Disclaimer: This post contains thoughts on crypto, a volatile and risky asset class. It is not investment advice, and you should do your own research. All information is for educational purposes only. Please don’t take risks with money you’re not willing to lose.

Amidst a rather lackluster cycle of valuable product launches, Hyperliquid’s ascent over the past year has stood in the limelight. With initial PMF rooted in one of crypto’s best use-cases to date—trading—HL has quickly evolved from a simple decentralized perps exchange to the makings of an ‘Onchain Binance’. Unlike its attempted predecessors, Hyperliquid has managed to capture significant market share in a highly-competitive landscape dominated by centralized incumbents. Propagated by one of the most profitable farms in recent memory, an aggressive focus on user experience, and the latest launch of HyperEVM, the novel protocol is now positioning itself as an all-encompassing financial settlement layer.

Bird’s Eye View

Although their native token HYPE is a more recent development, Hyperliquid itself went live in late 2023 with the mission of offering traders CEX-like efficiency and DEX-level transparency. While not an entirely new experiment, initially spearheaded by the likes of dYdX and GMX, their implementations had flaws. The former relied on an offchain order book, sacrificing decentralization for speed, whereas the latter’s LP model lacked the capital efficiency to attract high-frequency traders. Conversely, Hyperliquid has sidestepped these issues by building a proprietary L1 from scratch, additionally mitigating the Kryptonites that have long plagued perps DEXs: fragmented liquidity, inefficient execution, and convoluted incentives. En route to their vision of a fully onchain open financial system, HL now leads the above mentions and all other decentralized derivatives exchanges by a wide margin.

Technicals

As briefly touched upon, at the heart of Hyperliquid is a robust, custom-built blockchain specifically engineered for speed, stability, and scalability. Renowned for its safety and efficiency, HL leverages Rust in order to achieve sub-500 millisecond finality (when a transaction is officially confirmed and can no longer be changed, reversed, or canceled), which far surpasses typical DeFi primitives. This architecture is further underpinned by several core components:

1. HyperBFT - Consensus

   If you’ve been following along with my writings, this concept should sound familiar, but as a refresher, consensus algorithms essentially ensure that all nodes in a blockchain ‘network’ agree on the current state of the ledger. Simply put, it’s a trust mechanism. Hyperliquid employs HyperBFT, a bespoke version of this that draws inspiration from the Hotstuff protocol and its successors. Optimized for low latency and high throughput, this enables HL an end-to-end latency of 0.2 seconds that supports approximately 200,000 orders per second. Such performant metrics allow users to execute trades with minimal delay, thereby enhancing the overall UX.

2. HyperCore - State Execution

   State execution, on the other hand, refers to the processing and validation of transactions that updates the blockchain’s ‘state’. Within Hyperliquid’s architecture, HyperCore manages this function by facilitating fully onchain perpetual futures and spot order books. Whether it be placing an order, canceling one, or getting liquidated, every transaction is transparently executed with one-block finality. As such, HyperCore’s design prioritizes deterministic execution while still ensuring swiftness and reliability.

3. HyperEVM - Smart Contracts

   Expanding on the protocol’s functionality, Hyperliquid recently integrated HyperEVM, or an Ethereum Virtual Machine compatible environment. As a means to leverage the ecosystem’s existing liquidity and financial primitives, this makes it seamless for developers to deploy ETH-native smart contracts directly on HL. HyperEVM notably operates under the aforementioned HyperBFT consensus, aligning security with that of HyperCore’s.

Value Prop

Surpassing every DEX in it’s wake and now threatening CEXs, Hyperliquid delivers distinct, quantifiable advantages that have already amassed serious liquidity.

CEX-Performance, DEX-Security: HL delivers the speed and efficiency typically associated with centralized platforms, while maintaining the transparency and security inherent in decentralized systems. This balance minimizes latency without any compromise on trust.

Profit Allocation: Unlike the lion’s share of protocols that solely benefit token holders, HL implements a profit-sharing model that rewards liquidity providers and contributes to a community-managed fund. This approach fosters a more engaged and incentivized user base.​

Safety Nets: HL also boasts an Assistance Fund designed to act as a “get out of jail free card” during security breaches or liquidity crises. As trading fees accumulate, this fund grows, providing an additional layer of protection for users (a feature notably absent in many other DEXs).​

Developer-Friendly: We’ve already covered this so I won’t beat a dead horse, but this compatibility not only streamlines the process for devs, but also grants access to HL’s existing liquidity and financial tools, encouraging fresh innovation within the ecosystem.

By The Numbers

Accumulated protocol fees have been up only since launch, emphasizing ever-evolving usage and a genuine revenue-generating business model.

Total value locked, or TVL, has seen a similar trajectory with brief hiccups (withdrawals) primarily being a result of exploits.

Market share and OI, or open interest, command a significant lead on all other DEXs, now within the range of monopolies such as Binance and Bybit.

For a complete dashboard, visit https://stats.hyperliquid.xyz/.

Progressive Decentralization

Since inception, Hyperliquid has followed a thoughtful and strategic approach toward decentralization, foregoing an immediate token launch and instead fostering genuine community involvement in governance decisions and protocol evolution. This incremental strategy prioritizes ecosystem sustainability and community alignment over speculative hype.

However, highlighting the pitfalls of this was the recent exploit targeting HL’s liquidation engine. In short, an attacker leveraged a sophisticated oracle-price manipulation, briefly causing market disruptions. While the team (alongside validators) quickly rectified the vulnerability and transparently communicated the incident, this underlines the necessity of proactive security measures and rigorous audits in maintaining protocol trust and stability.

In Sum

With a rapidly expanding eco, a massive lead in perps trading, and a token that has consistently outperformed amidst a rather poor Q1, the next phase for Hyperliquid is scaling up beyond just derivatives (a leap already taken with BTC & ETH spot markets). There’s a very real possibility that HL becomes the backbone for all onchain trading. If they can successfully onboard more devs to HyperEVM and thus integrate a broader suite of financial products, there exists a scenario where it rivals centralized giants like Binance within the next cycle.