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 soar. With Hyperliquid launching the auction and proposal for its stablecoin USDH, it has once again sparked market discussions, reaching a new all-time high today, currently priced at $54.7.

As one of the most successful companies in this round of the crypto cycle, there are two interesting sets of data. The first is protocol revenue, with Hyperliquid's protocol fee revenue reaching $110 million in August, with an expected annual revenue of over $1.1 billion.

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

In the world of Crypto, known for its "fat protocol, thin application" concept, application valuations are much lower than protocol valuations. However, in this round of the 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 employees, meaning each team member can generate over $100 million in revenue each year, making Hyperliquid one of the highest-revenue-per-capita companies in the world.

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

TL;DR

Teacher Xiaoxiong's Early Participation: He joined Hyperliquid in August 2023 during the Private Beta, initially recommended by the community. Later, he followed deeply due to the team's professionalism and the Liquidity Mechanism (HLP). With early participation and long-term involvement, he has made profits of tens of millions of dollars in the token.

Key Advantages of Hyperliquid: Utilizing CLOB + Active Market Making mechanism, it achieves high liquidity efficiency and good stability, providing a trading experience close to CEX (90%). Even during market volatility, it can maintain smooth operation. Compared to GMX's GLP physical delivery model, HLP's cash settlement method is closer to CEX, enabling the expansion of more trading pairs and liquidity, but with risks more dependent on team risk management.

Development Path of Perp DEX: From dYdX (Trading Mining → Volume relying on token price), GMX (GLP Model → Robust but lacking scalability), to Hyperliquid (CLOB + HLP → Fast speed, rich trading pairs, deep liquidity), gradually moving towards a more centralized trading experience.

VC-Free Liquidity Flywheel: The founding team comes from a market-making background, injecting over $100 million in liquidity in the early stages, and continuously attracting and retaining users through strategies like copy trading pools, Friendtech index, Purr airdrops, and a points system. Through the narrative of "Points + Airdrops + Transparent Whale Wallet Positions," community consensus and trading activity were quickly established.

Reasons for Whales Preferring Hyperliquid: Apart from low fees and speed, on-chain transparency allows funds to be "copied" to boost returns; it also protects identity privacy and avoids CEX banning risks. Large positions visible on-chain become platform topics and sources of traffic.

Formation of Whale Consensus: The team maintains a fast update pace (continual weekly/monthly optimizations), responds promptly to controversies, giving users confidence in their actions. Early holders of Purr and airdropped points later formed a stable group of large coin holders, establishing strong consensus.

HyperEVM and HIP-3: Unit (Cross-chain asset wrapping), Kinetic (Max HYPE staking protocol), Supercell/Inselico (Third-party frontends) form the core ecosystem. HIP-3 allows for HYPE collateral to launch a white-label exchange, reducing costs for new teams or driving more assets to be onboarded.

Weaknesses and Challenges: Poor mobile experience, high fiat on/off ramp fees, inadequate customer service and educational systems. The XPL pre-event also exposed flaws in the mechanism and user trust. With only an 11-person team, if unable to maintain development pace and ecosystem expansion during a bear market, they may struggle to compete long-term against Binance.

Future Outlook: While having clear short-term advantages, long-term competitiveness will rely on team expansion and ecosystem partner building to withstand a bear market. The real test for Hyperliquid will be how they navigate through the next cycle.

Getting to Know Hyperliquid: What Makes it Attractive to DeFi OG?

Raccoon: I am Raccoon, managing a Telegram community and Twitter account, mainly focusing on DeFi. I have been active in various protocols since 2020. I consider myself one of the first users of Hyperliquid, having joined during the private beta. Since then, whether it's spot or futures, I have been following the project. I have continued to pay attention even after the token launch, so you could say I am one of the most knowledgeable people about Hyperliquid in the Chinese community. I hope today I can help everyone better understand this project.

Liufeng: Thank you, Raccoon. Jack just talked about the importance of Hyperliquid. In my opinion, decentralized on-chain 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 quite reasonable.

There is also a topic. There have been rumors in the market that your earnings from Hyperliquid tokens have exceeded $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 show 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, some friends in the community introduced it to me, but at that time, community members would introduce maybe four or five projects a day, and I wouldn't pay much attention. They did mention that it was fast and had good depth, but I didn't take it too seriously at that time. Later on, a member of their team reached out to me via Twitter DM, told me about their project, and he was also familiar with our community, knowing that we were previously an active community of GMX.

Based on my judgment, they had conducted systematic research on competitors and product-market fit (PMF). Surely, the quality would not be too bad because they had done thorough market research beforehand, so I started to take a closer look at this project. Later on, I kept following this project, participated in their Private Beta, and kept up with their updates.

Although this project seemed to have a very Fair Launch appearance, the team behind it was actually made up of very experienced industry participants. They had many resources to leverage, so I spent more and more time on this project.

Liu Feng: Around when?

Little Raccoon: The Private beta should be in August 2023, and it will take off in September, not much earlier than others, to be honest.

JACK: You just mentioned that Hyperliquid seems to you to be a fair launch project initially, meaning it is a fair launch, perhaps more friendly to retail investors, allowing more participation in the project. At the same time, the team is also very professional. In terms of this professionalism, where do you perceive it?

Little Raccoon: Initially, it is reflected in the HLP (Hyperliquid Pool) design. Different from the GMX/dYdX AMM or passive market-making, Hyperliquid's approach is closer to an active market-making strategy at the neutral price of the order book and tends to provide liquidity around the mid-price of the order book, thus achieving higher capital efficiency.

Later on, not only for technical reasons, but their marketing in "GTM" and "point incentive mechanism and other activities" is also very mature.

They found my community, which is actually only part of the Chinese community, but they found some KOLs or leaders in the English community, who are very mature influencers. Usually, if you don't have enough recognition in this industry, you won't find these people. Their early strategy of finding followers, they found many, maybe with only two or three thousand fans, but the composition of the fans is more engaged and active users, rather than tens of thousands of fans, but actually, few are active users' fans. In addition, the participation and promotion by some projects and VCs made their marketing very comprehensive.

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

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

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

Little Raccoon: There was nothing special at first sight, mainly feeling 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 drain liquidity even during market volatility. The overall experience is close to 90% of a centralized exchange, but stability is its true advantage.

Perp DEX Development Brief History

JACK: Please walk us through the evolution history of the Perp DEX, from dYdX to GMX and then to Hyperliquid. You also mentioned that Hyperliquid has a different market-making mechanism compared to its predecessors, utilizing a Central Limit Order Book (CLOB) and an active market-making strategy. Could you give a brief history of Perp DEX for listeners unfamiliar with it and mention some key products?

RACCOON: When discussing on-chain decentralized perpetual contract exchanges, we must start with dYdX. Before its emergence, perpetual contract exchanges were not in the spotlight. dYdX had a significant airdrop and stood out by moving what centralized exchanges could do onto the blockchain. It also introduced 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 surged early on: for example, by paying 1 million in fees, you could receive a reward of 1.2 million tokens, which was definitely profitable and calculable, essentially encouraging volume pumping by the project. When the token price rose, trading volume increased, but when the token price fell, the trading volume left all at once. Even subsequent NFT and native chain launches did not make up for the decline in trading mining due to the token's price drop. I believe this was dYdX's "cause of death."

After dYdX, there were plenty of VC-backed exchanges such as MCDEX, etc., on BSC and Polygon, but they did not make waves like dYdX because they did not engage in "losing money to buy data" tactics like dYdX did. A conservative strategy does not attract trading volume.

Then came GMX. GMX originally operated binary options on Ethereum, which lost its popularity over time. It then transitioned to perpetual contracts on BSC, but faced intense competition on BSC, and its relationship with Binance was strained, hindering its progress. After Arbitrum, leveraging Arbitrum's incentives, GMX flourished and became a leading project on the mainnet. Its most significant contribution to the industry was in "naming and structure": liquidity providers were called GLP (hence, later, Hyperliquid's LP was named HLP). GLP stood out for its physical settlement feature: for instance, if the pool actually holds BTC, ETH, USD, and you leveraged long BTC, you essentially borrowed USD to buy the BTC in the pool.

The benefit was no liquidation risk; in extreme market conditions, as long as there is no foul play, the project can cover your position, allowing you to withdraw your profits — the safest approach. However, the drawback was the inability to "leverage" liquidity: how much BTC in the pool would support leveraged long positions? Even in centralized exchanges, the open interest (OI) is often higher than the actual spot holdings, which is reasonable. Due to the physical constraints, GLP had higher trading fees and funding rates. Despite its stability, it failed to attract the core group of users comprising the top 500 daily active users with a demand for decentralization and high security.

Later, some cash settlement solutions emerged, which fell silent for a while. Finally, Hyperliquid appeared. When everyone thought this track had disappeared, it returned from a perspective of partial centralization and partial decentralization: using a few nodes to match trades on-chain. Unlike dYdX, it puts all trades on-chain, but the chain consists of several nodes, making it faster. It does not involve physical delivery but rather cash settlement, allowing for the inclusion of more assets, not limited to BTC and ETH.

This brought about widespread 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 approximately $200 million, but upon launch, it was able to provide depth comparable to OKX (not quite at Binance's level, but on par with OKX). It is now close to potentially challenging Binance's level. Its liquidity and speed are the reasons it later defeated its competitors.

JACK: This means that there may be four key factors that have contributed to the development of Hyperliquid in the entire crypto market. One is that the mechanism of Perp Dex has been continuously innovating, from the gamified incentives provided by DYDX encouraging users to increase trading volume, to the GMX GLP model, and finally to Hyperliquid, improvements have been made in various aspects. Secondly, the improvement from off-chain to on-chain solutions is also a key consideration for the importance of PERP DEX. Hyperliquid may be one of the best on-chain perpetual contract trading solutions to date. The third point is about its transaction speed and cost, as traders of perpetual contract products certainly value speed. The last point is about the variety of trading pairs it can offer, and the richness of its product and liquidity are also key reasons for Hyperliquid's success.

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: It can be likened to the creation and redemption of ETFs with physical assets versus cash assets: GLP is a liquidity pool for "physical delivery," while HLP is a liquidity pool for "cash settlement."

The "physical" aspect of GLP refers to the actual presence of money and coins in the pool: for example, a pool with a size of 300 million, consisting of 100 million BTC, 100 million ETH, and 100 million USD. If you leverage long BTC, you are using pool USD to buy pool BTC. The liquidity pool essentially facilitates trading. The advantage is that there is no liquidation risk, and in extreme market conditions, as long as there is no manipulation, the project team can liquidate for you, giving you access to your funds. This is the most stable model.

However, it cannot "leverage" liquidity. How much BTC needs to be in the pool for everyone to open a leveraged position? On centralized exchanges, Open Interest (OI) is usually higher than spot positions, which is an industry norm. As a result, GLP often experiences higher trading fees and funding rates. Although stable, not everyone necessarily seeks this level of stability, so it cannot break out of those initial 500 "core users."

HLP has been transformed to only hold USD (or stablecoins), with all pairs settled in USD. This allows for the addition of many trading pairs to any liquidity pool, enabling the opening of up to 100 pairs, but all settled in underlying USD cash, with gains and losses calculated only based on numbers, rather than relying on the actual holding of BTC/ETH/SOL or other spot assets. This approach is closer to the model of centralized exchanges. While it has its drawbacks, the market currently considers them negligible, in exchange for higher liquidity, lower fees, and revenue sharing.

What are the drawbacks? It is more likely to encounter issues when listing new trading pairs, as new pairs can be listed continuously. For example, with certain tokens from before (such as XPL), if the leverage is set incorrectly leading to price distortion, HLP holders may incur unreasonable losses. The performance of HLP depends on the liquidity provision strategy: better strategies yield higher returns, while poor strategies lead to lower returns. GLP does not have this issue of "strategy performance"; it only adjusts the proportion of BTC/ETH/USD holdings, ensuring that returns do not suddenly fluctuate drastically, and there are no significant losses during periods of stable prices for these assets. When HLP encounters manipulation of long-tail pairs or incorrect leverage settings, significant losses may occur.

The design of HLP heavily relies on the team's/risk management's parameter settings: for example, allowing 100x leverage for BTC, 10x for mid-cap pairs, and 2x for small-cap pairs, while also restricting the maximum position size, and constantly and actively adjusting these parameters. When new tokens are listed and have high liquidity, higher settings can be applied, but as the market capitalization decreases, leverage and position limits must be adjusted downwards. This requires the team to continuously monitor the liquidity and market capitalization of various tokens. GLP does not require this, as it must have "spot holdings to facilitate trading for you." Even if the GLP team is "flat," significant issues are less likely to arise; HLP must be actively monitored.

Therefore, GLP and HLP actually follow two different logics. GLP leans more towards "stability," while HLP leans more towards "expansion," but also carries higher risks. This is its improvement, making it closer to the CEX model. Of course, it also has its drawbacks, but the current market considers these drawbacks dismissible, and thus, everyone is willing to adopt the HLP model in exchange for higher liquidity, lower trading fees, and Funding Rate.

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

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

Raccoon: Saying "no VC support" doesn't mean "success because of no VC," but rather the team itself can play the role of VC: providing brand endorsement, introducing market resources, and offering the "base" for providing liquidity.

Jeff himself comes from a market-making background; he was a top-five market maker at OKX, with a good grasp of fund size control, so there was no need to rely on external funding (whether from VCs or retail) to provide basic liquidity. Initially, the HLP team also invested over a billion dollars themselves. Although not perfect, it was enough to support a "tradable" starting point, with continuous improvement in the user experience thereafter. The team could also directly engage with industry thought leaders, project teams, and Twitter-active participants, without depending on VC connections. Therefore, their "lack of VC" is because they can already fulfill the role of a VC.

In the early stages, there were two pools: the HLP Pool and the Liquidation Pool. The team provided over $100 million in liquidity in both pools, now around $300 million (including some external funds). There are also external market makers providing liquidity through APIs, but the core liquidity team can provide a backstop, giving the project a higher starting point than grassroots projects.

Early users mainly came from the "copy-trading system" sniper pools. Small and medium-sized Key Opinion Leaders (KOLs) were able to bring volume by opening some copy-trading pools, somewhat similar to Bitget's early growth strategy, attracting a lot of "directional buy or sell orders." These types of orders are healthier for market makers and liquidity providers compared to unhealthy flow that only captures 0.1% through arbitrage, brick moving, and hedging.

First Wave of Growth: Friendtech-related index (combining the top 50 friend tokens into a product similar to an ETF), benchmarking AFOUR's product. At the time, there were two factions fighting for users on Twitter, with Hyperliquid being more aggressive. Although this product may not have been profitable, it brought great attention.

Second Wave: Airdrop of Memecoins Purr (rather than waiting a year and a half to distribute governance tokens), a pleasant surprise, as a reward to early users. Subsequently, between the first and second quarters, they added a "1.5 quarters": if users remained actively trading after the Purr airdrop and did not sell all the airdropped tokens, they would receive additional bonus airdrops - without prior announcement. This unexpected move deepened the perception that the team was truly rewarding users.

Third Wave: Launching the second-quarter plan, continuously adjusting the rules for scoring on large coins, small coins, and spot trading (with weekly changes and no public announcement). Everyone tried to guess the rules, "try everything," and spot trading gained popularity. At the time, there was also a "ticker auction every 48 hours," where project teams bought tickers and listed coins, boosting revenue. The first wave attracted attention, the second wave attracted users, and the third wave even increased revenue - although later the spot product was somewhat unsuccessful, as people were not very eager to trade on Hyperliquid's 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, where Hyperliquid was first associated with a centralized exchange. This also indicated that it already had heat and traffic at that time, and the project team believed it could bring liquidity, so they were willing to pay. The highest ticker fee was close to $1 million. However, as the spot market heat subsided, many project teams were not closely related to HYPE, and the HYPE community was not very willing to buy their tokens, so the heat was not sustainable.

Later on, they issued the governance token HYPE. Because those who received a large number of points in the early stages were mostly active traders in the first two quarters and those who did not sell the early Purr airdrop tokens. Therefore, this group of people received a substantial amount of the HYPE airdrop and were more willing to continue to "hold." It's like "I'll give you one candy first, you don't eat it, and then I'll give you five"—the probability of not eating it is higher. In addition, with coin-holding communities that support price stability, the token price has relatively stable growth, bringing in more trading volume.

The recent surge in trading volume comes from the "whale transparent position": compared to centralized exchanges, on-chain transactions are more transparent, and you can see who is long and who is short. The media actively reports on large positions like James W or G. T., and some even jokingly call it "insider information." I don't see it that way, but there are stories to tell. Whereas centralized exchanges are a black box. This has increased media coverage.

At the same time, you will see that they have always been "eliminating old lines": currently, HLP's trading volume accounts for only about 10% of the overall volume, and the initial copy trading treasury, Purr, spot trading, have all been marginalized. They are a team that changes very quickly, which has its pros and cons.

Now, the core of attracting users is still "low fees, no inferior user experience compared to centralized platforms, and decentralization sounds cooler." It's not an absolute doctrine like "completely no bans, never front-run," but rather "cheaper, same experience."

Additionally, for many American users, Hyperliquid was a good option for a while, especially since they couldn't use Binance.

What surprised me recently is the excellent liquidity. For example, a Bitcoin whale exchanged nearly $3 billion worth of BTC for ETH in a very short period, presumably done on Hyperliquid. I also heard that this was due to concerns about getting 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 very high leverage, up to 50 times? Why are they willing to engage in large cash transactions on Hyperliquid? Is it only because of low fees and resistance to censorship through decentralization, or are there other reasons?

RACCOON: There is a speculation in the community that these funds hope someone will "mirror their trades," which would lead to better trade outcomes. This does not refer to "copy trading by a sniper bot," but rather to seeing them go long so you go long too, causing the price to rise faster. This can only be achieved on a transparent platform like Hyperliquid. Placing orders on Binance, where no one can see, does not allow for this confirmation.

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 identity. People see that "a certain ID is powerful," but do not know the real name. As long as address separation is done properly, real identity can be kept separate from on-chain identity, better protecting personal safety and privacy. Centralized exchanges all require KYC, which does not guarantee that personal data will be properly protected; once leaked, personal safety is at risk.

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

JACK: It sounds like a relatively organic process?

LIU FENG: The word "organic" is very apt. The emergence of large holders on decentralized exchange contracts began with GMX. During the GMX era, the most famous figure was "Andrew Kang," who placed orders worth hundreds of millions of dollars. When people see his order, mirror it, or open a contra order, it greatly boosts platform liquidity. This can only happen on a decentralized exchange because of its transparency and observability. When centralized exchanges say "how large our order is," people will question if it's a manipulated image.

In the Hyperliquid era, whale trading has become a phenomenon, with many observing whale positions, which has led to more people mimicking or opening contra orders, thus promoting liquidity.

This is somewhat counterintuitive because we tend to think that whales seek privacy. However, it is essential to differentiate between "identity privacy" and "position privacy." It is easier to protect identity privacy on Hyperliquid, but positions are exposed. Some wish for their strategy not to be known, so Hyperliquid is not suitable; others need "publicity," do not mind their position being seen, so Hyperliquid is very suitable.

JACK: In conclusion, whales are a key term in decentralized perpetuals, bringing attention and liquidity. The reason why Hyperliquid is widely discussed in the industry is precisely because of these massive whale trades.

Why Can Whales Quickly Form Consensus After the HYPE Token Launch?

JACK: There is another phenomenon: many whale holders around me of Hyperliquid quickly formed a strong consensus shortly after the token launch, consistently supporting this protocol, and this was even before the "whale move." The consolidation of whale consensus is quite difficult for me to understand. As a large holder in the ecosystem, why do you think this team was able to gather whale consensus? How did they achieve this?

刘峰: Let's first define "whale holder": does it refer to HYPE token holders? It sounds like a raccoon, a holder with a token value of over ten million dollars would be considered a whale, right? Are there many holders of such large amounts?

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

刘峰: Then the raccoon belongs to the "super whale" category. Tell us about the "whale lifestyle."

Raccoon: I know quite a few whale holders with holdings in the millions or tens of millions. They believe in the team because they have been with them for a long time. Many of them do not play with new projects much, maybe just two or three, mostly larger ones like WFI. They don't constantly look at new projects. They have been following this project all the way and have seen the team evolve rapidly, communicate in a timely manner, and place a strong emphasis on real users.

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

Project updates are also very prompt, with a new version released every one or two months. Small updates such as UI, especially continuous optimization on the mobile end; more order types on the desktop end and other detailed improvements are made almost weekly. Everyone feels that the team is not stagnant, the development pace is there, and they feel more at ease. Many on-chain projects have versions like V1/V2/V3, and between V2 and V3, there may be over a year without updates every week or month.

This makes everyone feel that "they are doing something," and whale holders are more willing to support. One final point: many whale holders were among those who held on to the airdrop and have been using the platform all along. If you sell the Purr you received, or if you stop trading after the first season, thinking the airdrop is over, you won't receive as many subsequent airdrops, and you won't become a "whale holder." Therefore, those who stay are more willing to hold.

In terms of communication channels, some Telegram/Discord private groups require wallet verification to join, and team members are also present inside. I'm 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 access the Hyperliquid liquidity pool and develop projects on top of it. What are some notable projects to pay attention to?

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

Unit is more like a cross-chain asset bridge to Hyperliquid's cross-chain product. It is also decentralized and permissionless. Unlike projects like Thorchain/Rune, it has a closer relationship with Hyperliquid, so when trading on it, BTC is used directly instead of unitBTC. This establishes more "legitimacy" in terms of tickers. Some have jokingly said that the whale who swapped BTC for ETH might consider using Unit for mining to speculate on airdrops, but of course, this is a joke. Many people use spot, and there is also potential consideration for "airdrops." However, I tend to think that if it works well, just use it, and don't use it for the airdrop; otherwise, not receiving the airdrop can affect your mindset.

Kinetiq is a protocol that has risen rapidly, and I missed it too. It is now basically the largest LST protocol. It used to be stHYPE, and now everyone is using kHYPE. I see that ultimately everyone uses Kinetiq HYPE at the core, so it has the highest amount of liquidity staked. 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 ticket to enter. 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 the project's referral code) and provide a third-party front-end. Supercell is mainly for mobile devices; Insilico Terminal targets desktop 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 compelling narrative is limited, similar to the "Wallet Race" — it's also challenging to make big money by launching a token. Look at a bunch of wallets (Magic Eden, Trust Wallet, SafePal, etc.) — they are all just average. The third-party frontend race is somewhat like the wallet race; unless they pivot to do HIP-3, it's difficult to scale. If it's user-friendly, then just use it.

Exploring HIP-3 and Its Impact on Hyperliquid

JACK: Many whales and active users often mention HIP-3. HIP is like Ethereum's EIP, it's an 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 highly anticipated by many HYPE holders and ecosystem observers. What changes will HIP-3 bring to the ecosystem? What does "pivot to HIP-3" mean?

Little Raccoon: With HIP-3, if I stake 1 million HYPE tokens, I can list my own trading pair. The underlying technology uses Hyperliquid's matching engine, with the frontend on my end, providing a more extensive trading experience than the official frontend. This is similar to a "white-label exchange." Many teams wanted to do this before, similar to Odon, but they didn’t have their own users, making it challenging to white-label.

Liu Feng: Stake HYPE tokens to qualify for a white label, list the trading pairs you want; through this method, more tokens are staked.

Little Raccoon: However, the "more" is also limited. As far as I remember, having over 1 million makes no difference (specifically check the documentation), this is more like a "collateral," not "the more, the better."

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

Little Raccoon: Of course, now you can use VC money to create a Hyperliquid competitor, but you can't rely on VC funding long-term. For example, dYdX is VC-backed, and in the midst of dYdX and GMX: a bunch of VC-backed exchanges vanished, and what rose was GMX with no VC support. VCs won't burn money endlessly on a track with no returns; when they realize they can't beat Hyperliquid, they might be willing to "integrate" instead of "compete."

Building your exchange, you must have basic pairs like BTC/ETH, you have to source liquidity yourself, maintain a hefty inventory; you have to give a portion of the liquidity provider's money, and when you borrow more money, you have to spend it back, which doesn't necessarily save money. If built on Hyperliquid, mainstream pairs like BTC/ETH/SOL directly use its liquidity, and 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 Hyperliquid's Competitors in the Market?

JACK: This is related to the next question: Apart from direct competition, HyperEVM applications or frontends could eventually also become a "white-label" for Hyperliquid. So, if someone were to create a decentralized perpetual swap platform now, how could they differentiate it from Hyperliquid? In what areas can Hyperliquid be improved? And what are some noteworthy Perp DEX alternatives?

Raccoon: From what I've seen recently, no other project can match about half of what Hyperliquid offers. Some products are decent and may cover around 40-50% of it. I haven't done the math precisely, but overall, I feel like something significant is missing. (Side note: Backpack is currently a centralized exchange but will transition to a decentralized model on-chain in the future.)

Your presumption that "centralized is always better than Hyperliquid" is not valid. Right now, Hyperliquid is already superior to many centralized exchange platforms. Two years ago, this would have been unimaginable.

I recently tried the trending Lighter platform as well. It stands out among the rest, although I do have some criticisms about it too. I must admit I have a bias as I hold $HYPE. It fully utilizes ZK for order book matching, which is very promising.

I've also been looking into Pacific lately. The current product may not be great, maybe a 1 or 2 out of 10. However, I'd rather see differentiation in terms of "unique concepts" rather than achieving "70% similarity to Hyperliquid." Competitors don't necessarily have to do better; they need to be "different." Lighter is too similar to Hyperliquid; I feel like 80% is the same. Esta is pushing a lot of "grid App (mobile)" ideas, Pacific is focusing on AI, each name that pops up has a "specialty" that Hyperliquid lacks; whereas Lighter has everything that Hyperliquid has.

What are Some Weaknesses of Hyperliquid?

Raccoon: Mainly three areas. Firstly, mobile support. We did one round of optimization before, and I felt it only went from a 4 to a 5, still just "barely passing." This isn't solely a Hyperliquid issue but a general problem with wallets like MetaMask, Trust Wallet, Coinbase Wallet, OKX/Bybit, etc., not offering smooth support for complex contract interactions on mobile. The network and gas design provide a far inferior experience on mobile compared to desktop. Currently, it's nearly impossible to smoothly use Hyperliquid on mobile without an app. I seldom use the mobile version. However, mobile support is essential: many working professionals can't always be at their desks trading and need to rely on their phones. The mobile experience of centralized exchanges (OKX, Binance) is excellent. The only "solution" for Hyperliquid right now is third-party mobile apps (like Base or Supercell types). However, whether third-party apps can compete with first-party apps is unknown; if they move fast and hit hard, they might succeed because the competition will be with a "third party" rather than "Hyperliquid official," and our small team cannot invest money to achieve the ultimate user experience like the official team can.

Secondly, Fund Transfer. Many people now find it hard to "top up" their accounts not because they don't know how to transfer funds, but because the fees are too high. You suggest using MoonPay? The fee is close to 5%, which retail investors are unwilling to pay. Even methods like "2% credit card deposits" are considered relatively high by retail investors, not to mention the discouraging rates for converting many currencies (euro, yen, lira) to USDT. Hyperliquid has yet to find a balance within 2% in terms of "convenience" and "reasonable pricing." I am also unsure of how to tackle this issue, as centralized exchanges have a strong advantage in fiat fund transfers due to their thick inventory of cross-chain bridges, numerous OTC merchants, and wide product integration.

Thirdly, Insufficient Customer Service and User Support Resources. There are two aspects: first, user documentation. Currently, the documentation is relatively concise and lacks "step-by-step" beginner tutorials, assuming users are already familiar with on-chain operations. Many newcomers have never purchased cryptocurrency before, so you cannot expect them to start with Hyperliquid right away. Currently, this area heavily relies on KOLs from TikTok and YouTube for recommendations and beginner tutorials. I believe there should be an "official education platform" similar to Binance Academy, providing step-by-step guidance for users starting from scratch to lower the entry barrier. This platform does not necessarily have to be on the main website, but it does need official endorsement. The second aspect is "human reassurance and response." For example, in case of occasional withdrawal delays, an immediate response and reassurance from a real person are needed, although the issue may not be resolved right away. This is a strong point of centralized exchanges. With only 11 people, Hyperliquid cannot cover platforms beyond Twitter, such as Facebook, Instagram, Weibo, Xiaohongshu, and other broader user bases. To expand outreach, relying solely on Twitter/Telegram is insufficient; a larger customer service and peripheral team is needed. Ideally, there should be a team within the ecosystem handling these tasks and deriving benefits from them.

These three aspects (mobile end, fund transfers, customer service) can indeed be addressed through third parties. However, there should be reasonable "ecosystem revenue sharing/support." For instance, Inselico Terminal once publicly criticized that they found the revenue obtained from Hyperliquid to be lower than that from previous platforms, so they had to raise fees to cover costs. Previously, they barely charged any additional fees as a third-party frontend, but later found that they could not survive without an increase. 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," which does not have to be direct monetary support but can include gas discounts in the product. By enabling ecosystem teams to earn money, they will willingly engage in ecosystem development rather than initiating new projects. Hyperliquid has already been friendly to token holders and users; moving forward, they should also show more "vision" towards teams within the ecosystem.

Liu Feng: This also leads to another question: What do you think about the team's current priority setting during your communications with them? They recently announced plans to establish a support fund and token buyback. There will be a substantial team token unlock coming up quickly around October/November.

Raccoon: I feel that their current priority is to "patch up protocol vulnerabilities" first, such as the recent XPL incident. They want to "prevent further issues," stabilize the user base, and then slowly proceed with HIP-3. Regarding the unlocking issue, they are also working on it and have emphasized in the public discourse statements like "they will sell a maximum of only 10%." They have addressed the unlocking topic in some interviews. I think the roadmap is: stabilize first, then push HIP-3. The market may have been overly optimistic about the "next round of airdrops."

Liu Feng: You mentioned "patching up the hole" and also brought up the market manipulation controversy around XPL. Can we discuss this further? Jack, can you give us some background first?

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

Later on, it indeed seemed like an address named silent_trader went long in advance, then used a massive buy order to boost the XPL price, causing a large number of short positions to be liquidated. The price quickly rose from $0.6 to nearly $2, followed by a sharp decline, leading to chaos in the pre-market trading pairs. Raccoon, please elaborate on what happened at that time. Who is responsible?

Raccoon: From a mechanism design perspective, Hyperliquid had already anticipated "more volatility in pre-market trading" and also provided a prominent reminder on the interface. However, many regular hedging users had not encountered such a situation before and had higher expectations of Hyperliquid. This reminder did not work as intended. I think Hyperliquid needs to take about 70% of the responsibility.

I don't think it was a case of being "hacked," but there was indeed a flaw in the mechanism. The biggest issue is: after the incident, Hyperliquid used "users not reading the documents" as an excuse. I cannot accept that. Because in product design, integrating pre-market and market trades together would lead users to assume they enjoy the same level of "protection." If Hyperliquid is seen as an "exchange," users expect to "sleep soundly" on it. You could say, "This is a trading arena," but this is not the expectation of the majority of users. Using "we wrote it in the documentation" as an excuse without paying specific attention to user losses, and even blaming users, is not acceptable. The amount involved is about $4 million, which may not be suitable for direct compensation, but some concessions can be given to relevant users, such as future fee reductions. Centralized exchanges have encountered similar issues multiple times. For example, a certain exchange restricted trading for two hours after listing a coin and then provided a $10 fee reduction to each user. The amount may not be significant, but the users would feel much better, knowing that you "acknowledge the problem and have dealt with it," rather than engaging in a discussion of right or wrong. This is an "attitude."

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

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

Another impact is on "new coin trading." After the XPL incident, you will notice that the trading volume of certain new coins (such as WLFI) on Hyperliquid is only a quarter of that on Binance, whereas before XPL, new coins could often reach around half of Binance's volume. This indicates that confidence in the "new coin race" has been weakened. Some users may think: Why buy a new coin on Hyperliquid when I can go to an established coin? Not all users think this way, but it is certain that this mindset has been affected. Major coins like Bitcoin and Ethereum have not been affected; the core contract market is still good, and the core business has not been affected.

How Long Can Hyperliquid's Momentum Last?

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

Raccoon: I think the bottleneck lies in "only having 11 people." Can 11 people really defeat Binance? It's quite challenging to rely on a "genius engineer minority"; this has always been my concern. Binance also had a small offline expansion team at the beginning, but later they made many investments with low ROI to enhance the brand, such as sponsoring racing and sports teams. This is a brand exposure issue.

If Hyperliquid relies solely on third-party investment, support from the Unit/Kinetiq ecosystem team, and the token holder community, it can be very helpful during a bull market when tokens are rising; however, there is no community in a bear market. Even if there is a community in a bear market, they won't spend money to help you because everyone is broke. Then, it can only rely on the core team to "hold the line."

To defeat Binance is not something that can be achieved in one cycle; it requires accumulation over two to three cycles. In between, there will be a 75% token price drop, and half of the project team and retail investors will leave. Can these 11 people "rise again for a second wave" at that time? This will determine if they can "complete the entire battle." I hope they don't necessarily need to expand to two to three hundred people, but at least to 30-40 people, better than 11 people. Because these people are salaried, and they can sustain development progress even in a bear market, enduring the phase where "the entire community has run out."

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

They have not gone through a real bear market. A bear market is irrational. Even when the product data is good, the level is getting higher, and the user experience is improving, the token price still drops, and both attention and traffic decline. This is "counterintuitive"; in a bull market, mediocre products can take off; in a bear market, even when doing better, people are leaving. How to survive a bear market is something they have not experienced. It's worth observing whether the team's morale can remain stable. If they can't survive a bear market, they won't be able to defeat Binance because it's not possible to beat it in just one market cycle.

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