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Key Takeaways
Technology can be replicated—but cult cannot. A more scalable blockchain is always just over the horizon, especially in an industry where open-source principles make sharing and adapting innovations second nature. Technology is essential in crypto, but it will never be sufficient. Hyperliquid understands this better than most, building its moat not only on transient technical advantages but also on a steadfast commitment to its community.
Hyperliquid has challenged the norms of the crypto space. First, it breathed new life into a market fatigued by inflated valuations fueled by VC capital and retail investors being dumped overpriced tokens. Second, it raised the bar for product quality, delivering a seamless, technically robust platform that sets a new industry standard. Third, its airdrop campaign was more than just a marketing success—it became a case study on how to execute community-first token distribution.
Hyperliquid has earned the nickname “On-Chain Binance” within CT. However, this label only scratches the surface of Hyperliquid’s true ambitions. Far from being just a trading platform, Hyperliquid aims to become the central hub of onchain finance. To achieve this, it has developed an architecture centered around two pillars: Hyperliquid L1 and HyperEVM. Its true potential will emerge as the ecosystem expands around the HyperEVM, composing together to unlock novel use cases and innovations.
*Special thanks to Bidencho for providing invaluable feedback on this report.
1. Introduction
Outliers. In statistics, they refer to data points that stand distinctly apart from the rest of the sample, often extending to describe people who defy conventional boundaries. Perhaps there’s no better way to describe Hyperliquid’s co-founders Jeff Yan, iliensinc, and their core team.
Hyperliquid’s journey is not just impressive—it’s unparalleled. Their philosophy of uncompromising attention to detail, challenging the status quo, and unwavering commitment to building has made them stand out in every sense of the word.
When I first encountered Hyperliquid, I must admit, I was skeptical. I thought back to projects like dYdX, which rapidly expanded their user base through airdrops but saw their momentum wane over time. I assumed Hyperliquid would follow a similar trajectory, with users eventually exiting after farming rewards. Sure, their UX stood out among other DEXs, but as someone who isn’t a day trader, I underestimated its true value. However, Hyperliquid shattered my assumptions, teaching me a hard-earned lesson. Even after the points program concluded, Hyperliquid’s popularity soared. Its community pivoted from being incentive-driven to genuinely rallying behind the product. The nickname “on-chain Binance,” often floated in the Hyperliquid community, no longer feels like an exaggeration—it’s becoming a reality.
Source: X (@0xSisyphus)
Hyperliquid’s $HYPE TGE on November 29 catapulted its fully diluted valuation (FDV) to over $10 billion within just a week. While it’s still too early to declare Hyperliquid a definitive success, the way they’ve designed their product and grown alongside their community offers a wealth of lessons for the industry. This report delves into Hyperliquid’s remarkable journey, explores key takeaways from their strategy, and examines what lies ahead for this standout project.
2. A Product of the Community, By the Community, For the Community
Hyperliquid’s co-founder, Jeff, began his career in high-frequency trading (HFT) at Hudson River Trading after graduating from Harvard University. In 2018, he encountered Ethereum for the first time. What started as a passing curiosity about quantitative analytics quickly evolved into a deep understanding of DeFi’s limitless potential, leading Jeff to fully immerse himself in the crypto industry. This passion culminated in the founding of Chameleon Trading, a crypto market-making firm that soon became one of the top 10 market makers in the industry at the time, showcasing Jeff’s exceptional expertise.
By late 2022, the collapse of FTX marked a significant turning point for Jeff and his team. FTX, once a rapidly growing exchange lauded for its user-centric trading experience, fell from grace as it lost the trust of its users. For Jeff, this event reinforced the critical importance of transparency and decentralization in DeFi. Having witnessed firsthand the structural flaws and limitations of centralized exchanges during his time in crypto trading, Jeff became acutely aware of the need for a new decentralized financial platform that could truly earn the trust of its users. This realization led to the creation of Hyperliquid.
Jeff’s philosophy for Hyperliquid has always been community-first. From product design to operations, his approach prioritizes the user experience and aims to deliver genuine value to the community. This mindset seems to echo the customer obsession principle championed by Amazon founder Jeff Bezos. Bezos famously stated, “Leaders start with the customer and work backward. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.”
One of Amazon’s key leadership principles is “Working Backwards,” a process that begins with the customer’s perspective, focusing on their persistent problems and long-term needs. This principle aligns seamlessly with Hyperliquid’s fundamental vision, which seeks to grow as a community-driven product by deeply understanding and addressing the needs of its users.
Source: When Shift Happens
Jeff’s values are perhaps best captured in his interview with Kevin on When Shift Happens, where he shared the following insights:
“Crypto as an industry is so extractive—it’s like a machine to extract value from retail. Projects raise multiple rounds from VCs, get influential people in at low prices, launch on big exchanges, and sell to retail investors at high prices. After that, there’s no obligation to continue building. It’s unethical and destroys value, tarnishing crypto’s reputation.”
“Crypto can be used for great good. It can revolutionize how people engage with finance by tearing down unnecessary walls. But it also makes it easier to create scams and take advantage of less informed participants.”
“The motivation behind Hyperliquid is very community-first and anti-establishment, particularly anti-VCs. We aim to align the protocol with users and the community, similar to how Bezos aligned Amazon with customers.”
“With Hyperliquid, we had to innovate on the tech and essentially build three businesses in one: an L1 blockchain, a fully on-chain exchange, and a highly optimized user experience. This is super hard stuff. But unless you build products that are a 10x improvement over traditional finance, users won’t stick.”
“I think once there are good products and protocols that truly add value—things that are a 10x improvement over what exists outside crypto—users will move over. Hopefully, builders will develop a moral compass and focus on creating lasting, value-driven systems.”
This ethos of community-first innovation has defined Hyperliquid’s unique operational approach, especially in its approach to funding and token distribution. Unlike most projects, Hyperliquid avoided external funding entirely, building and operating solely with internal resources. As a result, no $HYPE tokens were allocated to private investors, centralized exchanges, or market makers—a deliberate move to ensure equal access to $HYPE for all participants.
By rejecting private investment, Hyperliquid reserved 70% of the total $HYPE supply for the community. The team also implemented stringent checks to ensure fairness in distribution, targeting sybil accounts attempting to manipulate the system. Approximately 27,000 wallets were flagged for fraudulent activity and penalized, increasing the rewards for legitimate users. Ultimately, 274 million $HYPE tokens—31% of the total supply—were distributed via airdrop to roughly 94,000 early users. As of December 2, 2024, these tokens hold an average value of $26,000 per user. The airdrop process was designed to be user-friendly, with tokens automatically distributed after users agreed to the terms. However, users who failed to agree during the airdrop period missed out on rewards, leading to some dissatisfaction within the community.
Source: ASXN
Hyperliquid’s unique approach is also evident in how it utilizes trading fees. Unlike most exchanges that treat fees as operating revenue, Hyperliquid reinvests them back into the community and its token holders. Fees generated from spot trading are allocated toward burning $HYPE, with a total of 45,000 $HYPE burned as of December 2, 2024. Moreover, a portion of the revenue generated from trading fees has been used to buyback $HYPE. Consequently, the Hyperliquid team now holds approximately 10 million $HYPE in its Assistance Fund, equivalent to around $124M as of December 5, 2024. Additional buybacks and burns are conducted once specific thresholds are exceeded, ensuring the token’s value remains stable and aligned with community interests. This approach mirrors Amazon’s early strategy of prioritizing revenue growth and market share expansion over immediate profits, underscoring Hyperliquid’s commitment to distributing value back to the community. Over the long term, trading fees may transition to being directly distributed to validators and $HYPE stakers.
Fees not used for $HYPE buybacks or burns are distributed to liquidity providers through the Hyperliquid Liquidity Provider (HLP) Vault. HLP is one of Hyperliquid’s core features, allowing users to deposit USDC and provide liquidity across all assets listed on the exchange. Participants in the vault earn a portion of the trading fees as well as profits generated from the HLP’s market-making strategies. As of November 2024, the HLP Vault delivered a monthly return of approximately 1.78%, translating to an impressive annualized return of 24%. This structure creates a virtuous cycle that attracts external liquidity to the platform, reinforcing Hyperliquid’s ecosystem.
Finally, Hyperliquid’s exceptional user experience (UX) further exemplifies the team’s focus on user-centric design. By eliminating gas fees and enabling instant transaction settlement, Hyperliquid replicates the liquidity and speed of centralized exchanges (CEXs) on-chain. These features address the primary pain points faced by users in on-chain trading. Additionally, the platform’s one-click interface and intuitive UI are optimized for both desktop and mobile environments, making trading more accessible and seamless for users. This commitment to usability has become one of the defining characteristics that set Hyperliquid apart in the market.
3. Taking Flight
Hyperliquid’s commitment to community-centric operations and prioritization of user experience has quickly positioned it as one of the most prominent DEXs in the crypto futures market. This success is not merely a testament to its technical excellence but also to a growth strategy deeply rooted in trust and collaboration with its users.
Hyperliquid’s futures trading volume has continued its upward trajectory, recording $443 billion year-to-date (YTD) in 2024. November alone saw a record-high trading volume of $77 billion, capturing an impressive 45% market share in the crypto futures DEX market. This figure significantly outpaces competitors such as Jupiter, SynFutures, and dYdX. What stands out even more is the trading volume during non-incentivized periods, such as $26.3 billion in May and $33.1 billion in October. This underscores that Hyperliquid’s growth is not driven solely by incentives but also by user satisfaction with its product.
As of December 2, Hyperliquid ranked 26th globally in 24-hour trading volume, surpassing major centralized exchanges like Huobi and KuCoin. This milestone demonstrates not only its dominance in the on-chain trading market but also its growing competitiveness in the broader crypto industry.
Source: Hyperliquid
Source: Hyperliquid
Open Interest (OI), a critical metric in futures markets, reflects the total number of outstanding long and short contracts at a given time. Unlike trading volume, OI excludes potential wash trading and thus provides a more accurate picture of user activity and capital inflow. High OI indicates stable user engagement and consistent capital inflows. Hyperliquid’s OI has consistently climbed, hitting a record $2.4 billion post-$HYPE TGE. Notably, $220 million of net capital inflow was recorded within just two days of the TGE, demonstrating concentrated market interest.
Source: Hyperliquid
Hyperliquid’s robust user base is another testament to its success. As of November 30, 2024, the platform surpassed 200,000 cumulative users, with 11,000 new users joining within just two days of the TGE. Over the past seven days, the platform recorded 24,000 active traders, capturing approximately 62% of the total futures DEX market share—far surpassing competitors like Jupiter (9,100) and dYdX (1,700).
Source: Hyperliquid
Liquidation volume—a metric reflecting the total value of forcibly closed positions—serves as a key indicator of a platform’s risk management efficiency and market stability. Hyperliquid has recorded cumulative liquidations of approximately $8 billion. The largest single-day liquidation occurred on August 5, 2024, during a sudden Bitcoin price drop from $58,000 to below $50,000, resulting in $33.5 million in liquidations.
4. The Endgame
Hyperliquid has earned the nickname “On-Chain Binance,” reflecting its significant presence in the market. However, this label only scratches the surface of Hyperliquid’s true ambitions. Far from being just a trading platform, Hyperliquid aims to become the central hub of on-chain finance. To achieve this, it has developed an architecture centered around two pillars: Hyperliquid L1 and HyperEVM. This architecture combines transaction speeds rivaling traditional financial systems with a generalized smart contract environment, setting the stage for a paradigm shift in on-chain trading.
Hyperliquid L1 is a purpose-built blockchain for finance, leveraging the HyperBFT consensus algorithm. Inspired by Meta’s LibraBFT and HotStuff and built in Rust, it boasts a theoretical capability of processing up to 2 million orders per second. Since transitioning from Tendermint to HyperBFT in May 2024, the network has consistently achieved 20,000 TPS with a finality time of 0.2 seconds. This CEX-like speed and liquidity make Hyperliquid highly attractive to algorithmic and high-frequency traders, as well as institutional investors—a crucial advantage for competing with centralized exchanges.
Critics have pointed to centralization in the network’s early design, as 4 nodes operated by the team currently handle block production. However, during testnet, 42 globally distributed nodes demonstrated similar performance metrics, signaling Hyperliquid’s commitment to gradually decentralize without sacrificing speed. With the introduction of a $HYPE-powered PoS mechanism, decentralization is expected to improve significantly.
Moreover, Hyperliquid L1 integrates financial components directly onchain, such as spot/futures order books and custom oracles. These features provide a user experience similar to traditional finance while retaining blockchain transparency and security, further enhancing Hyperliquid’s competitiveness in the onchain trading ecosystem.
Source: ASXN Dashboard
HyperEVM is another key component of Hyperliquid’s ecosystem. Like the Hyperliquid L1, it leverages the HyperBFT consensus algorithm to ensure high performance and robust security, while providing a general-purpose Ethereum Virtual Machine (EVM) environment. This allows seamless integration of Ethereum’s ecosystem assets and tools—such as ERC-20 tokens, dApps, bridges, and wallets—into the Hyperliquid network, creating a solid foundation for developers to build dApps directly on HyperEVM.
One standout feature of HyperEVM is the System Contract, a unique functionality that enables EVM developers to access real-time data from Hyperliquid L1. This includes key information such as L1 block height, mark prices, and spot prices. By integrating native financial components of Hyperliquid L1 into their dApps, developers can leverage on-chain data with greater efficiency and precision.
In addition, HyperEVM supports atomic swaps between Hyperliquid-native assets (HIP-1) and ERC-20 tokens, simplifying asset transfers and optimizing liquidity. Hyperliquid’s network allows HIP-1 token issuers to designate their corresponding ERC-20 contract on the EVM as the canonical representation of the asset. This design ensures users can seamlessly convert between native Hyperliquid L1 and EVM assets. These features play a crucial role in enabling Hyperliquid to absorb capital, users, and developers from Ethereum’s ecosystem effectively.
Currently, over 20 projects are either live or in development on HyperEVM, including Hypurr Fun, PVP Trade, and HyBridge. This momentum is expected to accelerate post-HyperEVM launch, highlighting HyperEVM’s ability to deliver tangible value to both developers and users. Even prominent figures like Leptokurtic, founder of the synthetic asset protocol Ethena, have acknowledged Hyperliquid’s growing influence. Leptokurtic has called the decision to forgo integration with Hyperliquid’s exchange in Q1 2024 a “huge mistake,” further underscoring the platform’s rising prominence.
Source: X(@leptokurtic_)
5. Conclusion
Technology can be replicated—but cult cannot. A more scalable blockchain is always just over the horizon, especially in an industry where open-source principles make sharing and adapting innovations second nature. Technology is essential in crypto, but it will never be sufficient. Hyperliquid understands this better than most, building its moat not only on transient technical advantages but also on a steadfast commitment to its community.
From the outset, Hyperliquid has challenged the norms of the crypto space. First, it breathed new life into a market fatigued by inflated valuations fueled by VC capital and retail investors being dumped overpriced tokens. By refusing to follow this well-worn path, it redefined how projects can launch and grow, allowing retail users to become first-class citizens. Second, it raised the bar for product quality, delivering a seamless, technically robust platform that sets a new industry standard. Third, its airdrop campaign was more than just a marketing success—it became a case study on how to execute community-first token distribution.
But this is just the beginning of Hyperliquid’s journey. Its true potential will emerge as the ecosystem expands around the HyperEVM, composing together to unlock novel use cases and innovations. The transformation of traditional finance through Hyperliquid’s ecosystem promises a future worth watching closely.
