Introduction to today’s focus on
What is Hyperliquid, the protocol everyone is talking about?
This is a decentralized exchange for perpetual trading, a competitor to Binance onchain and super performing Layer 1. Today we will discover the characteristics of the latest craze in the crypto world.
As we just said, Hyperliquid is a hyper-performing L1 (the pun fits perfectly), which aims to create a decentralized finance environment permissionless starting from a perpetual DEX.
The plan for the future is to create an ecosystem in which financial platforms of different types will be able to interact with native components, guaranteeing sub-second transaction performance with beyond 100.000 TPS.
The protocol has recently made headlines for the distribution oflargest airdrop in historyas well as being firmly aligned with the crypto ethos: community first, f*ck the VC.
Over the course of the airdrop, Hyperliquid delivered over $7.5 billion priced at $24 dollars. To give some context, Uniswap distributed $4.2B at the top price, Apecoin $3.5B always at the absolute top, dYdX airdropped $2B, Decision approximately $1.9B, zkSync $1.32B, Optimism $1B via multiple airdrops and Celestia “solo” $728M.
Few other projects will be able to match this performance in the near future. But what is so special about Hyperliquid? Let’s see it together.
What is Hyperliquid
Hyperliquid Layer 1 is built specifically for support the decentralized exchange which focuses mainly on derivatives trading via order book, as well as spot trading.
Obviously, the choice to launch a DEX perp was soon motivated by the fact that applications of this type are extremely requested in the onchain world; few have taken over due to scalability or liquidity limitations, a real leader was needed in this field.
Hyperliquid tries to keep everything onchain, from order history to the order book transaction list. To do this it uses a consensus algorithm called HyperBFT, optimized for scalability and speed in the transmission of information, crucial characteristics for a cutting-edge DEX perp.
The protocol integrates a EVM virtual machine capable of allowing both the trading of the various ERC-20s and the use of the latter in the various DeFi applications. In fact, HyperEVM is one general purpose virtual machine capable of supporting any type of application.
To make a DEX work, the most important thing is certainly the liquidity. As we will see in the following paragraphs, the founders know this very well; so, to attract liquidity to the platform, they have opened a Vault (HLP) which gives access to the profits of their Market Making strategy which, to date, has generated over $45 million in PNL.
The decentralized exchange offers the possibility of trading via perpetual futures with leverage up to 50x on the most liquid assets, operate spot on a wide range of assets and obtain income thanks to permissionless Vaults (which vary the performance depending on the strategies applied).
Numerous decentralized applications are also being developed on the network, from Lending to NFTs, from Bridging to Telegram Bots.
Liquidity attracts more liquidity. Attention is crucial in this sector, and so far Hyperliquid has attracted both, from the largest airdrop in history to over $4 billion in open interest at continuous All-Time Highs.
How can I interact with this ecosystem? Read on for alpha and important details.
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How to use Hyperliquid
As discussed so far, Hyperliquid offers the possibility of using its own decentralized exchange for operate speculatively like any other crypto assetthrough perpetual futures contracts or simple spot.
As for the max leverage, the most volatile and least participated pairs will have one lower levertypically x3 or x5, while assets with higher participation and lower volatility integrate levers ranging from x10 for assets like ONDO or SEI, x20 per SOL the LINK and up to x50 for BTC and ETH pairs.
The commercial integrates tokens that are not particularly famous and for this reason the volumes are also nothing special. So let’s talk about theHIP-1 and of Hyperliquid Auctionthe method by which tokens can be listed on Hyperliquid.
The spot DEX permissionless mechanism provides the possibility for anyone to create a liquidity pair and launch it on the market. In most DEXs, including Uniswap, this has given way to rug pullers and scammers to proliferate; Hyperliquid has decided to operate differently.
Improvement proposal number 1 (HIP-1) provides for the creation of auctions lasting 31 hours in which anyone who has a token to list can propose their own trading pair by paying a cost proportional to the interest in participating in that particular auction.
On centralized exchanges, listing typically occurs following contacts, partnerships and recommendations. In this case you have to wait for the duration of the auction and cover the listing cost which doubles each time; if the previous auction cost $10,000, the current auction will be worth $20,000 and so on, until the price gradually decreases due to lack of interest.
In addition to the exchange features, the main methods of using the Hyperliquid interface are Vaults. From functionality that liquidates highly leveraged positions to market making strategies, anyone can deposit or create a Vault.
Vault creator receives 10% of performance; as mentioned, anyone can create one, then Be very careful where you deposit your funds. The main metrics to take into consideration are obviously the Creatoril TVLthe annuity and the date of birth of the instrument; Don’t be attracted by excessively high APRs: high returns often correspond to high risks.
The main product is certainly the mix of market making strategies offered through the Vault HLP, introduced through the improvement proposal 2 (HIP-2). This product, accessible to all via USDC, has offered one in the past month 51% yield with a maximum drawdown of 0.78%…it deserves to be tested!
There are numerous projects about to launch mainnet on Hyperliquid, but being on a very young protocol it is necessary to conduct adequate due diligence and be aware of the risks. One of those that deserve more attention is the trading bot called pvp trade.
$HYPE e Tokenomics
With a product capable of generating $500 billion in total volumes, 10 billion deposits and 250 thousand users by the end of 2024, Hyperliquid as a derivatives exchange has certainly demonstrated its qualities.
CEO Jeff, previously a trader for one of the main market makers in traditional finance, said he is trying in every way to reward users and participants of the network, being able to rely on a low dependence on VC and one massive amount of fees paid.
Total liquidations amount to 11 billion, with 19 million fees paid in the last 30 days, those close to the airdrop, and 229 million generated in the last year. This is one of the projects with the lowest market cap/fee ratio (intended as a sort of price x earnings).
The maximum supply of $HYPE is of 1 billion and currently only 33% is in circulation, of which 31% is airdropped, 23% has a vesting for core contributors and the remainder is intended for “future rewards and emissions”. Practically, 76% will go to the community.
One of the most interesting things about the tokenomics of this project is the frequency and intensity of the buyback done on the market and the burning that can be monitored by Hyperburn; it is an asset with intrinsic buying pressure, almost completely in the hands of the community.
The buyback is currently being carried out byassistance Fund di Hyperliquid. This is managed by a quorum of validators and is essentially a pool of money financed by the fees generated by the protocol, used for security operations. To date, the quorum has decided to use it to TWAP and buyback HYPE.
Investors and background
Hyperliquid Labs is a company that supports the developments of Hyperliquidled and founded by Jeff Yan e iliensincclassmates at Harvard. The other team members are from Caltech and MIT and have previously worked at Airtable, Citadel, Hudson River Trading and Nuro.
The team was doing market making in crypto in 2020 and expanded into DeFi in 2022. Coming from the world of traditional market making, the inefficiencies of the crypto world were their bread and butter: “It was enough to write a few lines of code in Python to retire”these are the words of the CEO.
The team decided to build a product that could solve these problems and provide users withuser experience-oriented trading experience.
Designing a decentralized and high-performance L1 with a DEX with perpetuals order book requires a in-depth knowledge of quant tradingblockchain technology and UX design. The result is the perp DEX with the largest current market share.
Hyperliquid Labs is self-funded and has not taken any outside capital, which allows the team to focus on building a product they believe in without pressure from investors.
Conclusions
Hyperliquid is undoubtedly the product of the year, along with pump dot fun e Polymarket. Online betting and trading are back in vogue and are the first real applications capable of attracting and retaining large numbers of users.
Now we are in the bull market, everything is going well, speculators and animal spirits roam the streets undisturbed; but when the fog returns to descend on the crypto world, it will be necessary to verify who will maintain a sufficient level of innovation and user retention to be present in the next cycle.
For now the token appears to be undervalued for the capitalization and the fees generated, despite the big launch that took place a few weeks ago, with the constant buying pressure from the assistance fund and the burn of the fees. Tokenomics is really attractive.
We will certainly make updates to follow the developments that will take place on this layer 1 and everything that will arise around the perpetual DEX.
Did you get HYPE via airdrop? Are you thinking of moving your perpetual operation to DeFi? Follow us on our channels and let us know yours.
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