, thus opening up opportunities for similarly compliant CEX platforms. 3.2 Disadvantages After overcoming the most challenging initial phase, the issue of compliance remains. Even pure DEXs like Uniswap are embracing compliance, not to mention the fact that users have also made their fortunes with European and American platforms like Hyperliquid. If a platform is deemed non-compliant or otherwise severely erred, existing CEX/Wallet partnerships will be severed, and former allies will part ways. Furthermore, this system will also face the challenge of complexity in its future development. Most projects become increasingly complex, making it difficult to streamline and return to first principles. This ultimately leaves novice users confused and deprives the platform of fresh talent. Finally, there's the single-point risk. The claimed 20Wtps, if accessed by multiple global platforms, would create numerous information inconsistencies, placing immense pressure on the core HyperCore module. Building this high performance takes time. The official market maker's background may not be able to handle the volume. If multiple liquidation issues arise due to downtime (similar to the short squeeze incident in March), the hard-earned reputation will be inherently fragile.