Author: Climber, CryptoPulse Labs
Over the past few years, DeFi has spawned countless trading products, but only a handful of projects have truly brought professional trading to the blockchain. The emergence of Hyperliquid has, to some extent, changed this situation.
Instead of creating a contract-based DEX on Ethereum, it built a Layer 1 platform specifically for trading. It handles order book management, matching, execution, and settlement as much as possible on-chain, while refining the user experience to near the level of centralized exchanges. Thus, a huge market that originally belonged to CEXs—perpetual contracts—began to be truly leveraged by on-chain forces.
Hyperliquid is considered the king of on-chain contracts, but it is also highly controversial due to its risk control, degree of decentralization, and systemic risks. Does it represent the next leap in DeFi, or is it a more complex and risky experiment? This article will analyze Hyperliquid's true strengths and weaknesses from three main perspectives: product logic, token value, and potential risks.
I. Hyperliquid: Making on-chain contracts "as easy to use as an exchange"
If we take the development history of DeFi as a main thread, we will find a very harsh fact: most on-chain financial products do not lose because of their concepts, but because of their user experience.
On-chain lending, DEX exchange, and yield aggregation are naturally more suitable for slow operations and low-frequency transactions. Users can accept slower confirmation, larger slippage, and higher fees.
However, perpetual contracts are completely different. They are typical high-frequency financial products, and traders need millisecond-level response, stable liquidity, a smooth order cancellation and placement experience, and the ability for the system to not crash in extreme market conditions.
Hyperliquid's core value lies here: it is almost the first platform to allow ordinary users to experience near-CEX-level order book perpetual contracts on-chain.
First-time users of Hyperliquid may have a strong sense of disorientation. It doesn't resemble DeFi as much as Binance or OKX. The interface, order placement logic, market depth, and execution speed are all approaching the experience of centralized exchanges.
More importantly, it didn't achieve this by sacrificing transparency. Instead, it puts key actions like order book management, matching, execution, and settlement on-chain as much as possible, making the transaction process verifiable. This is why Hyperliquid suddenly emerged between 2024 and 2026.
The derivatives market is the largest source of cash flow in the crypto world. The majority of transaction fees on centralized exchanges (CEXs) come from contract trading, while DeFi has long lacked products that can meet this demand.
In the past, the mainstream approach for on-chain perpetual contracts was either to follow the AMM model, such as GMX, which relies on liquidity pool pricing to achieve transactions, or to follow the order book model, but the matching process was off-chain, resulting in a fragmented user experience and a compromise in decentralization.
The problem with AMMs is that they are not user-friendly for professional traders; depth, pricing, and slippage are often unsatisfactory with large positions. The problem with off-chain matching is a lack of transparency; users will always suspect whether the platform is engaging in shady practices.
So Hyperliquid chose the most radical route: since it's difficult for an on-chain system to handle the high-frequency behavior of the order book, I might as well create a chain specifically designed for transactions.
It treats exchanges as a primary requirement of blockchain, rather than cramming a trading application onto a general-purpose chain.
Besides the user experience, another thing Hyperliquid did right was that it successfully solved the classic problem of order book DEXs—liquidity.
Hyperliquid's HLP (Hyperliquid Liquidity Provider) mechanism essentially productizes market-making capabilities, allowing users to deposit funds into a market-making pool, where the system executes market-making strategies and shares transaction fees and spread profits with the platform.
This allows the platform's liquidity to no longer rely entirely on external market makers, but rather forms an endogenous cycle. The larger the trading volume, the higher the transaction fees, and the stronger the market-making revenue. The more funds are willing to enter, the better the market depth, the better the user experience, and the trading volume continues to grow.
Therefore, Hyperliquid's rise is not mysterious. It is essentially a rare product-driven project in the DeFi world, relying on real traders to generate volume.
II. Behind HYPE's explosive popularity— An equity narrative of on-chain exchanges
When discussing Hyperliquid, HYPE is unavoidable. Many people's understanding of HYPE is limited to it being just another platform token, but if viewed solely from the perspective of a platform token, its valuation logic appears quite ordinary.
Therefore, HYPE is more like a hybrid asset. It carries both the value capture expectation of the trading platform and the network effect expectation of the public chain's native assets, mainly relying on derivatives trading.
Derivatives are the engine of the crypto world. The spot market is more about buying and selling assets, while the futures market is a casino that continuously collects fees, with higher trading frequency, more stable fees, and stronger user stickiness.
CEXs' dominance largely stems from their contracts, but Hyperliquid's significance lies in demonstrating for the first time that contract trading doesn't necessarily have to be offered solely by centralized exchanges. With a good enough user experience, sufficient market depth, and stable liquidation, on-chain platforms can also handle large-scale perpetual contract trading demands.
Thus, the market potential of HYPE emerged. If Hyperliquid takes up more of the on-chain contract share, it could become an "on-chain Binance" type of entity, and HYPE would naturally be compared to an asset like BNB.
However, Hyperliquid is not content with being just a contract platform. It is pushing forward with HyperEVM in 2025–2026, which means it wants to expand from an exchange into an on-chain financial ecosystem.
The significance of EVM compatibility is simple: it can attract developers in the Ethereum ecosystem, allowing various financial Lego sets of DeFi to grow on the Hyperliquid chain.
Exchanges provide traffic and capital, while ecosystems provide applications and user stickiness. This has been the most successful path for centralized exchanges (CEXs) over the past decade: first use exchanges as the entry point, then use the ecosystem to expand the competitive advantage. Hyperliquid is now bringing this path onto the blockchain.
Furthermore, Hyperliquid's dissemination method is more like "crypto fundamentalism," emphasizing the product, traders, and community-driven approaches. Therefore, its user profile includes a large number of professional traders and high-frequency players, rather than retail investors who only come to take advantage of airdrops.
This user structure sends a strong signal that this is not a fake prosperity built on subsidies, but a genuine and sustainable marketplace. This sense of authenticity is extremely valuable after experiencing too many bubble projects.
III. Hyperliquid's Dilemmas : Decentralization Contradictions, Systemic Risks, HLP Mechanism, and Regulation
Looking only at Hyperliquid's growth curve, many would think that the king of on-chain contracts has emerged. However, the controversy surrounding Hyperliquid is very concentrated, mainly due to the inherent contradictions arising from its business strategy.
The biggest contradiction lies in the issue of decentralization. Hyperliquid is often referred to as "Binance on the blockchain," a statement that is both a compliment and a criticism. The compliment lies in its exceptional user experience, while the criticism stems from its tendency to resemble a centralized platform in certain aspects, such as risk control, blocking, and address restrictions.
Hyperliquid is currently taking a pragmatic middle-ground approach; to ensure the stability of its trading system and reduce attacks and abnormal fund flows, it may adopt stronger risk control measures.
The problem is that the stronger the risk control, the more it resembles a centralized exchange (CEX), and the more it resembles a CEX, the weaker its decentralized narrative becomes. This contradiction won't disappear; it will only become more acute as the platform grows in scale. Because the larger the platform's trading volume and the stronger its influence, the more it needs to manage risk and the more likely it is to be held accountable by external parties.
The second risk comes from the derivatives system itself. Perpetual contracts are highly complex financial products, and their systemic risks are always present, such as extreme market conditions, chain liquidations, insufficient insurance funds, bad debts, and failure of the forced liquidation mechanism. Problems in any of these aspects can trigger a crisis of confidence.
Hyperliquid's challenge is to maintain on-chain transparency while ensuring reliable liquidation in extreme market conditions.
When CEXs encounter black swan events, they can use many "off-chain methods" to deal with the situation, such as suspending trading, adjusting risk control, forcing liquidation, and temporarily changing rules.
On-chain systems face even greater challenges in this regard, requiring more robust mechanism design and greater resilience. Has Hyperliquid truly undergone sufficiently extreme stress testing? This is a question that demands careful consideration.
The third risk comes from HLP. Many new users see HLP and mistakenly think it is a "stable yield pool", but in fact it is more like a market-making fund .
Its profits come from commission sharing and market-making spreads, but its risks stem from the counterparty advantage of traders and the one-sided impact of extreme market conditions. Market making is never a risk-free business; it is a professional field. The essence of HLP is that you entrust your funds to the system to make market-making decisions, while you bear the risk of being "harvested" by " experts."
In a bull market, trading volume is high and transaction fees are high, making HLP appear to offer attractive returns. However, in certain market conditions, it can also experience significant drawdowns. For ordinary users, the biggest risk is not the loss itself, but rather misunderstanding risk and treating it as a low-risk investment.
Finally, there is the clash between regulation and the real world. Derivatives are a heavily regulated area in traditional finance, and perpetual contracts are particularly sensitive products in many countries.
As an on-chain platform, Hyperliquid may be in a gray area in the short term, but once it reaches a large enough scale and enters the mainstream, regulatory pressure will be almost inevitable.
Conclusion
Hyperliquid is not a myth; it marks the beginning of the "exchange era" for DeFi.
Hyperliquid is important not because it made a particular token rise, but because it proved something: on-chain derivatives don't have to remain forever in a "usable but not user-friendly" stage; they can achieve an experience close to that of centralized exchanges and attract real traders to migrate.
From an investment perspective, however, the platform remains a high-risk derivatives system. It still faces decentralization controversies and must contend with extreme market conditions and regulatory realities as it scales up.
If the past DeFi era belonged to protocols, then Hyperliquid represents the era of DeFi moving to the market. It's not the end, but it may be a turning point.
