Over the past year, Hyperliquid has attracted users with a thunderous force, far surpassing its competitors in trading volume. Relying on continuous buzz and a strong community ecosystem, its community governance token $HYPE has continued to rise. As Hyperliquid initiated the auction and proposal for its stablecoin USDH, it once again sparked market discussions, reaching a new high today, currently priced at $54.7.

As one of the most successful companies in this crypto cycle, there are two interesting sets of data. The first is protocol revenue, with Hyperliquid's protocol fee revenue hitting $1.1 billion in August, with an expected annual revenue of over $11 billion.

Another perspective is from a valuation standpoint. According to Coingecko's data, Hyperliquid's current market cap exceeds $12 billion, ranking 18th in the crypto market. Excluding stablecoins and pegged assets, it actually enters the top ten. It's noteworthy that in December last year, its market cap was less than $2 billion.

In the world of Crypto, with its "fat protocol, thin application" dynamic, the valuation of the protocol is much higher than that of the application. However, in this cycle, this narrative is reversing, with Hyperliquid being the most typical example. Another interesting point is that Hyperliquid's founder, Jeff, revealed in an interview that the company has only 11 people, meaning that each team member can generate over $100 million in revenue each year, making Hyperliquid one of the highest revenue-per-person companies in the world.

So, what kind of mechanism innovation has it made? What has the team done right? How will it develop in the future? In the latest episode of Web3 101, we invited a veteran player in the DeFi community, Teacher Xiaohuanxiong, to discuss. His Xiaohuanxiong Telegram channel is probably one of the most active and influential communities in the Chinese-speaking community. He himself is also a deep participant in Hyperliquid and a large holder of HYPE. The following views are from the podcast content (Listen to the podcast: "E61 | Challenging Binance, Why Do Whales Love to Use Hyperliquid?").

TL;DR

Teacher Xiaohuanxiong's Early Participation: He joined Hyperliquid in August 2023 during the Private Beta, initially recommended by the community and later deeply followed due to the team's professionalism and liquidity mechanism (HLP). With early participation and long-term commitment, he has made profits of over tens of millions of dollars on the token.

Key Advantages of Hyperliquid: Utilizing CLOB + Active Market Making mechanism, it achieves high liquidity efficiency and stability, providing a trading experience close to a CEX (90%). Even during market turmoil, it can maintain smooth operation. In contrast to GMX's GLP physical delivery model, HLP's cash settlement method is closer to CEX, enabling the support of more trading pairs and liquidity. However, it relies more on team risk control.

Development Evolution of Perp DEX: From dYdX (trading mining → volume manipulation tied to token price), GMX (GLP model → robust but lacking scalability), to Hyperliquid (CLOB + HLP → fast speed, rich trading pairs, deep liquidity), gradually moving towards a centralized-like user experience.

VC-Less Liquidity Flywheel: The founding team has a market-making background, injected over $100 million liquidity in the early stages, and implemented strategies such as mirror pools, Friendtech index, Purr airdrop, and a point system to continuously attract and retain users. Through the narrative of "points + airdrop + transparent whale position," they quickly established community consensus and trading activity.

Whale Preference for Hyperliquid: Apart from low fees and speed, on-chain transparency allows funds to desire to be "mirrored" to boost returns; it also protects identity privacy and avoids CEX ban risks. Large positions visible on-chain instead become a platform discussion and traffic source.

Formation of Whale Consensus: The team updates frequently (optimizing weekly/monthly), responds promptly to controversies, giving users confidence in their actions. Those who held onto Purr in the early stages and participated in the airdrop later formed a stable group of large holders, creating a strong consensus.

HyperEVM and HIP-3: Unit (cross-chain asset wrapping), Kinetic (HYPE's major staking protocol), Supercell/Inselico (third-party frontends) form the core ecosystem. HIP-3 allows staking HYPE to launch a white-label exchange, reducing the cost for new teams or facilitating the integration of more assets.

Weaknesses and Challenges: Poor mobile experience, high fiat on/off ramp fees, inadequate customer service and education system. The XPL pre-event also exposed flaws in the mechanism and user trust issues. With only an 11-person team, if they cannot maintain development pace and ecosystem expansion during a bear market, they may struggle to compete with Binance in the long run.

Future Outlook: While having clear short-term advantages, long-term sustainability will rely on team expansion and ecosystem partnership. Hyperliquid's true test will be how it navigates the next cycle.

Introduction to Hyperliquid: What Makes It Attractive to DeFi OGs?

Raccoon: I am Raccoon, managing a Telegram community and Twitter account, focusing mainly on DeFi. I have been active in various protocols since 2020. I consider myself one of the early users of Hyperliquid, having joined during the private beta. Whether it's spot or perpetual, I have been following the project all along. After the token launch, I have continued to pay attention. I can say I am one of the most knowledgeable people in the Chinese community about Hyperliquid. I hope to help everyone better understand the project today.

Liufeng: Thank you, Raccoon. Jack just mentioned the importance of Hyperliquid. In my opinion, decentralized contract trading is the gem on the crown of Web3, especially in terms of profitability. For example, in August, Hyperliquid's trading volume exceeded $400 billion, which is twice the monthly trading volume of Robinhood, so its profitability is reasonable.

There is another topic. There is a market rumor that your earnings from the Hyperliquid token exceed $10 million. Is that true?

Raccoon: Yes.

Liufeng: Then we can only envy and be jealous. At the same time, it should be noted that Raccoon has a vested interest in Hyperliquid, while Jack and I are not significant token holders. I only received a small amount of tokens during an airdrop. Today's program is for knowledge sharing and does not constitute investment advice.

JACK: The first question I am most concerned about is, how did Teacher Raccoon first discover Hyperliquid?

Raccoon: In the early days, it was actually some community friends who introduced it, but at that time, community friends would introduce four or five projects a day, and I wouldn't look into them in detail. At that time, they also said it was fast and had good depth, but I didn't pay much attention. Later on, one of their team members reached out to me via Twitter DM, told me about their project, and he was also very familiar with our community, knowing that we were a very active community of GMX before.

Based on my judgment, they had done systematic research on competitors and product-market fit (PMF), and I was certain that its quality would not be too poor because they had done prior market research. So I started to take a closer look at this project, and later on, I continued to follow this project, participated in their Private Beta, and some of their subsequent updates.

I felt that although this project seemed to have a very fair launch, the team behind it was actually very experienced industry participants, and they had many resources to leverage. So I started to spend more and more time on this project.

Liu Feng: Approximately when?

Little Raccoon: The Private beta should be around August 2023, and it will really take off in September. In fact, it won't be much earlier than others.

JACK: You just mentioned that Hyperliquid is a project that you initially see as a fair launch project, meaning it is a fair launch that may be more friendly to retail investors and allows for greater participation, but at the same time, the team is also very professional. Regarding this professionalism, where do you perceive it?

Little Raccoon: Initially, it was reflected in the HLP (Hyperliquid Pool) design. Different from GMX/dYdX, which leans towards AMM or passive market making, Hyperliquid's approach is closer to active market making at the neutral price point of the order book. It tends to provide liquidity closer to the middle of the order book, resulting in higher capital efficiency.

Later on, it was not only for technical reasons, but also in their marketing such as "GTM" and "point incentive mechanism activities," which they handled very maturely.

They found my community, which is actually only part of the Chinese-speaking community, but they found some KOLs or leaders in the English-speaking community, who are very mature influencers. Generally, if you don't have enough recognition in this industry, you cannot find these people. Their early strategy of shadowing found many users, maybe with only two or three thousand followers, but these followers are highly engaged and active users, rather than tens of thousands of followers where only a few are active. In addition, the participation and promotion of some project teams and VCs made their marketing very comprehensive.

However, this alone is not enough. Their point rhythm is also cleverly designed, for example, they set a 1.5 quarter incentive between the first and second quarters, rewarding native users who are trading continuously even without points, reducing the proportion of "airdrop farmers."

This design, coupled with early community promotion, made their marketing strategy very clever. These two aspects made me feel the team's professionalism.

Liu Feng: So, regarding the product, what was your initial impression when you first saw it?

Little Raccoon: At first glance, there was nothing special, mainly felt smooth and seamless. It was only after using it for a while that I realized its high stability. It has fewer issues compared to some competitors and does not withdraw liquidity even during large market fluctuations. The overall experience is close to 90% of a centralized exchange, but its stability is its true advantage.

Perp DEX Development Brief History

JACK: Could you please outline the evolution history of Perp DEX from dYdX to GMX and then to Hyperliquid? You also mentioned that Hyperliquid's market-making mechanism is different from its predecessors, utilizing a Central Limit Order Book (CLOB) and an active market-making strategy. Could you provide a brief history of Perp DEX for the audience unfamiliar with it and name some key products?

RACCOON: When discussing on-chain decentralized perpetual contract exchanges, we must first talk about dYdX. Before its emergence, perpetual contract exchanges were not in the spotlight. dYdX had a substantial airdrop, characterized by moving what centralized exchanges could do onto the blockchain. It also implemented a "Match-Trade Mining" mechanism, somewhat similar to Fcoin, but on-chain and settled weekly: the more you trade, the more dYdX tokens you receive as an incentive.

The issue was that the trading volume spiked early on: for example, by paying 1 million in fees, you could receive a 1.2 million token reward. This was a surefire way to profit and was calculable, essentially constituting "official encouragement to boost trading volume." When the token price rose, trading volume increased, but when the token price fell, the volume left in a single swoop. Subsequent attempts such as NFTs and launching their own chain did not compensate for the decline in trading volume caused by the token's drop. I believe this was dYdX's "downfall."

Following dYdX, there were numerous VC-supported exchanges like Gains Network, etc., on BSC and Polygon as well, but they did not make waves because they did not engage in "losing money to buy data" like dYdX did. A conservative strategy does not attract trading volume.

Next is GMX. GMX originally operated binary options on Ethereum, but as the interest waned, it transitioned to perpetual contracts on BSC. However, facing stiff competition on BSC and strained relations with Binance, it struggled to make headway. After Arbitrum emerged, it capitalized on Arbitrum's incentives and emerged as a leading project on the main chain. Its biggest contribution to the industry was in "naming and architecture": liquidity providers are referred to as GLP (thus, later, Hyperliquid's LP being called HLP). GLP's unique feature is physical settlement: for example, if the pool actually holds BTC, ETH, and USD, going long on BTC involves borrowing USD to purchase BTC from the pool.

The advantage is no liquidation risk; in extreme markets, as long as foul play is absent, the project can settle your position, and you can withdraw your profits — the most stable approach. However, the challenge is the inability to "leverage" liquidity: how much BTC in the pool allows for what level of leverage for everyone? Even on centralized exchanges, the Open Interest (OI) often exceeds the actual spot holding before it is reasonable. Due to the physical restriction, GLP has higher trading fees and funding rates. Although stable, it fails to attract the core group of users with strong demands for decentralization and security within the top 500 daily active users.

Later, some cash settlement solutions emerged and fell silent for a while. Finally, Hyperliquid appeared, bringing the race back from the dead to a perspective of partial decentralization: using a few nodes' chain to match trades. Different from dYdX, it puts all transactions on-chain, but the chain consists of several nodes, making it faster. It does not involve physical delivery but cash settlement, allowing it to list more assets, not limited to BTC and ETH.

This brought about a broad coverage of long-tail assets; its active market-making strategy also allows it to provide thick liquidity at a relatively low operating cost. Initially, the liquidity pool was around $200 million, but upon launch, it could provide depth comparable to OKX (not as deep as Binance, but on par with OKX). It is now likely close to challenging Binance's level. Liquidity and speed are the reasons it later defeated its previous competitors.

JACK: So, actually, there may be four key factors that have enabled the entire crypto market to develop Hyperliquid. One is that the Perp Dex mechanism has been continuously innovating, from the gamified incentive provided by DYDX, the user incentives to increase trading volume, then to the GMX GLP model, and finally to Hyperliquid, which has been improved in various aspects. Second, the improvement from off-chain to on-chain solutions is also a core consideration for the PERP DEX product, and Hyperliquid may be one of the best on-chain perpetual contract trading solutions to date. Third, it is about its transaction speed and cost, as the traders of perpetual contracts definitely value speed. The last one is about the variety of trading pairs it can trade, and the richness of product and liquidity is also a key reason for Hyperliquid's victory.

The Underlying Logic and Similarities and Differences between GLP and HLP Mechanisms

JACK: Could you explain to everyone again what the underlying logic of the GLP and HLP models is, and what are the key improvements of Hyperliquid's HLP compared to GMX's GLP?

Raccoon: You can liken it to the physical creation and redemption of ETFs and cash creation and redemption: GLP is a liquidity pool for "physical delivery," while HLP is a liquidity pool for "cash settlement."

The "physical" in GLP refers to the fact that there are actual funds and coins in the pool: for example, a pool with a size of 300 million, 100 million BTC, 100 million ETH, and 100 million USD. If you leverage long on BTC, you use the pool's USD to buy the pool's BTC. The liquidity pool essentially facilitates trading. The benefit is that there is no liquidation risk; in extreme market conditions, as long as it is not a black swan event, the project can fill your order, and you can receive your money. This is the most stable mode.

However, it cannot "leverage" liquidity. How much BTC needs to be in the pool to allow for a certain level of leverage? On centralized exchanges, Open Interest (OI) is usually higher than spot holdings, which is an industry norm. Therefore, GLP often experiences higher trading fees and funding rates. Although stable, the general public may not necessarily pursue this level of stability, so it cannot break through to reach beyond those 500 "core users."

HLP has been modified to only hold dollars (or stablecoins), settling all trading pairs in dollars. This way, many trading pairs can be added to any liquidity pool, allowing for up to 100 pairs, but all settled in underlying dollar cash, calculating gains and losses only based on numbers, without relying on actually holding BTC/ETH/SOL or other spot assets in the pool. This model is closer to the centralized exchange pattern. It has its drawbacks, but the market currently considers these drawbacks negligible, in exchange for higher liquidity, lower fees, and revenue sharing.

What are the drawbacks? It is easier to encounter issues when listing new trading pairs, as new pairs can keep being added continuously. For example, with certain tokens from the past (such as XPL and the like), if the leverage is set incorrectly leading to price distortion, HLP holders may face unreasonable losses. The performance of HLP depends on the success of the market-making strategy: better execution results in higher returns, while poor execution leads to lower returns. GLP does not have this "strategy execution" issue since it only adjusts the holdings ratio of BTC/ETH/USD, preventing sudden large gains or losses; it does not experience sudden significant losses as long as the three assets do not fluctuate significantly. When HLP encounters manipulation or incorrect leverage settings for long-tail trading pairs, it may incur significant losses.

The design of HLP heavily relies on team/risk control parameters: for instance, allowing 100x leverage for BTC, 10x for mid-cap pairs, 2x for small-cap pairs, while limiting the maximum position size, and continuously and actively adjusting these settings. When a new token is listed and has high liquidity, higher settings can be applied, but if the market cap later decreases, leverage levels and position limits should be adjusted downward. This requires the team to continuously monitor the liquidity and market cap of each token. GLP does not require this because it must "have spot assets to facilitate your trades." Even if the GLP team is inactive, major issues are less likely to occur; HLP requires active monitoring.

Therefore, GLP and HLP actually follow two different logics. GLP is more "stable," while HLP is more "expansive," but it also carries higher risks. This is its improvement, making it closer to the CEX model. Of course, it also has its downsides, but the current market believes that these downsides can be overlooked, so everyone is willing to accept the HLP model, in exchange for higher liquidity, cheaper trading fees, and Funding Rate.

Without VC Backing, Where Does Hyperliquid's Liquidity Flywheel Come From?

JACK: Another interesting point is that Hyperliquid initially did not have VC backing. Many large projects require a considerable amount of liquidity or financial support to subsidize users, but Hyperliquid rapidly accumulated a significant amount of protocol liquidity in less than a year and a half. It should now be the largest decentralized perpetual contract product in terms of liquidity in the entire industry, with a user base far exceeding that of GMX, 500–600 core users. Why was it able to quickly accumulate liquidity and early users? Let's first discuss the source of the liquidity. How did its "flywheel" start?

Raccoon: Saying "no VC support" doesn't mean "successful because there's no VC," but rather the team itself can play the role of VC: endorsing the brand, introducing market resources, and providing the "floor" for liquidity.

Jeff himself comes from a market maker background, previously a top five market maker at OKX, with a good grasp of liquidity. Therefore, there's no need to rely on external funds (whether from VCs or retail investors) to provide base liquidity. Initially, the HLP team also invested over a billion dollars themselves. While not perfect, it was enough to support a "tradable" starting point and continuously improve the experience. The team also has direct access to industry thought leaders, project teams, and Twitter-active participants, without the need for VC connections. So when they say they "have no VC," it's because they can already fulfill the VC's role.

In the early stages, there were two pools: the HLP pool and the liquidation pool. The team provided over $1 billion in liquidity in these two pools, now around $3 billion (including some external funds). There are also external market makers providing liquidity through APIs, but the core liquidity team can support, giving a higher starting point than grassroots projects.

Early users mainly came from the "copy-trading system" liquidity pool. Small to medium-sized Key Opinion Leaders (KOLs) could bring volume by creating some copy-trading pools, somewhat similar to Bitget's early growth strategy, bringing a lot of "directional buy or sell orders." Such orders are healthier for market makers and liquidity providers, unlike arbitrage, price manipulation, or hedging that only generate unhealthy 0.1% fee-harvesting traffic.

First wave of growth: Friendtech-related index (combining the top 50 friend tokens into a product similar to an ETF), benchmarking Aevo's product. At the time, Twitter had two factions fighting for users, with Hyperliquid being more aggressive in attracting users. While this product may not necessarily be profitable, it garnered significant attention.

Second wave: Airdrop of Memecoins Purr (instead of waiting a year and a half to distribute governance tokens), a pleasant surprise, rewarding early users. Then, between the first season and the second season, a "1.5th season" was added: if users were still actively trading after the Purr airdrop and hadn't sold all the airdrop tokens, additional bonus tokens would be airdropped without prior notice. This unexpected move deepened the feeling that the team is truly rewarding users.

Third wave: Introduction of the second-quarter plan, continually adjusting the points rules for major coins, minor coins, and spot trading (changing weekly and not disclosed), prompting users to speculate on the rules and "try everything," including a surge in spot trading. At that time, there was also a "ticker auction every 48 hours," where the project team purchased tickers and listed them, boosting revenue. The first wave attracted attention, the second wave attracted users, and the third wave even increased revenue—although later the spot products encountered some failures, as users were not very willing to trade on the Hyperliquid spot market.

At that time, many teams rushed to grab the token ticker's "listing fee." This was the first time the term "listing fee" appeared in a decentralized protocol, associating Hyperliquid with a centralized exchange for the first time. This also indicated that it already had popularity and traffic at that time, and the project team believed it could bring liquidity, hence they were willing to pay. The highest ticker fee approached nearly $1 million. However, as the hype around spot trading diminished later on, many project teams had little connection to HYPE, and the HYPE community was also not very willing to buy their tokens, leading to a waning of the hype.

Later on, they issued a governance token, HYPE. Because those who received a large number of points in the early stages were mostly those who had been actively trading throughout the first two quarters and had not sold their early Purr airdrop tokens. Therefore, this group of people received a significant amount of the HYPE airdrop and were more willing to continue "holding." It was like "I'll give you a candy first and if you don't eat it, I'll give you five more" — the probability of not eating it is higher. Coupled with coin-holding community members who maintained price stability, the token price relatively steadily increased, bringing in more trading volume.

The recent surge in trading volume came from "whale position transparency": compared to centralized exchanges, on-chain transactions are more transparent, so you can see who is longing and shorting. The media actively reported on whales like James Wynn or Aguila Trades, and people even jokingly called it "insider information." I don't see it that way, but there are stories to tell. Whereas centralized exchanges are a black box. This increased media coverage.

At the same time, you will see that they have always been "phasing out old lines": currently, HLP's trading volume accounts for only about 10% of the total; the initial copy trading treasury, Purr, spot trading, have all been marginalized. They are a team that changes rapidly, which has both positives and negatives.

The core attraction to users now is still "low fees, a decentralized experience that rivals centralized exchanges, and decentralization sounds cooler." It's not an absolute argument like no bans or no front-running, but rather "cheaper, similar experience."

Additionally, for many U.S. users, Hyperliquid has been a good choice for a while, especially since they cannot use Binance.

Recently, what surprised me was how good the liquidity was. For example, there was a Bitcoin whale who in a very short time swapped nearly $30 billion worth of BTC for ETH, likely done on Hyperliquid. I also heard that they were concerned about being banned on Binance.

Why are whales more willing to trade on Hyperliquid?

JACK: The most discussed topic in the market is why there are so many whales on Hyperliquid? Why are they willing to use such high leverage, up to 50 times? Why are they willing to engage in large cash transactions on Hyperliquid? Is it only because of the low fees and anti-censorship decentralization, or are there other reasons?

RACCOON: There is a speculation in the community that these funds hope someone will "copy their trades," so they can achieve better trading results. It does not refer to "automatic pool copying," but rather to seeing them go long, prompting others to go long as well, causing the price to rise faster. This is only possible on a platform as open and transparent as Hyperliquid. Placing orders on Binance, where visibility is limited, does not have the same effect.

The second factor is "anti-censorship/privacy." It's not about having unclear fund sources, but rather about not wanting retail investors to know their true identities. People can see that a certain ID is active, but they don't know the real name behind it. As long as address separation is done correctly, real identities and on-chain identities can be kept separate, providing better protection for personal safety and privacy. Centralized exchanges require KYC, which does not guarantee the secure handling of personal data. Once leaked, there is a risk to personal safety.

The third reason is the "ban issue." All of the above are reasons why these funds prefer to use Hyperliquid.

JACK: It sounds like a relatively organic process, doesn't it?

LIU FENG: The term "organic" is quite accurate. The emergence of large holders on decentralized contract exchanges began with GMX. The GMX era was most famous for "Andrew Kang," known for placing orders in the hundreds of millions of dollars, where people either followed his trades or took the opposite position, greatly boosting platform liquidity. This only happens on decentralized exchanges because they are transparent and observable. When a centralized exchange announces "I placed a large order," there are doubts about authenticity.

In the Hyperliquid era, whale trading has become a phenomenon, with many observing whale positions, sparking more people to either follow or take the opposite position, thereby promoting liquidity.

This is somewhat counterintuitive because we assume whales desire privacy. However, we must differentiate between "identity privacy" and "position privacy." It is easier to protect identity privacy on Hyperliquid, but positions are exposed. Some people want their strategies to remain unknown, making Hyperliquid unsuitable for them; others seek "publicity," not minding if their positions are visible, in which case Hyperliquid is very suitable.

JACK: In summary, whales are a key element of decentralized perpetuals, attracting attention and liquidity. The reason Hyperliquid is widely discussed in the industry is due to these massive whale trades.

After the HYPE Token Issuance, Why Can Whales Quickly Form Consensus?

JACK: There is another phenomenon: many whales around me, Hyperliquid's large holders, formed a strong consensus shortly after the token issuance, continuously supporting this protocol, and this was even before the "whale entry." The consolidation of whale consensus is quite difficult for me to understand. As a major ecosystem participant, why do you think this team was able to gather whale consensus? How did they achieve this?

LIU Feng: Let's first define "whale": does it refer to HYPE holders? It sounds like a raccoon, with holdings worth over ten million U.S. dollars considered whales? Are there many whales of this size?

JACK: I think around 1 million U.S. dollars can also be considered.

LIU Feng: Then these raccoons are "super whales." Tell us about the "whale life" you know.

Raccoon: I know many whales with holdings in the millions or tens of millions. They believe in the team because they have been following for long enough; many of them don't really play new projects, maybe just two or three, usually larger ones like WFI. They don't usually explore new projects every day. They have been with the project all along, seeing the team evolve quickly, communicate in a timely manner, and value real users.

Customer service is indeed lacking, but on platforms like Twitter, Jeff and team members respond promptly to controversies. Fast responses from centralized exchanges (Binance, OKX) are normal; on-chain projects often get criticized for not responding for a week. Hyperliquid's response speed in this area is close to that of centralized exchanges, usually responding on Twitter within 24 to 48 hours.

Project updates are also swift, with a new version released every one or two months. Minor updates such as UI, especially continuous optimization on mobile, and more order types on desktop are being improved, with maintenance almost every week. People feel that the team is not being complacent, with development progressing steadily. Many on-chain projects go from V1 to V2 to V3, with more than a year between V2 and V3, not updating every week or month.

This makes everyone feel "they are doing things," and whales are more willing to support. One last point: many whales are those who held onto airdrops from the beginning and have been using them. If you sold the Purr you received as an airdrop or stopped trading after the first season, thinking the airdrop was over, you wouldn't receive as many subsequent airdrops and wouldn't become a "whale." So, those who stayed are more willing to hold on.

In terms of communication channels, some have Telegram/Discord private groups that require wallet verification to join, where team members are also present. I am not in most groups now because I'm not using my own wallet, so I'm not sure if they still use these channels.

What are some notable projects in the HyperEVM ecosystem?

JACK: Many people are looking forward to Hyperliquid's EVM ecosystem, HyperEVM, which allows other teams or applications to directly plug into Hyperliquid's liquidity pool to develop projects on top of it. What are some worth noting?

Raccoon: Unit is worth paying attention to. They are responsible for "wrapping" assets such as BTC/ETH into Hyperliquid's spot market, acting as a wrapper to bring spot to the Hyperliquid exchange. The potential income is considerable, and they have acquired a lot of mainstream token tickers, which can help bring spot trading volume in.

Unit is more like a cross-chain asset bridge to Hyperliquid's cross-chain product. It is also decentralized and permissionless. Unlike Thorchain (RUNE): it has a closer relationship with Hyperliquid, so on top, you directly use BTC instead of unitBTC. This holds more "legitimacy" in terms of ticker. Some half-jokingly say that the whale who converted BTC to ETH might consider using Unit for mining and airdrop speculation, but of course, this is a joke. Many people use spot trading, and there is also the potential consideration of "airdrop speculation." However, I tend to think that if it works well, use it, don't use it for the airdrop, otherwise not getting the airdrop can affect your mindset.

Kinetiq is a protocol that has risen rapidly, and I missed out on it too. It is now basically the largest LST protocol. It used to be stHYPE, and now everyone is using kHYPE. I see that in the end, everyone is using Kinetiq HYPE, so it holds the most liquidity staking volume. This is very convenient for the subsequent implementation of HIP-3 because HIP-3 requires staking 1 million HYPE, and there are not many people who have this entry ticket. If a large amount of kHYPE can be crowdfunded, there is an advantage in launching HIP-3.

The amount of kHYPE already staked on Kinetiq has exceeded $2 billion.

Supercexy and Insilico Terminal are third-party front-ends that bring volume to Hyperliquid through "builder code" (similar to project-endorsed code) and provide third-party front-ends. Supercexy is mainly aimed at the mobile end; Insilico Terminal is aimed at the computer end for professional users and can provide more order types. Both of these currently have relatively high revenue.

They mainly rely on user acquisition, earn commission from Hyperliquid because the frontend is more user-friendly. The potential for a story is limited, similar to the "wallet track" — it's also very difficult to make a lot of money by issuing a coin. You can see that a bunch of wallets (Magic Eden, Trust Wallet, SafePal, etc.) are all quite ordinary. The third-party frontend track is somewhat similar to the wallet track, unless transitioning to do HIP-3, it's difficult to scale up. If it works well, just use it.

Interpreting HIP-3 and Its Impact on Hyperliquid

JACK: Many large holders and active users frequently mention HIP-3. HIP is like Ethereum's EIP, it's a upgrade proposal for Hyperliquid. We are now in the third generation. My understanding is: HIP-3 allows users holding a certain amount of HYPE to deploy their own perpetual contract trading pairs on the protocol. This is favored by many HYPE holders and ecosystem observers. What changes will HIP-3 bring to the ecosystem? What does it mean to "transition to HIP-3"?

Raccoon: With HIP-3, by staking 1 million HYPE, I can list my own trading pairs. The underlying technology uses Hyperliquid's matching engine, with the frontend on my end, providing a more advanced trading experience than the official frontend. This is similar to a "white-label exchange." Many teams wanted to do this before, and projects like Odon also wanted to, but they didn't have their own user base, making it difficult to do white-label.

Liu Feng: Stake HYPE tokens to get the white-label qualifications and list the trading pairs you want; this way more tokens will be staked.

Raccoon: However, the "more" is also limited. According to my recollection, there is no difference above 1 million (specifically referred to the documentation), this is more like a "collateral," not a "more is better" situation.

JACK: Why would someone want to do white-label?

Raccoon: Of course, now you can take VC money to create a Hyperliquid competitor, but you can't rely on VC funding in the long run. For example, dYdX is VC-backed, and a bunch of VC-backed exchanges between dYdX and GMX eventually disappeared, and what emerged was a VC-less GMX. VCs won't burn money indefinitely in a track with no return; when they realize they can't surpass Hyperliquid, they might be willing to "plug-in" rather than "compete."

If you build your exchange, basic pairs like BTC/ETH must be present, you need to find inventory on your own, have a thick inventory; you have to share the money with the liquidity provider, and even when you borrow more money, you have to spend it, you don't necessarily save money. If built on Hyperliquid, mainstream pairs like BTC/ETH/SOL directly use its liquidity, you only need to supplement the assets you want, such as gold, silver, oil, and other CFD-type assets. The overall technology and liquidity costs will be much lower.

What are the Competitors of Hyperliquid in the Market?

JACK: This is related to the next question: Apart from creating competitors, an application or front end of HyperEVM could eventually turn into a "white label" of Hyperliquid. So if someone were to create a decentralized perpetual protocol now, how could they differentiate it from Hyperliquid? In what areas can Hyperliquid be improved? What are some notable Perp DEX projects to watch? What about Lighter?

Raccoon: From what I've seen recently, there is hardly anything out there that can achieve half of what Hyperliquid has. There are some good products, such as Aster, edgeX, and Backpack, which might be at about 40-50% of what Hyperliquid offers. I haven't done a detailed analysis, but overall, I feel like something is lacking. (Side note: Backpack is currently a centralized exchange but will transition to a decentralized model in the future.)

The Lighter you mentioned is decent, and I've tried Lighter as well. However, I have several criticisms of it. You could say I'm biased because I hold $HYPE. But the key point is that I prefer to see differentiation in "ideology" rather than achieving "70% of what Hyperliquid has done." Competitors don't necessarily have to do better; they need to be "different."

I've also been looking at Pacifica recently. Although the current product is not strong, maybe a 1-2 on a scale of 10, it still offers something different from Hyperliquid. Extended promotes many grid strategies, edgeX is a mobile app, Pacifica focuses on AI. Each name that pops up has its "unique features" that Hyperliquid lacks. However, Lighter is too similar to Hyperliquid; I feel like 80% of it resembles Hyperliquid. Every aspect of Lighter is something that Hyperliquid already has, lacking significant differentiation.

What are the Weaknesses of Hyperliquid?

Raccoon: The main weaknesses are threefold. Firstly, the mobile end. We conducted an optimization previously, and I feel like we only improved from a 4 to a 5, still only reaching a "barely passing" grade. This is not solely a Hyperliquid issue but a problem with wallets like MetaMask, Trust Wallet, Coinbase Wallet, OKX/Bybit, which do not smoothly support complex contract interactions on the mobile end. The network and gas design make the mobile experience far inferior to the desktop experience. Currently, it is almost impossible to smoothly use Hyperliquid on mobile without a web end. I rarely use the mobile end myself. However, mobile is a necessity: many working individuals cannot always sit in the office to trade and rely on their phones. Centralized exchanges (OKX, Binance) offer a great mobile experience. The only potential "solution" for Hyperliquid at the moment is a third-party mobile end (such as Base or Supercell types). But the unknown factor is whether third parties can compete with the first party; if they move fast and aggressively enough, they can, because the opponent is a "third party" and not the "Hyperliquid official team," making it difficult for a small team to achieve the same level of excellence.

Second, Deposit and Withdrawal. Many people now can't "buy in" not because they don't know how to deposit or withdraw, but because the fees are too high. You suggest using MoonPay? The fees are close to 5%, which retail investors won't pay. Even something like "2% credit card deposits" is seen as high by retail investors, especially considering the discouraging rates for converting various currencies (euros, yen, lira) to USDT. Hyperliquid has not yet found a balance within 2% for "convenience" and "reasonable pricing." I am not sure how to overcome this because centralized exchange fiat deposits and withdrawals have the advantage of substantial inventory in cross-chain bridges, many OTC traders, and a wide range of supported products, leading to a pricing advantage.

Third, Insufficient Customer Service and User Support Resources. There are two aspects: first, user documentation. Currently, the documentation is relatively concise, lacking "step-by-step" introductory tutorials, assuming users already know how to operate on-chain. Many newcomers have never bought cryptocurrency before, so you cannot expect them to use Hyperliquid right from the start. Currently, many rely on TikTok and YouTube KOLs for recommendations and onboarding tutorials. I believe there should be an "official educational platform," similar to Binance Academy, that provides step-by-step guidance for users starting from scratch, lowering the barriers to entry. It doesn't necessarily have to be on the main site, but it should have official endorsement. The second aspect is "human reassurance and response." For instance, in the case of occasional withdrawal delays, an immediate response from a real person to reassure and address the situation may not immediately resolve the issue, but it is necessary to soothe emotions. This is a strength of centralized exchanges. With only 11 people, Hyperliquid cannot cover a wider audience beyond Twitter, missing platforms like Facebook, Instagram, Weibo, Xiaohongshu, and more. To expand the community, relying solely on Twitter/Telegram is insufficient; a larger customer support and peripheral team is needed. Ideally, there should be teams within the ecosystem handling these tasks and benefiting from them.

These three aspects (mobile end, deposits and withdrawals, customer service) can indeed be addressed through third-party solutions. However, there needs to be a reasonable "ecosystem revenue sharing/support." For example, Inselico Terminal publicly complained that they found the revenue obtained from Hyperliquid to be lower than from previous platforms, forcing them to increase fees to cover costs. Previously, as a third-party frontend, they barely charged additional fees, but later found they couldn't survive without raising them. This makes it difficult to motivate everyone to not "start a new stove" but rather "work for Hyperliquid."

My suggestion is for the team to provide more traffic or fee support to "ecosystem partners," not necessarily through direct monetary support but also by offering gas discounts in the product. Let ecosystem teams earn money, and they will willingly contribute to the ecosystem instead of venturing out to start new projects. Hyperliquid has already been friendly enough to holders and users; going forward, they should also have a more "grand vision" for the teams within the ecosystem.

Liu Feng: This also raises another question: How do you perceive the team's current priority when communicating with them? Recently, they announced plans for a support fund and token buyback. There will soon be a significant team token unlocking in October/November.

Raccoon: I feel that their current priority is to "fix the mechanism first," such as the recent XPL incident. They want to "avoid further issues," stabilize the user base, and then slowly promote HIP-3. As for the unlock, they are also handling it, emphasizing in public opinion that they will "sell a maximum of only 10%," among other statements. They have discussed the unlock in some interviews. I think the roadmap is: stabilize first, then push HIP-3. The market may have had overly high expectations for the "next round of airdrops."

Liufeng: You mentioned "fixing the pit" and also mentioned the market manipulation controversy with XPL. Can we discuss this in detail? Can Jack provide some background?

JACK: XPL is the native governance token of "Plasma," the "stablecoin chain" launched by Tether (USDT issuer). Before the token was officially launched, Hyperliquid started pre-market trading. During the pre-market period, XPL experienced a rapid rise and fall within five minutes, quickly surging and then plummeting, leading to widespread liquidations and both long and short positions being liquidated. The community questioned the existence of manipulation.

Later, it indeed looked like an address named silent_trader went long in advance and then used a large buy order to drive up the XPL price, causing a massive short squeeze. The price quickly rose from $0.6 to nearly $2 in a short period, followed by a sharp drop, causing confusion in the pre-market trading pairs. Could Raccoon elaborate on what happened at that time? Who is responsible?

Raccoon: In terms of mechanism design, Hyperliquid had considered the "pre-market volatility" in advance and also provided a prominent warning on the interface. However, many regular hedging users had not encountered this situation before and had higher expectations for Hyperliquid. This warning did not have the desired effect. I believe that Hyperliquid needs to take about 70% of the responsibility.

I don't think it was a "hack," but there are indeed issues with the mechanism. The biggest problem is this: after the event, Hyperliquid used "users did not read the documentation" as an excuse. I cannot accept this. Because in terms of product design, when pre-market and market are placed together, everyone would assume they enjoy the same level of "protection." If you view Hyperliquid as an "exchange," users expect to "sleep soundly" on it. You could say "this is a game arena," but this is not the expectation of most users. One cannot simply use "the documentation was written" as an excuse without specifically addressing user losses, or even blaming the users. The amount involved is approximately around $4 million, which may not be suitable for direct compensation, but some form of benefits can be provided to the relevant users, such as fee reductions in the future. Centralized exchanges have encountered similar issues many times. For example, after listing on an exchange, trading was disabled for two hours, and in the end, every user was given a $10 fee reduction. It may not be a significant amount of money, but users would feel much better, knowing that you "acknowledged the issue and dealt with it" rather than just focusing on right or wrong. This is an "attitude."

Especially affected this time are "real users," different from those previous pure speculators looking to "make a quick buck." This group of XPL users are genuine users of Hyperliquid. For such supporters, I believe there should be more humanistic care, rather than a strict adherence to the rules.

This incident does have an impact on holders, whales, and active users, but it is not "fatal." Every exchange has experienced similar issues. The key lies in the follow-up actions. If the same approach is consistently used, confidence will slowly erode.

Another impact is on "new coin trading." Following the XPL incident, you will see that the trading volume of certain new coins (such as WLFI) on Hyperliquid accounts for only a quarter of that on Binance; whereas before XPL, new coins could often achieve around half of Binance's volume. This indicates a weakened confidence in the "new coin race." Some users may think: "I won't go to Hyperliquid for new coin purchases, only for old coins." This does not apply to all users, but this mindset has certainly been affected. Larger coins like Bitcoin and Ethereum have not been impacted; the core contract market is still doing well, and the core business has not been affected.

How Long Can Hyperliquid's Momentum Last?

Liu Feng: Looking further ahead, can advantages like Hyperliquid's be sustained? When will it become Binance's "killer"?

Raccoon: I think the bottleneck lies in "having only 11 people." Can 11 people really defeat Binance? It's quite challenging to rely solely on a "genius engineer minority," which has always been my concern. Binance initially didn't have many offline expansion personnel, but later they will make many investments with relatively low ROI to enhance the brand, such as sponsoring races and sports teams. This is an issue of brand exposure.

If Hyperliquid relies solely on third-party investments, support from ecosystem teams like Unit/Kinetiq, and the community of holders, it can be very beneficial during a bull market token surge; but there is no community in a bear market. Even if there is a community in a bear market, they will not spend money to help you because everyone is short on funds. Then, it can only rely on the core team to "hold the line."

To defeat Binance is not a one-cycle task; it requires accumulation over two to three cycles. In between, there will be a phase where the token drops by 75%, and the project team and retail investors will leave halfway. In that period, can these 11 people "make a comeback"? This will determine whether they can "finish the entire battle." I hope they don't necessarily have to expand to two to three hundred people, but at least to 30-40 people, better than 11. Because these people are salaried, they can maintain development progress even in a bear market, enduring the stage of "everyone in the community has left."

So far, their strengths and momentum are evident. The challenge lies in whether they can effectively expand under the current favorable situation, establish an ecosystem, improve their products, and continue to advance to the next level. Otherwise, once they enter a bear market, given the current circumstances, maintaining their edge may not be easy.

They have not experienced a real bear market. A bear market is irrational. Despite having good product data, improving levels, and enhancing user experience, the token price drops, and both attention and traffic decline. This is "counterintuitive": during a bull market, even mediocre products can take off; in a bear market, although the product is actually improving, users are leaving. How to survive a bear market is something they have not experienced. It is worth observing whether the team's morale can remain stable. If they cannot withstand a bear market, they will not be able to defeat Binance because it is impossible to beat Binance in just one market cycle.

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