Author: Climber, CryptoPulse Labs

In the past few years, DeFi has given birth to countless trading products, but there are very few projects that can truly bring professional trading on-chain. The emergence of Hyperliquid, to some extent, changes this situation.

It does not create a contract DEX on Ethereum, but simply develops a Layer 1 chain born for trading. It aims to complete order books, matching, transactions, and settlements on-chain as much as possible while refining the experience close to that of centralized exchanges. Consequently, a huge market that originally belonged to CEX—perpetual contracts—began to be genuinely leveraged by on-chain forces.

Hyperliquid is seen as the king of on-chain contracts, but it is also highly controversial due to risk control, decentralization, and systemic risk. Does it represent the next leap for DeFi, or is it a more complex risk experiment? This article will dissect the real cards of Hyperliquid from three main lines: product logic, token value, and potential risks.

1. Hyperliquid: Making On-Chain Contracts "As Usable As Exchanges"

Viewing the history of DeFi's development through a main line reveals a harsh reality: most on-chain financial products do not fail due to concepts but rather due to experiences.

On-chain lending, DEX exchanges, yield aggregators, and similar things are inherently more suited for slow operations and low-frequency trading; users can accept slower confirmations, larger slippage, and higher fees.

But perpetual contracts are entirely different; they belong to the typical high-frequency financial products where traders demand millisecond response times, stable depths, smooth cancellation and order placement experiences, and systems that do not crash in extreme market conditions.

The core value of Hyperliquid lies here; it is almost the first platform that allows ordinary users to experience on-chain order book perpetual contracts close to CEX level.

Users opening Hyperliquid for the first time will feel a strong sense of illusion. It feels less like DeFi and more like Binance or OKX. The interface, order logic, market depth, and transaction speed all approach the experience range of centralized exchanges.

More critically, it is not achieved at the expense of transparency; rather, it places key actions like order books, matching, transactions, and settlements on-chain as much as possible, making the trading process verifiable. This is also why Hyperliquid suddenly emerged during the period of 2024 to 2026.

The derivatives market is the largest cash flow entry point in the crypto world; the major part of CEX's fees comes from contract trading, while DeFi has long lacked products that can meet this demand.

In the past, mainstream on-chain perpetual contracts either followed the AMM model, such as GMX, relying on liquidity pools for pricing, or adopted an order book model with off-chain matching, leading to a disjointed experience and discounted decentralization.

The problem with AMM is its unfriendliness toward professional traders; depth, pricing, and slippage under large positions are often unsatisfactory. The issue with off-chain matching is the lack of transparency; users will always doubt whether the platform is engaging in dark box operations.

So Hyperliquid chose the most radical route: since it is difficult for on-chain systems to support high-frequency order book behavior, it decided to create a chain specifically designed for trading.

It views exchanges as a primary need for blockchain rather than forcibly stuffing a trading application onto a general-purpose chain.

Apart from the experience, another successful aspect of Hyperliquid is that it effectively solved the classic issue of order book DEXs—liquidity.

Hyperliquid's HLP (Hyperliquid Liquidity Provider) mechanism essentially productizes market-making capabilities, allowing users to deposit funds into the market-making pool, wherein the system executes market-making strategies and shares fees and price difference profits with the platform.

It ensures that the platform's liquidity is no longer entirely dependent on external market makers, forming an endogenous cycle. The greater the trading volume, the more fees generated, leading to stronger market-making profits. The more funds are willing to enter, the better the depth and experience, causing trading volumes to continue to grow.

Therefore, the rise of Hyperliquid is not mysterious. It is essentially a product-driven project rarely seen in the DeFi world, relying on real traders to generate volume.

2. The HYPE Explosion—The Equity Narrative of On-Chain Exchanges

Discussing Hyperliquid inevitably leads to the topic of HYPE. Many people's understanding of HYPE is limited to being just another platform token, but viewing it solely through the lens of platform tokens makes its valuation logic appear very ordinary.

Thus, HYPE is more like a hybrid asset; it simultaneously carries the value capture expectations of the trading platform and the network effect expectations of the native public chain asset, primarily backed by derivative trading.

Derivatives are the engine of the crypto world. The spot market primarily involves buying and selling assets, while the contract market serves as a continuously fee-collecting casino with higher trading frequency, steadier fees, and stronger user stickiness.

The dominance of CEX largely stems from contracts, while the significance of Hyperliquid lies in its first-time demonstration to the market that contract trading does not necessarily have to be offered solely by centralized exchanges. As long as the experience is good enough, the depth is strong enough, and settlements are stable enough, on-chain platforms can also meet large-scale perpetual contract trading needs.

Thus, the market imagination surrounding HYPE arises; if Hyperliquid captures a larger share of on-chain contracts, it has the potential to become an "on-chain Binance," and HYPE can naturally be compared to assets like BNB.

However, Hyperliquid is not content with just being a contract platform; it is promoting HyperEVM in 2025-2026, indicating that it aims to expand from an exchange to an on-chain financial ecosystem.

The significance of EVM compatibility is straightforward: it can attract developers from the Ethereum ecosystem, allowing various DeFi financial legos to grow on the Hyperliquid chain.

Exchanges provide traffic and capital, while ecosystems provide applications and stickiness. This has been the most successful path for CEX over the past decade: starting with trading as an entry point and then using the ecosystem to expand the moat. Hyperliquid is in the process of bringing this path on-chain.

Additionally, Hyperliquid's promotional approach resembles "crypto fundamentalism," emphasizing product, traders, and community-driven aspects, leading to a user profile filled with professional traders and high-frequency players, rather than just retail users looking for airdrop benefits.

This user structure sends a strong signal; it is not a façade of prosperity built on subsidies but a genuinely sustainable trading venue. This sense of reality is extremely precious after experiencing numerous bubble projects.

3. The Dilemmas of Hyperliquid: Decentralization Contradiction, Systemic Risks, HLP Mechanism, Regulation

Looking only at Hyperliquid's growth curve, many might think the king of on-chain contracts has emerged. Yet the controversy surrounding Hyperliquid is highly concentrated, primarily due to the contradictions inherent in its business model.

The biggest contradiction is the problem of decentralization. Hyperliquid is referred to by many as the "on-chain Binance," which is both a compliment and a critique. The praise lies in its ultimate user experience, while the critique addresses its actions that resemble centralized platforms, such as risk control, bans, and address restrictions.

Currently, Hyperliquid is following a pragmatic middle path; to ensure the stability of the trading system and reduce attacks and unusual capital flows, it may adopt stronger risk control measures.

But the problem is, the stronger the risk control, the more it resembles a CEX; the more it resembles a CEX, the more its decentralization narrative will be weakened. This contradiction will not disappear; it will only become sharper as the scale expands. As the platform's trading volume increases and its influence grows, it will need to manage risks more and will also be more easily required to bear responsibility by the outside world.

The second risk comes from the derivatives system itself. Perpetual contracts are a highly complex financial product, and their systemic risks are always present, such as extreme market conditions, cascading liquidations, insufficient insurance funds, bad debts, and ineffective forced liquidation mechanisms. Any breakdown in one of these areas can trigger a crisis of trust.

The challenge for Hyperliquid is to maintain on-chain transparency while ensuring reliable settlements in extreme market conditions.

CEX can resort to various "off-chain means" to extinguish fires when faced with black swan events, such as halting trading, adjusting risk controls, enforcing liquidations, and changing rules temporarily.

On-chain systems have a harder time doing this; they require stronger mechanism design and greater resilience. Has Hyperliquid truly endured enough extreme pressure tests? This is a question that must be approached with caution.

The third risk arises from HLP. Many new users seeing HLP may mistakenly believe it is a "stable income pool," but in reality, it is more akin to a market-making fund.

Its earnings derive from fee sharing and market-making spreads, but its risks come from traders' counterparty advantages and one-sided shocks in extreme market conditions. Market-making has never been a risk-free business; it is a specialized field. The essence of HLP is that you hand your funds over to the system for market-making, while you bear the risk of being "harvested" by proficient market makers.

In a bull market with high trading volume and fees, HLP may appear to yield handsome profits. However, in certain market conditions, it may also experience significant drawdowns. For ordinary users, the greatest risk is not the loss itself, but the misunderstanding of risk, treating it as a low-risk investment.

Finally, the risk involves regulation and the collision with 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 currently be in a gray area, but as it scales sufficiently and enters mainstream visibility, regulatory pressure is almost inevitable.

Conclusion

Hyperliquid is not a myth; it is a marker of DeFi entering the "exchange era."

The significance of Hyperliquid is not just because it raised a certain token, but because it proved one thing: on-chain derivatives do not have to remain in the "usable but not user-friendly" stage; it can achieve an experience close to that of centralized exchanges and attract real traders to transition.

However, from an investment perspective, the platform remains a high-risk derivatives system. It still has decentralization controversies and must confront extreme market conditions and regulatory realities as it scales.

If the previous era of DeFi belonged to protocols, then what Hyperliquid represents is the era of DeFi moving towards the market. It is not the end but may be a turning point.

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