All liquidity belongs to Hyperliquid

GMX is busy dealing with the theft, while Hyperlqiuid is busy expanding its business.

This time Hyperliquid is making a big leap into the Solana ecosystem. Unlike a simple multi-chain deployment, this time it is providing liquidity support through the Phantom wallet. It is also surprising that Phantom chose Hyperliquid instead of Drift and Jupiter.

Compared to simply supporting Solana chain and Phantom wallet login, Hyperliquid’s approach differs from predecessors like dYdX and GMX, resembling a blockchain version of Binance, aiming to become the ultimate source and destination of liquidity for all protocols and dApps, using super liquidity to become a true cornerstone of the blockchain.

The Third Road

To understand Hyperliquid, one cannot simply talk about Hyperliquid itself.

It must be said in comparison with spot DEXs like Uniswap that contract products from a spot perspective are a gamble involving borrowing money to trade cryptocurrencies, and maintaining liquidity is extremely difficult. Please note that the challenge of spot DEXs lies in liquidity creation, which is why AMM and Bonding Curve are so important.

Uniswap can promote more asset participation in trading through multi-chain deployment, which can also facilitate the growth of protocol TVL even if it is only on this chain. However, contract DEXs, whether dYdX, GMX, or Hyperliquid, need to “attract” liquidity to gather in one place, which is also a natural advantage of CEXs like Binance.

Centralization is naturally conducive to the concentration of liquidity.

It must be said in comparison with peers such as dYdX and GMX that GMX’s perspective on Perp DEX is a hybrid product combining dYdX’s off-chain order book matching, on-chain trading, and Liquidity tokenization. This is also the essence of GMX’s crazy revenue in 2022, maintaining liquidity through the “induction” of LP Token —> GMX Token.

Hyperliquid is similar in that it operates more delicately, with the closed HyperCore responsible for spot and contract trading, which is the main basis for considering Hyperliquid as centralized. HyperEVM is responsible for the “blockchain” part, where the operational concepts are vague, keeping Hyperliquid in a superposition of decentralization and centralization for a long time. The super strong liquidity and matching efficiency are also hidden within.

Refer to the overall architecture of Hyperliquid:Hyperliquid: 9% Binance, 78% centralized

Decentralization naturally benefits the brand effect.

Must grow in the dynamic game with Binance, to become the strongest Liquidity, to have centralized efficiency and decentralized experience, improvements in dYdX’s order book matching mechanism, GMX’s Liquidity token “bribery” mechanism, and the role of BNB connecting BNB Chain and the main site – $HYPE connects HyperCore and HyperEVM.

In the end, Hyperliquid has successfully coupled multiple contradictions that were previously difficult to reconcile, and system engineering has once again demonstrated its magic, stacking existing technological elements to create the optimal PMF in the current market, with even improvements on Binance’s approach.

• Multi-chain deployment / centralized Liquidity
• Bridge/Chain Abstraction/Aggregator/Intent
• Decentralized UI/Centralized UX

To become the infrastructure of the market, it is necessary to capture as many entry points as possible. Phantom is well-suited as a traffic driver for the Solana ecosystem, but we cannot subsidize to exchange the market; profit sharing is a wiser approach than token subsidies.

In the design concept of Phantom Perps, it differs from logging into dYdX or Drift by embedding Hyperliquid within its own interface. The premise is that SOL on Solana is bridged into the Hyperliquid spot account and exchanged for USDC, which is then transferred to the Hyperliquid contract account to serve as margin.

The bridging may be supported by Hyperunit provided by the Unit protocol, but it is not completely certain. Additional information is welcome, and security assessment is also very important.

In the subsequent trading process and settlement phase, the roles of Phantom and Hyperliquid are reversed, with the Phantom interface only displaying relevant information, while the actual operations are fully controlled by Hyperliquid. This is also the biggest difference from dYdX and Drift, as user funds will actually enter the Hyperliquid system.

After deciding to close the position, the user’s profit or loss will be denominated in USDC, but will gradually unwrap into SOL. Specifically, USDC needs to first enter the spot market from the Hyperliquid contract account, then exchange for SOL in the spot market, and finally bridge back to the Solana chain, ultimately displaying in SOL form within Phantom.

The benefit of doing this is that the capital has greater flexibility.

After the user’s SOL enters Hyperliquid, they can trade any supported cryptocurrencies on Hyperliquid. Depending on the amount of funds, they can choose up to 40x leverage. However, after frequently facing attacks, Hyperliquid’s style is that the less popular the cryptocurrency and the larger the position size, the lower the leverage will be.

The downside of doing this is that the system’s security will be reduced.

The entry and exit of bridged assets will be tested during extreme market fluctuations.

During the trading process, users need to trust Hyperliquid, essentially requiring a level of trust comparable to that of CEXs like Binance, meaning that the exchange will not misappropriate user assets and will execute trades according to user instructions.

Hyperliquid is not simply collaborating with Phantom, but rather seeks to use it as an ally to penetrate and dominate Solana. This is undoubtedly an active attack on Solana’s native DEX, and centralized exchanges represented by Binance, as well as various native DEXs across different chains, will need to consider how to face Hyperliquid moving forward.

BNB outperforms any exchange token, representing Binance’s mastery of liquidity, and Hyperliquid is no exception, from spot to Perps, from Ethereum to Solana, this is a charge where failure is not an option.

Emerging Yield Points

Hyperliquid is not cheap; in other words, it has strong profitability.

Compared to dYdX and Binance, Hyperliquid has never relied on low prices to win. Coincidentally, Phantom is also a small profit expert, with a strong ability to diversify its business from SOL staking to trading, from single-chain to multi-chain.

MetaMask has long been a distant myth in the wallet world; Phantom is the reality.

But it’s still not enough to be considered the future. Backpack also wants to compete in the same room on Solana, while OKX Wallet is a formidable rival. Since the integration of CEX and DEX is the main focus of this cycle, Binance + Pancakeswap, OKX main site + OKX Wallet, and Backpack Wallet + Backpack Exchange all have their own opportunities and strategies.

Stablecoins will continue to exist, but it is uncertain how long Meme and on-chain issuance and trading tools can last. Public chains and DEX need to find their growth points again. Hyperliquid itself is a storage place for public chains, DEX, stablecoins, and Meme, but it lacks wallet tools, or in other words, it needs to reach a more retail and broader market.

This is indeed counterintuitive, but the major players of Hyperliquid are the whales. Although the amount of funds is large, without a sufficient number of retail investors, it is difficult to operate stablecoins, memes, or even higher-frequency, daily-use products like RWA.

The significance of retail investors lies in conducting marginal innovations and reaching the masses; only a sufficient amount of data can “emerge” intelligence, and randomness can trigger countless possibilities of evolution.

Just right, Phantom has enough retail investors, at least the first in Solana.

In addition, the cooperation between both parties is also profitable, with considerate charging points set up at various angles and entrances. The Phantom and Hyperliquid gates will charge fees. I wonder if competitors have any good ideas for speeding up and reducing costs. Will HL+Phantom also become a fierce competitor?

Conclusion

HL aims to attract more new users through wallets, and Phantom hopes to break out of the stereotype of being a Solana wallet and move towards a more mainstream market.

CEX competes with token stocks, DEX actively acquires customers, and it can be seen that Crypto traffic has reached a bottleneck period. Purely product types can no longer support their own business, and competition, acquisition, and attacks will become increasingly frequent.

Each cycle will be a battleground for exchanges and public chains. This time, will it be Hyperliquid vs Binance, Solana vs Ethereum?

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