Hyperliquid: The Emerging On-Chain Trading Platform

Hyperliquid is a fast 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 via listing auctions.

The core liquidity of the protocol is the HLP Vault, a hybrid treasury that combines market makers and liquidity providers, accounting for over 90% of the TVL. In March 2025, Hyperliquid faced a severe black swan event: the $JELLYJELLY manipulation incident, which nearly triggered a chain liquidation of the entire treasury. The incident exposed the centralization issue of validator governance: the intervention of the Hyper Foundation prevented a collapse, which, 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. Today, platform (, including HyperEVM ), has launched over 21 new dApps, covering NFT, DeFi tools, and treasury infrastructure, with capabilities far exceeding those of perpetual exchanges.

Where do "Degen" whales trade?

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

Wynn often publicly displays his entry points, responding in real-time to market fluctuations, and even turns 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. The anonymous whale (, known as "Insider Brother" ), is trading large positions on Hyperliquid, and their positions are now seen by Chinese crypto media as a barometer of real-time market sentiment and the platform's dominance.

So how did Hyperliquid come to this point? Why do high-risk traders choose it?

Let's break it down one by one.

What is Hyperliquid?

Hyperliquid is a decentralized exchange, but it does not adopt the AMM model like Uniswap.

It adopts 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 its own Layer 1 blockchain, also named "Hyperliquid", designed for high performance. It is this feature that enables it to execute trades with the speed and stability demanded by high-frequency traders.

This performance is not mere talk. By June 2025, Hyperliquid's share in the on-chain derivatives market will reach 78%, with a daily trading volume exceeding $5.5 billion.

$HYPE

Hyperliquid is not just a trading platform, but a complete on-chain financial system, and its core token is $HYPE.

Tokenomics and Philosophy

The total supply of $HYPE is 1 billion tokens, with a large-scale airdrop of (310M scheduled for November 2024, distributing 31% of ) to approximately 94,000 users, making it one of the most authentic user distribution projects 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 the founder, Jeffrey Yan. He is a Harvard mathematics graduate and a former high-frequency trading engineer at Hudson River Trading.

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

This "community-first + protocol performance" concept is also reflected in the mechanism design of $HYPE: it is not only a governance tool but also a usable token.

实用性(Utility)

$HYPE not only has governance functions but also directly reduces transaction fees. Users can stake $HYPE to receive fee discounts.

In addition, $HYPE is also the core of network security. Hyperliquid operates on a Proof-of-stake consensus mechanism, and staking $HYPE is not just for reducing fees or earning rewards; it is the foundation of the entire block generation mechanism.

To become a validator, the following conditions must be met:

• Stake at least 10,000 $HYPE
• Through KYC/KYB identity verification
• Build high availability infrastructure ( includes multiple non-verifying nodes )
• Node performance will be continuously monitored and managed through Hyper Foundation's delegation program for equity distribution.

The current annual staking yield for validators is approximately 2.5%, and the yield curve is designed based on the Ethereum model.

Other features of Hyperliquid

a.HIP-1 Auction Mechanism: Decentralized Token Listing Process

One of Hyperliquid's most unique and often underestimated mechanisms is its auction-based listing system: HIP-1.

The mechanism determines the listing eligibility of new Tokens through on-chain Dutch auctions:

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

Unlike some exchanges that operate in a black box and charge high listing fees, HIP-1 listing is completely transparent, requires no negotiation, and has no insider allocation.

Even if a certain exchange launches a "Batch Vote to List" mechanism, there remains the issue of opacity where 2 projects are voted to be listed, but actually 4 projects go live.

And on Hyperliquid:

• The auction process is fully on-chain, executed entirely by smart contracts;
• 100% of the listing fees go into the Assistance Fund ( and are used to buy back and burn $HYPE;
• There is no team commission, nor reserved slots.

Compared to other protocols where teams and VCs often obtain listing fees, Hyperliquid's fee distribution logic is:

• All fees are obtained by the community: HLP, assistance fund, and spot publishers share.

However, despite the transparency of the mechanism, there are still significant issues in Hyperliquid's spot market:

• Most auction成交价 are close to the reserve price ) such as 500 $HYPE(, reflecting limited market interest in on-chain asset listing;
• The trading volume of the Token after going live is extremely low;
• The official page does not clearly indicate information about newly listed coins, resulting in low attention.
• The current spot market accounts for only 2% of the total spot trading volume on DEX, of which 84% is in the $HYPE/USDC pair.

If Hyperliquid wants to truly challenge the listing status of centralized exchanges, it must enhance UI visibility, activity, and linkage with the secondary market.

![IOSG Interpretation of Hyperliquid: Degen New Arena, DeFi New Ecosystem])https://img-cdn.gateio.im/webp-social/moments-bbb70667f812f15a76de829976257d0f.webp(

b.Vault Treasury Mechanism

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

Currently, there are two types of vaults:

• User-created Vaults (: Anyone can initiate a vault and trade using the liquidity pool. Investors share profits and losses proportionally, while vault managers can collect a 10% profit as a management fee. To ensure aligned interests, managers must self-stake no less than 5% of the vault's TVL ) total locked value (. This model is similar to "Copy Trading )" on certain exchanges.

• HLP( Hyperliquidity Provider ): The HLP treasury operates market-making strategies on Hyperliquid. Although the strategy execution is currently still offchain (, data such as positions, orders, trading history, and deposits/withdrawals are all publicly available on-chain in real-time for anyone to audit. Anyone can provide liquidity for HLP and share profits and losses proportionally. HLP does not charge any management fees, and all profits and losses will be distributed entirely proportionally based on each provider's share in the treasury.

Currently, HLP accounts for 91% of Hyperliquid's total TVL. Its strategies are divided into two categories:

做市)Market Making(:

• Continuously post buy/sell dual quotes;
• Earn trading spread).

Clearing ( Liquidator ):

• When the user's margin falls below the maintenance margin, the platform attempts to place a limit order to close the position;
• If the margin level falls below 66% of the maintenance margin, the system will call the liquidation fund to take over the position;
• HLP attempts to limit the price for closing positions, reducing slippage and risk;
• If the risk is too high and cannot be controlled, the Auto-Deleveraging(ADL) mechanism will be triggered to forcibly reduce positions.

In summary, HLP = market maker + clearing agent.

• As a market maker, HLP continuously provides liquidity ( with bilateral quotes );
• As the liquidator, HLP takes over the positions of users who have been liquidated and handles the position reduction.

Summary

The revenue structure of the Hyperliquid platform is as follows:

• Transaction Fee ( Taker/Maker ): Allocated to HLP depositors;
• Auction and spot trading fees: 100% goes to the aid fund for the repurchase and destruction of $HYPE;
• No team commissions/financial fee deductions, unlike most DEX.

Performance of HLP

We measure the actual protocol revenue of HLP through "Hedged PnL(". This data does not include the unrealized gains or losses from market fluctuations, and only includes:

• taker/maker trading fees;
• Funding rate income;
• Settlement fees, etc.

Therefore, it reflects the protocol's true "Alpha" capability.

Data shows that during the bullish trend in 2025, HLP's daily net position is usually negative, indicating that it is mostly shorting the market. This is because the platform has a large number of limit buy orders, and HLP passively takes on sell orders, resulting in an overall short exposure.

In March, we could clearly see a huge spike, with a net nominal exposure nearing -$50 million. This was precisely the moment on the day of the $JELLYJELLY incident when Hyperliquid was almost breached.

![IOSG Interpretation of Hyperliquid: Degen New Arena, DeFi New Ecosystem])https://img-cdn.gateio.im/webp-social/moments-4ae37c27dbb2f0384235918d88484923.webp(

Hyperliquid's Risk Exposure

The risk concentration issue of HLP

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

We can see that HLP TVL accounts for about 75% of the total TVL of the hypeliquid on-chain.

![IOSG Interpretation of Hyperliquid: Degen New Arena, DeFi New Ecosystem])https://img-cdn.gateio.im/webp-social/moments-c4eff0f625204f7f2038e13fe3551bac.webp(

This was starkly exposed during the $JELLYJELLY incident in March 2025. The event was a carefully orchestrated attack that nearly caused a systemic chain liquidation of the entire HLP treasury.

The event process is briefly outlined as follows:

• $JELLYJELLY is a meme + ICM project on Solana