Hyperliquid: The Rise of a New On-Chain Trading Arena

Hyperliquid is a high-speed 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 from listing auctions.

The core liquidity of the protocol is the HLP Vault, a hybrid vault that combines market makers and liquidators, 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 vault. 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 quickly rebounded with whale stickiness and ecological expansion, setting new highs in trading volume, open interest, and $HYPE price. Now, the platform (, including HyperEVM), has launched over 21 new dApps, covering NFT, DeFi tools, and vault infrastructure, with functionalities far exceeding those of perpetual exchanges.

Where do "Degen" whales trade?

A well-known anonymous whale turned $210 into $80 million in three years. His most famous achievement was turning $7,000 of $PEPE into $25 million, and he consistently makes nine-figure positions using 40x leverage.

He often publicly showcases his entry points, responding in real-time to market fluctuations, and even treats eight-digit liquidations as if they were nothing. But the real key is not who he is, but where he is trading.

For him and all the degens with high leverage and large positions, Hyperliquid is the new arena. Anonymous whales are trading large positions on Hyperliquid, and their positions have now been viewed by Chinese crypto media as a barometer of real-time market sentiment and the platform's dominance.

So how did Hyperliquid get 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 an AMM model like some DEXs.

It adopts a completely on-chain order book mechanism, pricing not through liquidity pools, but through on-chain matching, providing a real-time trading experience similar to that of certain trading platforms. Limit orders, transactions, cancellations, and settlements occur transparently on-chain and can be settled within a single block.

Hyperliquid has built a dedicated Layer 1 blockchain, also named "Hyperliquid," designed for high performance. It is this aspect that allows it to execute trades with the speed and stability demanded by high-frequency traders.

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

$HYPE

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

Tokenomics and Philosophy

The total supply of $HYPE is 1 billion coins, which will be distributed through a large-scale airdrop in November 2024, with 31% of ( allocated to approximately 94,000 users, making it one of the projects with the most genuine user distribution in recent years.

A total of 70% is allocated to community airdrops, incentives, and contributors: no VCs. This is based on the founder's clear philosophy. He is a Harvard mathematics graduate and a former high-frequency trading engineer.

The founder has publicly stated: "Letting VCs control the network would be a scar." He hopes to build a financial system that is "built by users and also belongs to users."

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

![IOSG Interpretation of Hyperliquid: Degen New Arena, DeFi New Ecosystem])https://img-cdn.gateio.im/webp-social/moments-2642ce45476c284cf9b2132195cac48c.webp(

) Utility ###

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

In addition, $HYPE is the core of cybersecurity. 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 production mechanism.

To become a validator, you must meet the following conditions:

• At least stake 10,000 $HYPE coins
• KYC/KYB identity verification
• Build high-availability infrastructure ( includes multiple non-validator nodes )
• Node performance will be continuously monitored and managed through the delegation plan of Hyper Foundation for equity distribution.

The current annual staking yield for validators is approximately 2.5%, with the yield curve 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 underrated mechanisms is its auction-based token listing system: HIP-1.

The mechanism determines the listing qualification 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 trading platforms that operate in a black box and charge high listing fees, the HIP-1 listing is completely transparent, requires no negotiations, and has no insider allocations.

For example, at the end of 2024, the CEO of a certain institution accused a trading platform of demanding 15% of tokens from a certain Tier 1 project as a listing fee ###, which is approximately $50 million to $100 million ###. It is also rumored that a certain trading platform requires listing fees as high as $300 million.

Even if a trading platform introduces a voting mechanism for listing coins, there remains an issue of opacity where only 2 projects are listed through voting, but in reality, 4 projects are launched.

And on Hyperliquid:

• The auction process is fully on-chain and executed entirely by smart contracts;
• 100% of the listing fee goes into the Assistance Fund ( and is used for the buyback and burn of $HYPE;
• No team commission, nor any reserved slots.

Compared to other protocols where teams and VCs 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 problems in Hyperliquid's spot market:

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

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

![IOSG Interpretation of Hyperliquid: A New Arena for Degens, A New Ecosystem for DeFi])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 treasury (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 the vault manager can collect 10% of the profits as a management fee. To ensure aligned interests, the manager must stake at least 5% of the vault's TVL ( total locked value ). This model is similar to "Copy Trading (" on certain trading platforms.

• HLP)Hyperliquidity Provider(:HLP vault operates market-making strategies on Hyperliquid. Although the strategy execution is currently still offchain), all data such as positions, orders, trading history, deposits, and withdrawals are publicly available on-chain in real-time for auditing by anyone. 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 fully distributed proportionally based on each provider's share in the vault.

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

(## 做市)Market Making(:

• Continuously provide dual-sided buy/sell quotes;
• Earn the trading spread ).

(## Liquidation ) 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 falls below 66% of the maintenance margin, the system will call the liquidation treasury 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 house.

• As a market maker, HLP continuously provides liquidity ( bilateral quotes );
• As a liquidator, HLP takes over the positions of users with liquidated accounts and processes the reductions.

![IOSG Interpretation of Hyperliquid: Degen New Arena, DeFi New Ecosystem]###https://img-cdn.gateio.im/webp-social/moments-91aa69ed8d8e5a673d12018cf8561b06.webp(

) 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 assistance fund, used for repurchasing and destroying $HYPE;
• No team commissions/financial fees deduction, unlike most DEX.

( HLP performance

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 market in 2025, the daily net position of HLP is usually negative, indicating that it is shorting the market most of the time. This is because the platform has placed a large number of limit buy orders, and HLP passively takes on sell orders, resulting in an overall short exposure.

In March, we can clearly see a huge spike, with a net nominal exposure close to -$50 million. This was precisely the moment on the day of the $JELLYJELLY event when Hyperliquid was nearly breached.

Hyperliquid's Risk Exposure

HLP's risk concentration issue

As mentioned earlier, HLP accounts for over 90% of the TVL on Hyperliquid, and simultaneously bears the mainstream liquidity source and liquidation responsibilities of 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 chain.

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

The event process is briefly described as follows:

• $JELLYJELLY is a meme + ICM project on a public chain, with a market cap that once reached $250 million, later dropping to $10 million, and extremely low liquidity;
• Attack