Hyperliquid (HYPE) provides a decentralized trading platform with high-speed transaction processing and perpetual contracts, ensuring transparency and user control in cryptocurrency markets.

What is Hyperliquid (HYPE)?

Hyperliquid is a decentralized blockchain platform that provides efficient, high-speed trading while maintaining transparency and user control. It supports perpetual contracts and diverse trading instruments, offering a user-friendly interface for traders of all levels. The platform also caters to developers, providing tools and APIs to build applications within its ecosystem.

Hyperliquid’s History, and Founders

Hyperliquid was founded in 2022 by Jeff Yan and Iliensinc, alumni of Harvard University. The project was developed to create a high-performance decentralized trading platform that combines the advantages of centralized exchanges, such as speed and efficiency, with the security and transparency of decentralized finance (DeFi).

The founding team comprises engineers and finance professionals with backgrounds at institutions like Caltech, MIT, Citadel, and Hudson River Trading. Their expertise in algorithmic trading, blockchain architecture, and cryptographic security helped build Hyperliquid L1, the platform’s custom Layer 1 blockchain. Unlike many decentralized exchanges that rely on Ethereum or other existing networks, Hyperliquid was designed as a standalone high-throughput blockchain optimized for real-time order book execution.

Hyperliquid launched its native token, HYPE, on November 2024, through an airdrop that distributed tokens to nearly 100,000 early adopters. This token launch was notable for its community-first approach, as the team deliberately chose not to involve venture capital (VC) funding. Unlike many blockchain projects that secure large VC rounds before launching, Hyperliquid focused on organic growth, ensuring that control remained with its user base rather than external investors.

The token launch aimed to incentivize early users and create a decentralized governance structure where the community could drive decisions about platform upgrades and liquidity incentives. Hyperliquid’s decision to avoid VC funding further reinforced its decentralization ethos, preventing large institutional holders from dominating governance and liquidity decisions.

Hyperliquid’s Technical Architecture

Overview of Hyperliquid’s Layer-1 Blockchain

Hyperliquid operates as a Layer-1 blockchain designed to enable high-performance decentralized financial applications. The platform uses a proof-of-stake consensus mechanism where validators are responsible for producing blocks in proportion to the native tokens staked to them. This approach ensures that all transactions are processed directly on-chain, removing reliance on intermediaries and enhancing transparency.

Transaction ordering is consistently maintained through the implementation of the HyperBFT consensus mechanism. The blockchain can support approximately 100,000 orders per second, with scalability plans to increase this capacity to millions of orders per second by optimizing execution logic as necessary. The infrastructure prioritizes the efficient integration of financial activities while ensuring that the network can handle high activity levels without sacrificing efficiency.

HyperBFT Consensus Mechanism

HyperBFT is Hyperliquid’s custom consensus algorithm, drawing inspiration from the HotStuff protocol to achieve rapid transaction finality and robust security. As a Byzantine Fault Tolerant (BFT) system, HyperBFT can tolerate up to one-third of validators acting maliciously without compromising the network’s integrity. This resilience ensures that the blockchain maintains consistent and accurate transaction records even in adverse conditions.

A feature of HyperBFT is its pseudo-synchronous operation. Under normal circumstances, the network functions asynchronously, allowing validators to process transactions without requiring perfectly synchronized clocks. However, during extended network issues, HyperBFT transitions into a synchronous mode after a predefined Global Stabilization Time (GST), guaranteeing that honest participants will eventually reach consensus on the blockchain’s state.

HyperBFT employs a rotating leadership model to propose new blocks. In each round, a designated leader suggests a block, and validators vote on its validity. If consensus isn’t achieved, the system shifts to a new round with a different leader, continuing this process until agreement is reached. This dynamic approach enhances the network’s fault tolerance and ensures continuous progress even if some validators are unresponsive or malicious.

Hyperliquid Protocol’s Main Features

Hyperliquid App: Trade

Description of the Hyperliquid Decentralized Exchange (DEX)

Hyperliquid operates a decentralized exchange (DEX) focused on delivering a trading experience similar to centralized exchanges (CEXs) while maintaining the principles of decentralization. Built on its proprietary Layer-1 blockchain, the platform supports perpetual futures trading and other financial instruments. Its infrastructure enables high throughput and low latency, processing up to 100,000 orders per second with sub-second finality.

Analysis of the On-Chain Order Book Model

Hyperliquid’s DEX uses an on-chain order book model, a significant departure from the Automated Market Maker (AMM) systems commonly used in other decentralized platforms. The Central Limit Order Book (CLOB) system directly records all orders, cancellations, and settlements on the blockchain. This approach enhances transparency by allowing users to verify every transaction on-chain, ensuring fair operation and eliminating the risk of hidden mechanisms. Traders can place limit and market orders, giving them greater control over pricing and execution.

Overview of Supported Trading Instruments and Assets

The primary trading instrument offered by Hyperliquid is perpetual futures contracts, these derivatives allow traders to speculate on the price movements of digital assets without a fixed expiration date, providing flexibility to maintain positions for extended periods. The platform supports up to 50x use on perpetual futures, enabling traders to amplify their exposure to market fluctuations. Along with perpetual contracts, Hyperliquid supports spot trading, allowing users to trade assets directly without engaging in derivatives. This addition caters to a wider audience, including those who prefer direct asset ownership.

Hyperliquid currently supports trading for over 100 assets, including major cryptocurrencies and a variety of altcoins, the platform regularly evaluates market demand and community input to expand its asset offerings, ensuring that traders have access to a diverse selection of markets.

Hyperliquid’s Dutch auction model for token listings

Hyperliquid employs a Dutch auction mechanism to facilitate the permissionless listing of new tokens on its platform. This system ensures a fair and transparent process for projects aiming to introduce their tokens to the Hyperliquid ecosystem.

The primary objective of these auctions is to allocate ticker symbols to projects wishing to list their tokens on Hyperliquid. By participating in the auction, projects obtain the right to issue new tokens under a specific ticker, thereby gaining access to Hyperliquid’s trading infrastructure.

Auction Mechanics

• Frequency: A new auction is initiated every 31 hours, providing regular opportunities for projects to secure a listing spot.
• Starting Price: Each auction begins at a predetermined price, which decreases over time. This descending price model allows participants to decide the optimal moment to place their bids based on their valuation of the ticker symbol.
• Bidding Process: Participants monitor the decreasing price and can place a bid when they believe the price aligns with their valuation. The first participant to accept the current price secures the ticker symbol, concluding the auction.
• Minimum Price: If an auction remains unsold, the price decreases until it reaches a minimum threshold, ensuring that ticker symbols are not allocated below a certain value.

The funds generated from these auctions contribute to Hyperliquid’s revenue model. The auction system efficiently allocates ticker symbols while preventing spam or excessive token listings by introducing a market-driven cost structure.

Hyperliquid App: Vaults

Hyperliquid Vaults are integral components of the Hyperliquid Layer 1 (L1) blockchain, designed to facilitate advanced trading strategies such as market making and liquidations. These vaults enable various participants—including decentralized autonomous organizations (DAOs), protocols, institutions, and individual traders—to deposit assets and earn a share of the profits generated by the vault’s activities. Notably, the Hyperliquidity Provider (HLP) is a protocol vault that engages in market making and liquidations, receiving a portion of trading fees.

Depositing into a vault is straightforward; users can select a vault, enter the desired deposit amount, and confirm the transaction. HLP has a deposit lock-up period of four days, meaning withdrawals can be made four days after the most recent deposit. For example, if a deposit is made on September 14 at 08:00, a withdrawal would be available on September 18 at 08:00.

Hyperliquid App: Staking

Staking in the Hyperliquid ecosystem involves users delegating their HYPE tokens to validators to support network security and consensus operations. The staking reward rate is inversely proportional to the square root of the total HYPE staked, a formula inspired by Ethereum’s staking model. For instance, at a total stake of 400 million HYPE tokens, the annual reward rate is approximately 2.37%, staking rewards are sourced from the future emissions reserve. They are accrued every minute, with distributions occurring daily. These rewards are automatically redelegated to the staked validator, enabling the compounding of returns.

Participants in staking must carefully select trustworthy validators, as the security and efficiency of the network depend on the integrity of these entities. Delegating to reliable validators guarantees that the network operates smoothly and that stakers receive their due rewards. However, while validators can be “jailed” for performance issues, more severe penalties, such as “slashing,” are reserved for malicious behaviors like double-signing blocks.

Hyperliquid (HYPE) vs. Competitors

Hyperliquid vs. dYdX

Hyperliquid operates on its own Layer 1 blockchain with the HyperBFT consensus mechanism, while dYdX initially launched on Ethereum Layer 2 (StarkEx) and is transitioning to a Cosmos-based chain. Hyperliquid uses a fully on-chain order book, ensuring transparency, whereas dYdX previously relied on an off-chain order book and is now shifting to full decentralization. Hyperliquid offers up to 50x leverage, compared to dYdX’s 20x. Fee structures also differ, with Hyperliquid prioritizing low-cost transactions and incentives for liquidity providers.

Hyperliquid vs. GMX

Hyperliquid uses an on-chain order book, while GMX employs an AMM model with liquidity pools. GMX enables zero-price impact trades but relies on liquidity availability, while Hyperliquid ensures precise order execution. Hyperliquid offers faster transaction processing through its Layer 1 design, whereas GMX, operating on Arbitrum and Avalanche, depends on Layer 2 scaling. GMX also relies on Chainlink oracles for pricing, which introduces risks that Hyperliquid avoids with direct on-chain order execution.

Hyperliquid vs. Perpetual Protocol

Hyperliquid’s order book model contrasts with Perpetual Protocol’s virtual AMM (vAMM), which synthetically provides liquidity but can result in higher slippage. Hyperliquid’s Layer 1 blockchain supports faster transactions, while Perpetual Protocol, built on Arbitrum, depends on Ethereum for final settlement. Security structures differ, with Hyperliquid using validator-based verification and Perpetual Protocol relying on external oracles, increasing potential manipulation risks.

Hyperliquid vs. Binance Futures

Binance Futures, a centralized platform, offers deep liquidity and fast execution but requires users to trust Binance with custody of funds. Hyperliquid, being decentralized, ensures self-custody and transparency through its on-chain order book. Both platforms support high-leverage trading, but Binance centrally determines funding rates, while Hyperliquid allows decentralized market-driven rate adjustments. Hyperliquid eliminates withdrawal risks associated with centralized exchanges.

Risk Analysis of Hyperliquid

While Hyperliquid offers numerous advantages, it has the following risks, as most cryptocurrencies do:

• Centralized Verification: Despite its decentralized architecture, the reliance on a limited set of validators could pose centralization risks. If a significant portion of validators collude or are compromised, it could affect network integrity.
• Smart Contract Vulnerabilities: As with any blockchain platform, bugs or vulnerabilities in smart contracts could be exploited, leading to financial losses or system malfunctions.
• Regulatory Uncertainty: The evolving regulatory landscape for cryptocurrencies and decentralized finance could impact Hyperliquid’s operations, especially if new laws impose restrictions on trading activities or platform functionalities.
• Market Liquidity Risks: While Hyperliquid aims to provide deep liquidity, fluctuations in user activity or external market conditions could lead to reduced liquidity, affecting trading efficiency and price stability.

What is the (HYPE) Token?

Role and Utility of the HYPE Token Within the Ecosystem

The HYPE token functions as an important element within the Hyperliquid ecosystem, serving multiple roles, used as the gas token for the HyperEVM, enabling transactions and interactions within the platform’s execution environment. This includes activities such as executing trades and interacting with decentralized applications built on the blockchain.

HYPE is also used for staking, where users lock their tokens to support network operations and maintain security, stakers receive rewards as incentives for their contribution to the stability and performance of the network. The token is integrated into the governance structure, allowing holders to vote on proposals and influence decisions related to platform upgrades, feature implementations, and future developments.

Detailed Breakdown of Token Allocation and Distribution

The total supply of HYPE tokens is fixed at one billion. The allocation is structured to balance platform sustainability, community engagement, and operational needs. Approximately 38.888% of the supply is reserved for future emissions and community rewards, ensuring continued incentives for users to remain active in the ecosystem. During the genesis event, 31% of the total supply was distributed through an airdrop, emphasizing the project’s goal of decentralizing and empowering its community.

Main contributors, including the development team and other essential stakeholders, received 23.8% of the supply to support their efforts to build and maintain the platform. The Hyper Foundation was allocated 6% of the tokens to fund the project’s long-term growth and ecosystem development. Lastly, 0.3% of the total supply is designated for community grants to encourage innovation and support initiatives that align with Hyperliquid’s objectives.

Economic Incentives and Mechanisms for Participants

The economic design of the HYPE token aims to incentivize participation and ensure network security. Staking serves as a primary mechanism, allowing users to contribute to the network while earning rewards, this process supports the blockchain’s consensus mechanism and helps maintain its decentralized infrastructure.

The allocation of 38.888% of the total supply for future emissions ensures that user incentives remain available over time, fostering sustained engagement with the platform. The initial airdrop of 31% of the supply was structured to decentralize token ownership and encourage early community involvement. These mechanisms are supported by the governance model, which gives token holders the ability to shape the platform’s future through voting on important decisions.

Buy Back and Burn on HYPE

Hyperliquid employs a buyback and burn strategy to manage the supply of its native token, HYPE. This mechanism involves using a portion of the platform’s revenue to repurchase HYPE tokens from the open market, which are subsequently burned—permanently removed from circulation. The primary goal of this approach is to reduce the total supply of HYPE over time, potentially increasing its scarcity and value.

The buyback and burn process is funded through various revenue streams, including transaction fees from perpetual contract trading, spot trading fees, and proceeds from HIP-1 auctions. Specifically, a portion of the transaction fees collected is allocated to an Assistance Fund (AF), which is then used to repurchase HYPE tokens. These repurchased tokens are subsequently burned, effectively decreasing the circulating supply. The platform has implemented a mechanism where the HYPE portion of HYPE-USDC spot trading fees is directly burned.

Vesting Schedule

The HYPE token vesting schedule ensures a structured release of tokens over time, balancing liquidity and long-term project sustainability. At the Token Generation Event (TGE), 31% of the total supply (310 million HYPE) was fully unlocked as part of the Genesis Distribution, providing initial liquidity. Additionally, HIP-2 tokens (120,000 HYPE) were also fully unlocked at launch. But a significant portion of the supply remains locked, with Main Contributors allocated 238 million HYPE (23.8%), which started at 0% unlocked and will be gradually released over time to align incentives with the project’s development. The largest category, Untracked Allocation, accounts for 451.88 million HYPE (45.2%), which remains fully locked at TGE, with no specific release timeline disclosed.

The vesting timeline extends from November 2024 to November 2028, with a gradual token release to prevent sudden market fluctuations. The structured unlocking of Main Contributor tokens ensures that the team and early stakeholders remain committed to the project’s long-term success. However, the Untracked Allocation introduces an element of uncertainty, as its release schedule is not explicitly defined, and tokens may be unlocked at any time. This vesting structure helps maintain market stability by reducing the likelihood of large-scale sell-offs while ensuring a continuous token distribution that supports ecosystem growth.

Operational Mechanics of Hyperliquid

Processes for Transaction Validation and Execution

Hyperliquid uses the HyperBFT consensus mechanism to validate and execute transactions on its Layer-1 blockchain, in this system, transactions are grouped into discrete units called “rounds”; each round consists of a bundle of transactions accompanied by signatures from a quorum of validators. A quorum is any set of validators holding more than two-thirds of the total stake in the network. For a round to be committed, it must meet specific conditions, after which it is processed and sent to the execution state, this ensures that all honest nodes within the network agree on the ordered list of committed rounds, maintaining consistency and integrity across the blockchain.

The validator set in Hyperliquid evolves in epochs, each consisting of 100,000 rounds, approximately equating to 30 minutes on the mainnet. During each epoch, the validators and their associated stakes remain static, providing stability to the network’s operations. Validators are responsible for proposing and validating new blocks, ensuring that transactions are accurately processed and recorded. To maintain network performance, validators may vote to “jail” peers that do not respond with adequate latency or frequency to consensus messages. A validator that receives a quorum of jail votes becomes inactive and ceases to participate in consensus until the issues are resolved and the validator unjails itself, subject to on-chain unjailing rate limits.

Governance Structure and Decision-Making Processes

The governance framework of Hyperliquid is designed to be community-centric, granting HYPE token holders the ability to influence the platform’s evolution. By staking HYPE tokens, users gain voting rights on proposals, including adjustments to fee structures and platform upgrades. The decentralized nature of this governance structure allows for a diverse range of perspectives to be considered in decision-making processes. Token holders can propose changes, discuss potential improvements, and vote on initiatives that align with the collective interests of the community.

Start Trading and Start Building on Hyperliquid

Start Trading on HyperLiquid

Hyperliquid offers users a decentralized platform to engage in cryptocurrency trading. To begin trading, users can access the platform through two primary methods: connecting a decentralized finance (DeFi) wallet or registering with an email address. Compatible options for those opting to use a DeFi wallet include MetaMask, Rabby, WalletConnect, and Coinbase Wallet. Users without an existing wallet can easily set up one by downloading MetaMask from its official website and creating a new wallet. After the wallet is configured, it can be connected to the Hyperliquid platform, enabling users to manage their assets directly. Alternatively, users may choose to log in using their email address, which allows them to

Start Building on Hyperliquid

Hyperliquid provides opportunities for developers to engage with its ecosystem by offering tools and Software Development Kits (SDKs) to facilitate the creation of applications and services on the platform. The Hyperliquid public API allows developers to interact with the platform programmatically, enabling functionalities such as retrieving market data, managing accounts, and executing trades. To assist developers in integrating with the API, Hyperliquid offers a Python SDK, simplifying the process of building trading applications by providing pre-built functions and modules. This SDK is available on GitHub and is licensed under the MIT license, allowing for flexible use and modification.

Hyperliquid’s Security Measures

Hyperliquid has implemented several protocols and strategies to ensure platform security. The platform’s bridge contract has undergone audits by Zellic, a reputable blockchain security firm, to identify and address potential vulnerabilities. These audits are part of Hyperliquid’s commitment to maintaining a secure trading environment.

Despite these measures, the platform has faced security challenges. In December 2024, reports indicated that North Korean state-sponsored hackers executed trades on Hyperliquid, resulting in losses exceeding $700,000. This incident raised concerns about the platform’s security infrastructure and the potential for future attacks.

Hyperliquid’s Roadmap

Hyperliquid is committed to advancing its decentralized trading platform through several strategic developments. The roadmap includes:

• Native Token ($HYPE) Launch: Initiated in late 2024, the HYPE token is the baseline for Hyperliquid’s proof-of-stake consensus and governance mechanisms.
• HyperEVM Mainnet Deployment: Scheduled for 2025, the HyperEVM aims to provide full Ethereum compatibility, enabling developers to deploy decentralized applications (dApps) seamlessly within the Hyperliquid ecosystem.
• HyperBFT Proof-of-Stake Consensus Implementation: Transitioning to a proof-of-stake model to enhance network security and scalability, leveraging the HyperBFT consensus algorithm.
• Permissionless Liquidity Introduction: Developing mechanisms to allow users to provide liquidity without centralized approval.
• Expansion Beyond the DEX: Exploring additional financial instruments and services to diversify offerings and cater to a broader spectrum of user needs within the decentralized finance space.

Conclusion

Hyperliquid is a decentralized exchange (DEX) operating on its proprietary Layer 1 blockchain, designed to offer high-speed and efficient trading experiences. The platform supports a variety of cryptocurrencies, including BTC, ETH, AVAX, SOL, and SUI, providing users with diverse trading options. Hyperliquid’s technical infrastructure comprises the HyperEVM and HyperBFT protocols, ensuring Ethereum compatibility and rapid transaction processing.