Written by: Clow
In early 2025, over 70% of the volume in the on-chain contract trading market was running on the same protocol—Hyperliquid.
Later, a bunch of competitors who had raised hundreds of millions of dollars in funding started offering massive subsidies, and that figure dropped back to around 50%. But even so, it still controlled half the market.
What's even more outrageous is the team that accomplished this. Hyperliquid Labs has only 11 core members, yet it generates over $1 million in daily transaction fees, with an annualized cash flow comparable to that of the Nasdaq exchange.
Eleven people, compared to a publicly listed company with nearly ten thousand employees. On average, each person generates over $90,000 in revenue per day for the agreement.
This project has never received a single penny of venture capital. There is no Paradigm, no a16z, and no organization's logo is displayed on the official website.
What it does is not complicated; it can be explained in one sentence: it turns a top-tier high-frequency market maker into a chain.
Weld the trading engine into the foundation
Most on-chain derivatives exchanges "rent" their infrastructure—running on general-purpose public chains like Ethereum or Solana, using other people's infrastructure and being limited by their speed and fees. Hyperliquid, however, did the opposite, building a dedicated chain from scratch solely for trading.
How fast is this chain? A transaction takes only 0.2 seconds from being sent to being irreversibly written into the ledger, faster than the blink of an eye. And once confirmed, it's set in stone; there's no chance of a transaction being revoked or someone cutting in line.
But speed isn't the key point. The real brilliance lies in its ability to divide the system in two.
On one side is the core trading engine, HyperCore, which does only one thing: matching buy and sell orders, managing margin, and handling liquidations. It doesn't run any unnecessary programs and can process 200,000 orders per second. On the other side is HyperEVM, an open development platform on which anyone can build applications such as lending and wealth management.
The key is that these two sides are completely isolated. If a security vulnerability occurs on the open platform, even if hackers breach it, they won't be able to access a single penny of the core trading engine. Conversely, even if the open platform experiences congestion, it won't slow down trade matching.
To put it bluntly, while others rent houses and open shops on Ethereum, Hyperliquid built its own building and embedded the safe directly into the load-bearing wall.
HLP: You can copy the code, but you can't copy the risk control algorithm.
Traditional exchanges rely on external market makers for liquidity—institutions that specialize in providing buy and sell quotes, such as Wintertermute and Cumberland. Without their order books, users can't buy or sell. But the problem is, if the market crashes, these institutions can withdraw their orders and run away, leaving the exchange as an empty shell.
Hyperliquid's solution is called HLP, which is essentially a "market-making fund run by the protocol itself." Anyone can deposit USDC into it, and the funds are allocated uniformly by the algorithm, automatically placing buy and sell orders on all trading pairs.
Unlike traditional DeFi liquidity pools that passively wait for transactions, HLP takes the initiative. Its algorithm places, cancels, and rebalances orders across exchanges on your behalf, and its revenue comes from transaction fees and bid-ask spreads.
When an exchange first launches, it needs liquidity to attract traders, and without traders, there is no liquidity. HLP created both simultaneously.
But the part of HLP that is truly impossible to replicate is not its mechanism design, but the people behind it.
Founder Jeff Yan graduated from Harvard with a major in mathematics and computer science. He won a gold medal representing the United States in the International Physics Olympiad during high school.
His core team previously ran a quantitative trading company called Chameleon Trading. Starting in Puerto Rico in 2019 with $10,000, they achieved financial freedom in the crypto market through algorithmic trading. HLP's market-making algorithm and risk control model are the culmination of their years of practical experience; they are not open source and cannot be seen by the outside world.
A new project can copy Hyperliquid's code exactly. But it cannot replicate the pricing model and liquidation handling parameters that a quantitative team has spent years refining.
The global crypto market crash in October 2025 served as a real-world test. Hyperliquid absorbed over $10 billion in liquidated positions with zero downtime and zero bad debts.
97% is used for buyback and destruction; these people are serious.
The economic model of the HYPE token is probably the most radical in the entire DeFi space.
97% of the platform's transaction fee revenue flows into a pool called the "Aid Fund," which the system automatically uses daily to buy HYPE tokens on the market. No voting is required, there are no time limits, and it's purely programmatic.
As of the end of April 2026, the company had repurchased more than $1.1 billion, of which approximately $1 billion of HYPE was permanently destroyed by a vote in December 2025.
Buying them and then burning them reduces the number of tokens available on the market. This corresponds to an annualized deflationary rate of approximately 7%, which is 4.6 times the burning rate of Ethereum and 5.8 times that of Binance BNB.
As long as there is trading volume on the platform, HYPE's circulating supply will shrink every day. A deflationary machine that never stops.
Hyperliquid's ambitions extend beyond just an exchange.
It has launched four standard protocols (HIP-1 to HIP-4), allowing anyone to issue tokens on-chain, list contract trading pairs, and even open derivatives trading in US stocks, gold, and SpaceX pre-IPO equity.
The goal is clear: to create an operating system for on-chain finance. In October 2025, Coinbase acquired Echo, a financing platform within its ecosystem, for $375 million, which can be seen as an endorsement of this path by a traditional compliance giant.
But doesn't anyone think there's a problem with this?
The other side of the coin for HLP is that when it is forced to take over those toxic positions that have been liquidated, all depositors lose money together.
If price feeds are manipulated, or if a less popular coin is maliciously dumped, triggering a chain reaction of liquidations, HLP's net asset value could plummet irreversibly. Once retail investors panic and withdraw their funds, exchange bid and ask prices become scarce, and the positive flywheel of liquidity will reverse into a death spiral.
Hyperliquid itself has also encountered problems. Its early "Copy Vault" feature allowed star traders to recruit retail investors to invest together. As a result, retail investors flooded in at the peak of the profit curve, leading to massive losses when the strategy failed. The team later decisively removed the social features, returning to a purely professional trading terminal.
There is an even more fundamental issue: complete transparency.
On Hyperliquid, every trader's position size, cost price, and liquidation price are all publicly displayed on the blockchain in real time. This is equivalent to drawing a precise "liquidation map" for all arbitrage institutions. Whales with large enough funds can deliberately dump shares in other markets, precisely triggering the liquidation lines visible on the blockchain, creating a chain of liquidations to profit from arbitrage.
This is precisely the angle that later entrants like Aster DEX used: hiding order books and making liquidation prices invisible, attracting large funds with privacy. If you open a large position on Hyperliquid, the whole world can see when you'll be liquidated. If you were a fund manager managing tens of millions of dollars, would you be willing to do that?
summary
So far, Hyperliquid's depth and anti-manipulation mechanisms have largely withstood this transparency vulnerability. How long, however, remains to be seen.
Later entrants can copy the code, subsidize users, and tell better stories. But to simultaneously rebuild a dedicated blockchain, a top-tier quantitative risk control algorithm, and a deep liquidity network that allows large funds to openly disclose their holdings—to this day, no other company has achieved all three.
The moat is never written in the code.
