20 million dollar entry ticket: Ten questions and answers to understand Hyperliquid HIP-3

Original Author: KarenZ, Foresight News

Imagine this: Hyperliquid invites you, "Hey, as long as you have enough strength, you can independently create a Perp DEX!"

HIP-3 is exactly such a feature. On October 13, Hyperliquid officially activated HIP-3 on the mainnet, allowing any qualified developer to independently deploy and operate perpetual contract markets. This marks a key step for Hyperliquid towards a fully decentralized contract listing process.

In simple terms, Hyperliquid's HIP-3 is a rule system that allows you to "become the boss and independently open a perpetual contract market."

Core Gameplay: How to Open a Perpetual Contract Market?

What are the entry requirements?

Hyperliquid has set a high staking threshold:

Must stake 500,000 HYPE (currently worth over $20 million): However, it is expected that the staking requirements will decrease as the infrastructure matures.
Completely permissionless: No application or approval is needed; you can deploy as long as the stake is in place.
Oracle selection, contract design, etc., are to be solved independently.

Basic Gameplay

One stake corresponds to one DEX: Under the current rules, one stake corresponds to one Perp DEX, and in the future, it may allow one stake to open multiple DEXs.
High-performance order book: HyperCore will provide you with a separate margin system and on-chain order book.
Token contract listings require participation in auctions: Want to list a token contract? You need to participate in a Dutch auction and pay gas fees with HYPE tokens. Auctions occur every 31 hours. The first three assets of each market do not need to participate in the auction and can be listed directly; starting from the fourth, you must participate in the Dutch auction with others, following the same rules as the previous HIP-1 (spot listing) auction. This design allows new DEX operators to quickly start, while charging from the fourth asset ensures that only valuable tokens are listed. All HIP-3 DEXs share an auction pool.
How are deployment fees collected?: Deployers can set a maximum of 50% fee sharing and can even add extra fees on top of the base rate.
What can be used as collateral? In theory, any "quote asset" (the pricing asset of a trading pair) can be used as collateral.
Margin model: Currently, trading can only use "isolated margin" (where losses in one asset do not affect others), while "cross margin" (where all assets share margin) will be gradually added later.

As the market "boss," what else do you need to do?

As a deployer, you are the "boss" of this market and need to be responsible for:

Defining market rules: such as which oracle to use and how to design contracts.
Daily operations: setting oracle prices, controlling leverage, and settling the market when necessary.
You can also use a multi-signature mechanism for management to make operations more standardized.

How are fees calculated?

Users pay double: Trading on HIP-3 Perp DEX incurs fees that are double those of the perpetual contract market operated by validators.
Deployers take 50%: Your fee sharing is fixed at 50%, with the option to add extra fees.
Protocol revenue remains unchanged: The money earned by the Hyperliquid protocol is the same as that of the official market (because the extra half goes to HIP-3 Perp DEX deployers).
Discount mechanism continues: The HIP-3 market continues to integrate staking discounts, referral rewards, and other mechanisms.

In simple terms: users pay double, and HIP-3 Perp DEX deployers and the protocol each take half.

How to control risks?

Malicious actions will be penalized: The requirement to stake 500,000 HYPE acts as a margin; if malicious market operations occur, validators have the right to reduce the deployer's stake through weighted voting based on the stake.
If malicious operations occur, penalties cannot be avoided even if unstaking: Even if you start to unstake, if issues are found within 7 days, you will still be penalized.
30-day lock after ceasing operations: Even if you shut down all markets, the stake must remain locked for an additional 30 days.
Position limits: To control risks, the system has set two levels of constraints on open contracts: nominal limit and scale limit. The nominal limit is the total of "holding quantity × current price" of all assets within the DEX, which governs both the total holdings of the entire market and the holdings of individual assets. The scale limit is simpler, calculated based on the holding quantity, and is enforced for each asset; currently, each asset can hold a maximum of 1 billion units. Therefore, you need to reasonably set the "minimum trading unit."

What behaviors will be penalized?

Maliciously inputting abnormal data in an attempt to attack the system (even if unsuccessful).
Exploiting vulnerabilities or boundary conditions to bypass system restrictions.
Causing network crashes or performance issues through invalid inputs.

However, protocol bugs (protocol issues) caused by normal inputs and system failures unrelated to deployer operations will not result in penalties.

How much is the penalty?

Validators will vote to decide, generally referring to the following standards:

Causing the system to crash or enter an invalid state for a long time: up to 100% penalty.
Causing a brief system outage: up to 50% penalty.
Causing network performance degradation or performance issues due to invalid inputs: up to 20% penalty.

The staked amount penalized from deployers will be destroyed, rather than distributed to affected users.

What Changes Will HIP-3 Bring to the Market and Players?

The launch of HIP-3 can be seen as an important turning point in the development of the Hyperliquid ecosystem, opening the power of token listing to everyone. This is a significant leap from centralized governance to decentralized governance. Hyperliquid officials may be conservative and only list mainstream coins. However, the community's imagination is limitless, for example,

Keeping up with market trends: If a new public chain token suddenly becomes popular, the creator can quickly launch its perpetual contract to seize market momentum. This "small and fast" market model can fill the gaps left by large platforms, providing users with more trading options.
Long-tail assets: Niche but in-demand tokens can also have perpetual contracts.
Innovative products: For example, creating a perpetual DEX focused on AI concept coins, RWA specials, or Meme coin specials.

Moreover, after staking 500,000 HYPE, deployers' interests become tied to the Hyperliquid ecosystem, and subsequent auction fees will also rely on HYPE. They will actively promote their DEX, bringing their own community and users, and hold HYPE long-term, forming a protective moat for the Hyperliquid ecosystem.

More importantly, HIP-3 will create value for the HYPE token, as each DEX must lock 500,000 HYPE, which means locking = reducing circulation = price support.

What are the potential negative impacts of HIP-3?

Although HIP-3 brings many innovations to the Hyperliquid ecosystem, from the perspective of actual operation and user experience, there are still some potential risks that need to be objectively examined.

First, the requirement of 500,000 HYPE excludes many people; a threshold worth over $20 million is astronomical for individual developers, making it accessible only to institutions, large holders, and VCs. This may ultimately lead to market creators being concentrated in a few financially strong institutions or large holders, deviating from the original intention of "decentralized co-construction." However, this can also mitigate many risks.

Second, HIP-3 assigns market definition and operational responsibilities to creators. If creators make poor oracle choices, design contracts with loopholes, or make operational errors, it could lead to user asset losses.

At the same time, with a large number of markets operated by different creators, users will need to spend significant effort discerning market quality, greatly increasing selection costs. If they inadvertently enter an "unreliable" market, they will face higher trading risks.

Additionally, although the first three assets can be listed without an auction, starting from the fourth asset, participation in a shared Dutch auction is required. If multiple creators simultaneously compete for the listing of popular assets, it may drive up auction prices, making it difficult for small and medium creators with limited financial strength to compete for quality asset listing slots, forcing them to choose less popular assets, further limiting their market development space.

Moreover, it is worth noting that each creator-operated DEX is independent, with order books and margin systems not interconnected. This may lead to liquidity within the Hyperliquid ecosystem being dispersed across multiple small markets, potentially resulting in insufficient depth in individual markets, leading to higher slippage and slower transaction speeds, thus affecting user trading experience. Especially for markets operated by small and medium creators, insufficient liquidity may become a fatal bottleneck for their development, creating a vicious cycle of "the less liquidity, the fewer users; the fewer users, the less liquidity."

Finally

In summary: HIP-3 transforms Hyperliquid from a simple exchange into an exchange platform.

This is akin to:

Previously, Amazon primarily focused on self-operated sales.
Now, Amazon allows everyone to open a store.

In short: If you have 500,000 HYPE, possess technical capabilities, and are eager to showcase your skills in the Perp DEX field, then HIP-3 is your stage. But remember, with great power comes great responsibility, so don't mess it up!

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