Written by Eric, Foresight News

Throughout 2025, Hyperliquid was an unavoidable topic. This perpetual contract platform, launched without VC investment and funded entirely by its founder Jeff, successfully established perp DEX as an independent sector. At its peak, its daily trading volume exceeded 10% of Binance Futures' trading volume and accounted for over 70% of perp DEX's total trading volume.

There are many opinions on the question, "What makes Hyperliquid so good?" Reasons such as high liquidity, a large number of large investors, and a user experience similar to a centralized exchange (CEX) are mentioned in various interpretations. However, upon closer examination, these so-called "reasons" are actually "results." Hyperliquid didn't cause a sensation in the market at its inception; it only gradually became known after more than a year of operation.

In light of this, the author interviewed several users of Hyperliquid and other perp DEXs, revealing the real reasons why perp DEXs first truly threatened CEXs. The following content is a compilation and account from the first-person perspective of the interviewees:

Respondent A (Web3 practitioner, researcher): Hyperliquid can't really be considered a DEX.

I've been using on-chain contract products since dYdX and Perpetual Protocol. Looking back, early contract products really cared a lot about decentralization, so they tried to make their mechanisms execute on-chain as much as possible. But this geek spirit came at the cost of product experience. Back then, the infrastructure wasn't very mature, and a high proportion of on-chain execution would cause a lot of problems.

These issues, such as failed transactions, being stuck in a bottleneck, and high gas fees, don't have a significant impact on spot trading or staking. Applications are just beginning to emerge and people are quite tolerant. However, for PERP, it's somewhat unacceptable. When leveraged trading is congested on the chain, the inability to replenish margin, close positions, or trigger stop-loss orders is very psychologically damaging.

dYdX gained popularity at the end of 2021, sparking much discussion about DEXs replacing CEXs, largely due to its improved transaction speed through Level 2 (L2) testing. Unfortunately, I think dYdX was released too early; waiting a little longer might have yielded different results.

The reason GMX later attracted attention lies in its innovative mechanism. I personally believe that GMX has achieved the ultimate in pure on-chain logic, and the idea of ​​having the protocol's own vault as the user's counterparty seems to be the optimal solution at present. However, the core problem is that GMX cannot support large investors; a single profitable transaction by a large investor could potentially cause the vault to suffer huge losses. Nevertheless, GMX is an attempt worthy of being recorded in history.

The founder of Hyperliquid previously ran his own trading company, and I believe his greatest strength lies in understanding the essence of user expectations: not decentralization, but transparency. Hyperliquid's chain is not decentralized at all, but all transactions are traceable. This transparency is actually the core of users' expectations for "decentralization." Hyperliquid is essentially a centralized exchange (CEX), except that Binance and OKEx settle transactions on the cloud, while Hyperliquid settles on-chain; there's no fundamental difference.

Hyperliquid's strength lies in its productization capabilities. It doesn't dwell on decentralization issues at all; everything revolves around the user experience. For someone like me who prefers Web3 products, if the difference in user experience isn't significant, I still prefer DEX over CEX. At least I control my own money, and all transactions can be verified on-chain, which gives me more peace of mind.

Respondent B (Hyperliquid die-hard fan): If you can't make money on CEXs, why not choose DEXs?

I don't have any particular faith. My only purpose in coming to Web3 is to make money. I'll do whatever makes money.

If you're like me, addicted to cryptocurrency trading, you'll know that starting in 2024, trading cryptocurrencies became incredibly difficult. I used to trade on centralized exchanges (CEXs), both spot and futures, and overall I was making money. But starting in 2024, CEXs became unplayable. Everything became a one-off event, and shorting altcoins on futures would often result in sudden price spikes. I could clearly feel that in the last round, everyone made money together, but this time the exchanges started acting "inhumanely," ruthlessly ripping people off. It became unplayable.

I participated in Hyperliquid after its token launch. I was quite upset about missing out on one of the largest airdrops in history, so I FOMO (foul of demand) and bought HYPE. After calming down, I regretted it. Generous airdrops usually lead to prolonged price drops. However, Hyperliquid later held a listing auction, and some projects that couldn't afford to list on centralized exchanges thought Hyperliquid had a good community atmosphere, plus the buzz generated by the airdrop, so they tried listing on Hyperliquid.

Many projects that were listed on HYPE saw good results, gradually gaining popularity. More and more companies bid for listings on HYPE, causing HYPE to rise continuously. Many projects listed on HYPE that weren't listed on other CEXs also performed well. You know, I've been chatting in the community and found that many people who never traded contracts before started trading on Hyperliquid after making a lot of money on HYPE, and many of the projects they initially listed on made them even more money.

I had experience with contracts before, but Hyperliquid's success this time really stemmed from its wealth effect, which made many people who didn't play contracts before start to "fall in love" with it. It has a group of "die-hard fans".

I don't know if HYPE was truly driven up by the market or by the team itself, but I definitely made a lot of money. If you ask me why I traded Hyperliquid, the biggest reason I can think of is the wealth effect. I feel that this round of CEXs made a huge strategic misjudgment. I don't know if it was for trading volume data or something else, but either they should have listed VC coins and created one or two that skyrocketed, or they should have lowered their standards and listed meme early on. Now they're stuck in the middle, unwilling to spend money to pump the price, giving away market share for nothing.

To be honest, I don't think perp DEX has a user base comparable to CEX, but if CEX hadn't messed things up, the term perp DEX probably wouldn't even exist.

Respondent C (a professional airdrop hunter): Only projects with cash flow and revenue are worth taking advantage of.

The first perp DEX I ever worked on was dYdX. Back then, airdrops were quite generous, but when airdrops became a mandatory assignment for project teams, it became increasingly difficult.

In the past two or three years, airdrops have often yielded little result because the nature of "airdrops" themselves has become distorted. The amount of airdrops is small, and the rules are sometimes strange. Many projects with limited funds pretend to be generous with airdrops, but much of it ends up in their own pockets through insider trading. If you specifically target airdrops, you'll notice that in the past two years, many new addresses have suddenly appeared a few days or even ten days before a scheduled release, interacting wildly according to rules that were only made public later—that's clearly insider trading.

I missed out on the Hyperliquid airdrop, but I think there are two reasons why Hyperliquid was so generous with its airdrop: First, the founders themselves are wealthy, so they have a broader vision and know how to grow the pie and share the profits; second, Hyperliquid itself can generate real revenue, so it doesn't need to rely on selling tokens to survive, and therefore the airdrop is naturally very generous.

Perp DEX and prediction markets both generate real transaction fee revenue, and they could thrive even without issuing their own tokens. There's no need to ruin their reputation with stingy airdrops. After understanding this, I now consider the potential for sustainable revenue when choosing projects.

When we're participating in airdrops, we need to minimize losses. So, the trading volume we generate isn't actually from trading contracts; it's more like opening a long position on one Perp DEX and a short position on another to hedge, only losing a little in fees and spreads. And often, these are limit orders. For genuine traders, it's simply providing liquidity. That's why you might not see Hyperliquid consistently ranking first in trading volume on Perp DEX anymore.

From what I understand, Hyperliquid has attracted many international users, but relatively few domestic users. This may explain why it didn't initially garner much attention from Chinese users. (Note: Another interviewee familiar with international communities mentioned that exchanges in Europe and America face some regulatory restrictions on contract products, so users in these regions tend to prefer on-chain products. However, the previous Perp DEX didn't offer a good user experience, and Hyperliquid was the first widely accepted product, thus attracting a large number of European and American users, especially large investors who are particularly attached to "on-chain" features. Hyperliquid Discord has over 10,000 users, but only slightly over 600 are Chinese users.)

Finally, Hyperliquid offers high referral rewards. For many trading bloggers, a perp DEX with a similar user experience to a CEX, higher referral commissions, and the inability to blatantly profit from customer losses due to its on-chain nature would be highly acceptable to their followers.

Respondent D (a project executive): This round, we can't avoid using contracts.

I started getting involved with blockchain in 2016, but I didn't trade contracts until 2024. For a long time, the consensus was that "spot trading is not a problem," so I mainly traded spot. But after the Meme token became popular, many things changed.

Meme tokens have completely changed many of the logics of the previous round, with all the liquidity flowing to it. Apart from Bitcoin, liquidity in other cryptocurrencies, including Ethereum, has almost dried up, so since the end of 2024, even spot trading has become wary.

I also got involved in the meme craze, and after memes became popular, I naturally thought of investing in SOL. Since meme trading is all done through on-chain platforms, I naturally looked for an on-chain platform (namely Hyperliquid) to go long SOL at 5x leverage. As long as memes continue to be hot, the rise in SOL is almost inevitable.

This was my first time using leverage in trading, but I later discovered that it was almost impossible to do so in this round. A few years ago, the overall leverage ratio in the industry was probably 0.5 or 0.8 times. If you were trading spot (i.e., 1x), you were already leveraging relative to the industry average. But in this round, the high volatility of Meme, coupled with insufficient liquidity in other tokens leading many to use revolving loans to leverage their investments, has pushed the overall leverage ratio in the industry to levels of 2 or 3 times. Simply trading spot is actually underperforming, so leverage is necessary.

I have relatively large capital; Lighter even approached me early on hoping I'd try it out. But I'm not a gambler; I only use leverage for futures trading on certain events. I vividly remember a period where many tokens rose after listing on Hyperliquid, only to fall after major centralized exchanges announced their listing. My strategy back then was simple: go long on Hyperliquid and short on centralized exchanges.

Another point is that Hyperliquid has a distinct community culture, which leads to many members of the Hyperliquid community blindly opposing centralized exchanges (CEXs). These individuals are fixated on shorting tokens listed on CEXs. Therefore, you'll find something interesting: the funding rates for many tokens on CEXs and on Hyperliquid are at opposite extremes—it's practically free money. I believe a significant portion of the positions on Hyperliquid are actually used for arbitrage.

The four respondents above are quite representative, and the views of other respondents are also largely included. In summary, the rise of PERP DEXs, represented by Hyperliquid, in this cycle can be attributed to both internal and external factors.

The internal factors are what Hyperliquid did right. Hyperliquid's founder, Jeff, previously founded the market maker and high-frequency trading company Chameleon Trading in early 2020, accumulating extensive experience in trading and market making, as well as considerable wealth. This allowed Hyperliquid's development to remain unaffected by VC, market cycles, or even the overall market. Furthermore, the team's product design struck a perfect balance between user needs for "experience" and "transparency," giving Hyperliquid a perfect start.

Afterward, Hyperliquid targeted international users, providing a new option for investors restricted by contract products and large holders who preferred on-chain products. Subsequent community operations, airdrops, and auction-based listing mechanisms were all successfully integrated. Generous airdrops and the continuous rise in token prices garnered a loyal following and a unique "HYPE culture," attracting the attention of investors with built-in traffic, including James, who lost hundreds of millions. Along with the increase in users and trading volume, more market makers joined, gradually propelling the platform to the top of the perp DEX rankings. On January 27th, Jeff tweeted that the liquidity of the Bitcoin contract market on Hyperliquid had surpassed that of Binance.

Hyperliquid's success, while benefiting from favorable conditions, also relied on opportune timing. Many interviewees mentioned the same point: "Trading on CEXs is no longer profitable in this cycle." The comparison to "Hyperliquid's success" is actually that CEXs have performed poorly. Whether it's the selection of listed tokens or the creation of wealth effects, CEXs have indeed lagged behind some on-chain products in this round.

After repeated scandals involving insider trading and the phenomenon of "peak performance immediately upon listing," users gradually lost confidence. Many exchanges attributed this to industry and cyclical factors, but the emergence of Hyperliquid proved everyone wrong. Like timely concern during a breakup, it easily swayed confused users to switch sides. In reality, users knew it wasn't entirely the fault of the centralized exchanges (CEXs); perhaps the CEXs did try their best, but the results fell far short of user expectations.

The conclusion is clear: choosing perp DEX was not wishful thinking, but a last resort. This round of on-chain trading boom can be seen as exchanges handing over their users. Many people who originally only traded spot were forced to choose memes and contracts due to the lack of profit, and then gravitated towards on-chain products because of their flexibility and transparency.

Therefore, the decision by some exchanges to support the new perp DEX in hopes of competing with Hyperliquid is tantamount to telling the market: we no longer know how to do CEX better.