History bears witness to the profound importance of exchanges, from humble peer-to-peer bartering to becoming cornerstones of global financial ecosystems. Yet, the drawback lies in their centralization, concentrating power in the hands of a select few. The more intricate the exchange, the greater the need for centralization.
But now, a transformative paradigm emerges, introducing a truly decentralized perpetual exchange. This is the rising of an underdog.
A decentralized perpetuals exchange with its own L1? And I thought honest and perseverant builders in the space were going extinct.
Hyperliquid is a decentralized perpetuals exchange living on its own L1. This makes the exchange highly performant to offer the same good ol’ centralized exchanges’ features. Low transaction settlement time. Deep liquidity.
Not just this, the exchange has a lot more to offer.
It stands out in many aspects. It is perhaps one of the first decentralized perpetual exchanges that has piqued my attention to the point where I spent hours reading about it. It’s magical. And in this piece, I want to share how it achieves that magic.
(Trust me, you do not want to miss this one).
Benefits of running on Hyperliquid L1
One of the biggest benefits of running on its own L1 is that the exchange experiences high throughput and performance all while offering an ultra-smooth user experience. The exchange does not rely on off-chain order books but does offer the same consistent flow of transactions through BFT (Byzantine Fault Tolerance) consensus, a consensus algorithm that enables a network of nodes to reach an agreement despite the presence of one (or more) malicious or faulty nodes i.e.75% of the network reaches consensus.
Since Hyperliquid currently utilizes a tuned version of Tendermint, it is optimized for end-to-end latency, which is a fancier way of saying it provides near-instant trade settlement - offering the same speed and efficiency as is offered by some of the leading centralized exchanges. This improves the overall UX and offers a much-enhanced trading experience than most other decentralized exchanges. Hyperliquid L1 currently supports 20K operations/second (which include orders, cancels, and liquidations). The Hyperliquid team will continue to research to eventually offer users the ability to process near-instant trade settlements (to put them on par with centralized exchanges).
The other benefit is that the Hyperliquid L1 is full stack optimizable, meaning it is highly customizable for applications without needing to rely on other frameworks like the Cosmos SDK.
Hyperliquid exchange offers the same orderbook-style trading experience as centralized exchanges, and these orders are matched in price-time priority. All the margin checks happen when a new order is opened, as well as when they are matched. This enables the margining system to be consistent, regardless of oracle price fluctuations.
Matching the CEX experience, you don’t need to sign every transaction while trading. The Hyperliquid exchange offers a true one-click trading experience, something they’ve had in place since their closed alpha launch 3 months ago!
The Hyperliquid exchange supports a wide list of tokens including AVAX, BNB, BTC, CRV, ETH, FTM, MATIC, SUI, and more. For the full list, go here. The team plans to include a decentralized listing process where users will be able to list their project tokens by staking native tokens and voting on new markets.
There were no fees during the first three months of mainnet closed alpha. The updated fee model includes a flat 2.5 bps taker fee, which is competitive with high volume tier CEX fees, and a 0.2 bps maker rebate. Unlike other fee structures where only the highest volume traders get low fees, all traders on Hyperliquid have the same low taker fee. Referrers even receive 10% of their referees’ fees. The majority of fees go straight to HLP - more on that later!
Hyperliquid exchange supports the execution of several order types and options. These include:
- Market: Executed at market price.
- Limit: Executed at the set limit price or better.
- Stop Market: A market order executed when the price reaches the set stop price.
- Stop Limit: A limit order executed when the price reaches the set stop price.
- Post Only: Added to the order book but gets executed as a resting order.
- Reduce Only: Executed to reduce a current position rather than opening a new position in the opposing direction.
- Take Profit: Executed when the TP (Take Profit) is breached.
- Stop Loss: Executed when the SL (Stop Loss) is breached.
The protocol sets the default margin to cross-margin to enable the utilization of collateral across multiple cross-margin positions. Users can also open isolated margin positions. Both these positions do not affect each other.
The same margin maintenance logic defines liquidations. However, in the case of cross margin, positions are liquidated when the value of the account falls below the maintenance margin x total open notional position.
Users can leverage up to 50x. They must ensure that the minimum threshold required to keep margin positions open is maintained. With isolated positions, users can add and remove margins even after opening the position.
Hyperliquid protocol emulates the most popular centralized exchanges and decentralized exchanges (offering perpetuals) to determine its funding rate. This helps the protocol avoid large differences between the perpetual contract and the underlying asset.
The protocol pays the funding rate every hour. For more details on funding rates, visit the protocol’s page here.
The protocol offers vaults with varying strategies where users can deposit their assets and earn returns. The native protocol vaults are those for liquidations and market making. Protocol vaults don’t charge any fees. Community members, for example, can deposit to the liquidator vault and receive a share of the profits that the vault generates.
Alternatively, users can also become “Vault Leaders” by creating their own vault and getting a 10% profit share from it. These vaults can have strategies that the leaders themselves use but want to share with the community. A vault can be created with as little as 100 USDC.
For “Vault Depositors”, they receive a share of the vault’s profits and/or losses. These depend on the depositor’s share in the vault. For instance, a depositor with 100 USDC deposited in a 1000 USDC vault has a 10% share.
Vaults can be accessed here.
Hyperliquid’s referral system will be familiar to DEX and CEX users. Traders get 10% of the fees that their referees pay.
HLP - the shining star🌟
HLP stands for Hyperliquidity Provider. It is a vault that does the market making on Hyperliquid exchange. Any user can deposit to HLP and share in its revenue. Market-making is usually reserved for large funds or market-making institutions. However, the Hyperliquid protocol democratizes it for all users who deposit into the HLP vault.
While the market-making strategy runs off-chain at the moment, the positions, open orders, trade history, deposits, and withdrawals of LP are visible on-chain. Any user can track the real-time info related to it. The protocol plans to work with other market makers in the future. Now that fees are being added to the protocol, the majority of taker fees paid will also flow into HLP. Check out more details here.
To get started, users can deposit USDC in the HLP vault. The APR of the vault ranges from 0 to 15%!
How to gain access to Hyperliquid
The protocol has made live a closed mainnet alpha, which can be accessed via referral here. To gain access to the app, you can use another user’s referral code (which can be found on the protocol’s Discord or even the users’ Twitter).
When you go to the app, you can also use the code ALPHA to gain access to their closed mainnet.
Now all of this is well & good, but how on earth do we get our funds onto Hyperliquid?
The answer is simple, the Hyperliquid Bridge.
Bridging to Hyperliquid
The Hyperliquid’s EVM bridge allows interoperability between other chains and the Hyperliquid L1. Currently, users can bridge their assets from Arbitrum. The validators securing the underlying Hyperliquid L1 also help secure the bridge. The contracts for the bridge have been audited by Cyfrin. The protocol is working to implement a new bridge that will add support for native Arbitrum USDC as well!
To bridge to the Hyperliquid protocol, simply head over to their app here.
- Connect your browser wallet and switch to the “Arbitrum” network.
- Head over to the referrals page here. Paste your referral code.
Alternatively, use the code ALPHA.
- Once you are through, click on “Enable Trading”.
At this stage, you can only bridge from the Arbitrum network to Hyperliquid. So remember to bridge funds that you wish to use for trading to Arbitrum first. You can transfer over the funds to Hyperliquid during step 3.
It costs gas in Arbitrum ETH to bridge from Arbitrum to Hyperliquid. During the closed alpha phase for Hyperliquid, there are no additional gas fees for trading.
Accessing Hyperliquid testnet
If you want to test out the protocol for free before trading with real money, you can use the testnet.
- Head to the faucet. Claim 100 mock USDC.
- Head to the trading page. Join using the code TESTNET.
- Start trading.
Builders behind Hyperliquid
Chameleon Group and Chameleon Trading are the ones behind the growth of Hyperliquid. Their team is led by Jeff and Iliensinc, who were both classmates at Harvard. The other members of the team are from Caltech, MIT, and Waterloo. All of the team members have core financial and technical expertise having worked at companies in various domains.
The team has been in the space since 2020 (started out as market makers) but were soon (unsurprisingly) shocked at the lack of a proper UX for users in the market. This led them to realize that for the decentralized market to thrive, it needed a high-performance exchange that would solve the existing problems with inefficiencies associated with DEXes while offering a superior and intuitive user experience. Since the team is completely self-funded, they have no pressure from external funds on the direction of the product.
One of the most critical indicators of a protocol’s success is its community. And by this, I do not mean the number of members asking the billion-dollar question, “wen token”, but a community that truly values the project and shows their enthusiasm. A core section of this community is developers who take a keen interest in understanding the protocol and finding ways of building further products on it. The other core section of the community is those that ask hard questions about the architecture.
Hyperliquid has earned a community that is full of both these enthusiasts. When you enter their Discord, you can see people asking the type of technical questions that are often asked when they are thoroughly utilizing/testing the protocol. This renders the project an indefatigable genuineness.
Usually, a decentralized exchange has several centralized entities that market make the initial liquidity and take all the profits. But that isn’t the case with Hyperliquid; they are completely transparent about opening it up for all users from the community. This is an incredible distinction for the protocol.
The second, and the most pertinent, is the fact that it is completely self-funded. This gives the protocol founders an exceptional level of freedom when it comes to building the protocol.
The UI has never been so intuitive for decentralized perps. The team has incredible experience. You can bridge your assets from Arbitrum One to the Hyperliquid L1 and begin trading. You can market make easily!!
It may sound a bit biased but I’m quite bullish on the protocol. Kudos to the team for building such a well-engineered product.