Hyperliquid: the future of liquidity in cryptocurrencies and finance

New technologies are constantly emerging in the world of finance and cryptocurrencies, transforming what we know and opening up new perspectives. One such innovation is Hyperliquid. Let’s break down what Hyperliquid is, why it has become relevant, and how it can change the financial landscape.

Content:

1. Definition of Hyperliquid

• Why Hyperliquid is becoming an important part of the crypto and financial markets

2. History of creation

3. How Hyperliquid works

4. Technological features

5. Hyperliquid architecture

• Order protocols
• Managed liquidity
• Automatic pricing

6. Tokenomics

7. Hyperliquid advantages

• High speed of trade execution
• Low fees
• Increased security
• Possibility to earn on liquidity

8. Where Hyperliquid is used

9. Hyperliquid’s role in DeFi

• Impact on DEXs and liquidity pools
• Use in lending and staking
• Examples of successful use of Hyperliquid

10. Comparison of Hyperliquid with other protocols

11. Possible risks

12. Project prospects

13. Conclusion

Definition of Hyperliquid

Hyperliquid is a decentralized crypto exchange (DEX) for trading perpetual futures, built on the Layer 1 (L1) blockchain of the same name, designed to replicate the user experience of centralized exchanges.

Hyperliquid enables high liquidity across platforms, eliminating transaction execution latency issues and reducing risks associated with market volatility.

The term “Hyperliquid” is made up of two parts: “hyper” indicates intensity, and “liquid” refers to the ability of assets to convert quickly into cash.

The exchange’s technology aims to solve the fundamental liquidity problem that has traditionally hampered the functioning of even the most developed financial markets.

Why Hyperliquid is becoming an important part of the crypto and financial markets

With the development of cryptocurrencies and decentralized finance (DeFi), more and more attention is being paid to liquidity, as it is one of the key characteristics of a successful market.

Liquidity allows traders to enter and exit positions quickly without significantly affecting the asset’s price. In highly volatile cryptocurrency markets, this becomes especially critical.

History of creation

The team behind the creation of the Hyperliquid blockchain is Hyperliquid Labs. According to the official website, the project is headed by developers under the nicknames Jeff and iliensinc, whose real names are not known. It is also stated that the organization has not attracted external investments and is developing the project using its own resources.

Since Hyperliquid’s closed alpha mainnet launch in February 2023, the platform has grown to become one of the leading perpetual DEXs with a total value locked (TVL) of over $3,2 billion and daily trading volumes above $1 billion.

This puts Hyperliquid far ahead of the competition, with its trading volumes sometimes even exceeding the combined total of the next three perpetual DEXs.

The primary motivation for creating Hyperliquid was to address the problems associated with insufficient liquidity and delays in trade execution. The objectives of the project included:

1. Optimizing trading operations: Eliminating delays and providing instantaneous transaction processing.

2. Risk mitigation: Reducing volatility and mitigating market collisions.

3. Integration with DeFi and CEXs: Enabling widespread use of the technology across multiple networks and platforms, both decentralized and centralized.

How Hyperliquid works

Hyperliquid works based on its core features:

1. Hyperliquid Blockchain (Hyperliquid L1). The project has developed its own first-layer blockchain based on Cosmos’ Tendermint and HyperBFT mechanisms. This blockchain supports an on-chain order book, providing transparency and decentralization, overcoming the limitations of DEXs, which rely on an off-chain order book.

What is Cosmos (ATOM)

We explain the structure of the ecosystem for creating blockchains

Read more

With processing speeds of up to 100 000 transactions per second (TPS), Hyperliquid L1 offers a fast and stable trading experience that directly competes with centralized exchanges (CEXs). The platform also supports Ethereum Virtual Machine (EVM) compatibility and provides the Hyperliquid Explorer tool for tracking transactions on the blockchain.

2. Hyperliquid Perpetual DEX. This is a decentralized derivatives exchange (Perp DEX) that offers an interface and experience similar to centralized exchanges. Asset prices are determined by network validators rather than external oracles, which increases transparency but can lead to short-term price discrepancies.

By combining the L1 blockchain, on-chain order books, and a CEX-like user-friendly interface, Hyperliquid aims to create a decentralized platform that is secure, fast, and transparent.

Technological features

• High-performance order book on T-Chain: Hyperliquid uses a fully decentralized order book that provides transparent and efficient order matching based on price and time priorities.
• Minimal latency: With block confirmation in less than one second, traders face negligible delays in order execution.
• Leverage: Users can trade with leverage up to 50x, allowing them to maximize their opportunities in the market.
• Order variety: The platform provides various order types, including take profit and stop loss, which opens up avenues for implementing complex trading strategies.
• User-friendly interface: Hyperliquid offers an easy-to-use, one-button interface for trading, eliminating the need to confirm one’s wallet for each trade.
• Low fees: The platform provides competitive trading fees, making it attractive to users.

Hyperliquid architecture

Hyperliquid’s architecture is built around several key components, each of which performs important functions within the system. The main ones are liquidity-driven order protocols and automatic pricing mechanisms.

Order protocols

The order protocols in Hyperliquid are based on the concept of automatic trade execution (AMM). This means that as soon as a user places an order, the system automatically analyzes the available data and processes the trade. This significantly reduces processing time and reduces the likelihood of disruptions during trading.

The system uses optimization algorithms that make the most efficient use of available liquidity. This is especially important in high volatility conditions when prices change almost instantly. Thus, users can be sure that their orders will be executed at the most favorable price.

Managed liquidity

Hyperliquid uses the managed liquidity concept, making it unique compared to other decentralized platforms. This protocol component allows users to contribute their assets to a liquidity pool, earning rewards for providing liquidity to other users.

Unlike traditional methods, where liquidity is often fixed, Hyperliquid dynamically manages the pool, automatically adjusting offerings based on market conditions. This also helps avoid problems with insufficient liquidity, which are common on less popular platforms.

Automatic pricing

Also, one of Hyperliquid’s main technological features is its automatic pricing mechanism. It uses algorithms that analyze market data in real-time to set up up-to-date asset prices. This makes the trading process more efficient and avoids price discrepancies on different platforms.

The algorithm takes into account not only current market conditions but also historical data, allowing it to predict future price movements. This is useful for traders who want to assess possible risks and potential profits in advance.

Tokenomics

HYPE is a native token of the Hyperliquid ecosystem that was launched on November 29, 2024. It ensures seamless transactions on the network by acting as the primary means for paying fees.

HYPE also plays an important role in network security and incentivizes users through a staking mechanism where users can lock their tokens to contribute to the stability of the network and receive rewards. At the time of writing, the coin’s price is over $32 and its capitalization is $11 billion.

Source: CoinGecko

The total volume of tokens is 1 000 000 000 000 000 HYPE. The token allocation plan is as follows:

• Future emissions and rewards: 38,888%
• Airdrop: 31,0%
• Core contributors: 23,8%
• Hyper Foundation budget: 6,0%
• Community grants: 0,3%
• HIP-2 distribution: 0,012%

Source: hyperfoundation

HYPE airdrop has become one of the largest in the industry’s history. Previously, DEX Jupiter, L2 blockchain StarkNet, and meme token Notcoin were among the leaders in terms of the number of tokens distributed, each of which distributed about $1 billion worth of cryptocurrency to its participants.

What sets Hyperliquid apart from other projects holding token airdrops this year is its strategic approach to distributing crypto assets. Hyperliquid’s total token supply is capped at 1 billion, of which 31% (310 million) of HYPE has already been issued and distributed. Airdrop recorded 94 thousand wallets and each of them received an average of 2915 tokens.

The token performs several important functions in the Hyperliquid ecosystem:

• Discounts on trading fees. When trading HYPE tokens, you can take advantage of reduced trading fees. This makes trading more cost-effective for regular users.

• Staking rewards. By staking your HYPE tokens, you can earn additional rewards over time. Staking encourages users to hold on to their tokens rather than selling them quickly.

• Participation in governance. Owning HYPE tokens gives you a voice in project management decisions. This allows you to influence the direction of the platform’s development based on the preferences of community members.

Hyperliquid advantages

Moving on to the advantages that Hyperliquid offers its users, there are several key aspects that make the protocol particularly attractive to traders and investors.

High speed of trade execution

The speed of trade execution is one of the main advantages of Hyperliquid. Thanks to the automated order system, users can complete transactions instantly, which is critical in the rapidly changing cryptocurrency market. This allows traders to have time to react to price changes and minimize potential losses.

Low fees

One of the common problems faced by users of centralized exchanges is high trading fees. Hyperliquid, due to its decentralized nature and efficient liquidity distribution system, offers significantly lower fees. This makes the platform attractive to both active traders and long-term investors.

Increased security

Security is an important aspect in the world of cryptocurrencies, and Hyperliquid treats this issue with special attention. Since the protocol works based on smart contracts, all transactions are recorded on the blockchain, providing high transparency and fraud protection. In addition, users have full control over their assets, which minimizes the risks associated with storing funds on centralized platforms.

Possibility to earn on liquidity

Hyperliquid offers users a unique opportunity to earn money by providing liquidity. By contributing their assets to liquid pools, users can be rewarded with transaction fees or other forms of rewards. This not only allows users to utilize their assets more efficiently, but also creates an additional source of income.

Where Hyperliquid is used

Hyperliquid has experienced a surge in activity since launching its own token, recording more than $1 billion in net inflows of USDC stablecoins from issuer Circle, which the platform uses as collateral.

According to analyst firm Spot On Chain, the platform’s deposit bridge now contains more than $2,1 billion in USDC.

Hyperliquid has already been successfully implemented on several major crypto exchanges and DeFi platforms, such as Uniswap, Sushiswap, and Binance, where the technology provides high liquidity and improves user experience.

The project has also found applications in traditional financial systems. It is used to manage liquidity in stock and currency markets, resulting in more efficient and stable trading conditions.

Hyperliquid’s role in DeFi

Impact on DEXs and liquidity pools

Hyperliquid is fundamentally changing how decentralized exchanges and liquidity pools operate, enabling high speed and stability of transactions. This promotes the development of decentralized finance and makes it more attractive to users.

Use in lending and staking

Hyperliquid technology is actively used in lending and staking, providing a high level of liquidity and stability. This allows users to earn higher interest rates and securely capitalize on their investments.

Examples of successful use of Hyperliquid

Amid the increasing interest in Hyperliquid, there are already many successful examples of its use across platforms and industries. Exchanges such as Uniswap and Sushiswap provide clear examples of how improved liquidity can help stabilize and enhance trading efficiency.

Comparison of Hyperliquid with other protocols

There are other open-ended protocols besides Hyperliquid. For example, dYdX and GMX, with which we will make a comparison:

The combination of high throughput, low latency, and community-supported tokenization gives Hyperliquid a competitive advantage.

Possible risks

Despite the many advantages of the platform, there are disadvantages that every user should be aware of:

• Smart contract risk. The on-chain Perp DEX depends on the correctness and security of the Arbitrum bridge smart contracts. Errors or vulnerabilities in the smart contracts can result in the loss of user funds.
• L1 risk. Hyperliquid runs on its own L1 blockchain that has not been as thoroughly tested and validated as other established L1s such as Ethereum. The network may experience downtime due to consensus or other issues.
• Market liquidity risk. For a relatively new protocol, there could be a potential risk of low liquidity, especially in the early stages. This could result in significant price slippage for traders, negatively impacting the overall trading experience and potentially leading to substantial losses.

Project prospects

Hyperliquid’s rapid growth and innovative approach have positioned the platform as a key player in the emerging DeFi space. The platform has ambitious plans aimed at improving its ecosystem. Future developments to watch out for include:

• New trading pairs. Expansion of the range of assets available for perpetual trading.
• Improved governance features. Community empowerment with the HYPE token.
• More community rewards and airdrops. Continued community-driven approach with additional incentives and rewards programs.
• Expanded ecosystem partnerships. Collaboration with other DeFi projects to increase utility, liquidity, and user engagement.
• The launch of HyperEVM is a purpose-built chain aimed at optimizing performance and meeting the needs of Hyperliquid DEX.

This will allow the platform to compete with existing centralized solutions by increasing throughput and reducing latency, which is impossible in other general-purpose blockchains.

Conclusion

Hyperliquid represents a significant innovation in the world of decentralized finance, offering unique technological solutions for traders and investors.

With its fast trade execution speed, low fees, improved security, and the ability to capitalize on liquidity, the protocol shows great potential for the future. With the growing interest in decentralized platforms, Hyperliquid is well-positioned to take its place among the industry leaders.

Within the rapidly changing world of cryptocurrencies, it is critical to understand the technology behind such protocols to capitalize on their capabilities. Hyperliquid not only offers efficient trading methods but also opens new horizons for future developments in the field of financial technology.

Shortly, we can expect Hyperliquid to become the liquidity standard in the financial sector.