Hyperliquid (HYPE): a new serious player among decentralized exchanges

The first decentralized exchanges (DEX) were limited in functionality and did not allow trading using limit orders, for example. Most importantly, they lacked the ability to trade futures or open-ended contracts. The developers of Hyperliquid solved this problem, which allowed users to open short and long positions with cryptocurrencies directly through a decentralized network.

What is Hyperliquid?

Hyperliquid is a decentralized exchange that operates on its own Layer-1 or L1 blockchain and allows trading of open-ended contracts on cryptocurrencies such as:

The Hyperliquid platform, developed by the Hyperliquid Labs team, will launch in June 2023. The developers' goal was to create a decentralized trading platform that provides transparency and security of transactions but retains the familiar user experience inherent in CEX exchanges.

According to monitoring service DeFi Llama, Hyperliquid is among the top five decentralized exchanges for trading perpetual contracts by total blockchain value (TVL) at ~$416 million, just behind dYdX and GMX.

How does Hyperliquid work?

Hyperliquid's blockchain is based on HyperBFT, a consensus mechanism created by the platform's developers, which is a modification of BFT (Byzantine Fault Tolerance).

HyperBFT is an improved version of the Proof-of-Stake (PoS) mechanism based on the Tendermint algorithm used in the Cosmos blockchain. This mechanism provides the decentralized network with scalability and high throughput.

According to the developers, the Hyperliquid network can process up to 100,000 transactions per second (TPS), making it one of the fastest blockchains along with TON. In comparison, Solana only processes up to 65,000 transactions per second.

Hyperliquid is not just a decentralized exchange for trading open-ended contracts but a blockchain platform for creating trading applications (DApps) based on its network.

Hyperliquid provides developers with HyperEVM to build decentralized applications, similar to the Ethereum Virtual Machine (ETH) but adapted to its blockchain. This means that applications running on Hyperliquid's blockchain will also be compatible with Ethereum, simplifying the development process and allowing DApps to be easily ported from one ecosystem to another.

In addition, Hyperliquid also provides access to a single liquidity for trading decentralized applications.

A distinctive feature of Hyperliquid's decentralized exchange is that asset values are determined by network validators (nodes that process transactions) rather than external oracles like Chainlink, which typically provide data from vendors.

Hyperliquid token

HYPE is a native token of Hyperliquid's blockchain network that pays fees for transactions conducted on Hyperliquid's proprietary decentralized platform, including the opening and closing of trading positions.

HYPE token holders can participate in the management of the ecosystem by voting for proposals, thereby influencing the future development of the Hyperliquid platform.

The HYPE token has a market capitalization of $7.85 billion, and based on this indicator, the altcoin ranks 23rd in the CoinMarketCap ranking. This is despite the fact that less than a month has passed since the listing. Few projects have managed to achieve such a large capitalization in such a short period of time, which indicates the high interest of investors in the Hyperliquid ecosystem.

After the token was listed on exchanges, its price began to grow rapidly and increased more than 8.5 times in less than a month — from $3.31 to $28.9. The HYPE token reached its historical maximum (ATH) at $35.02 in the second half of December 2024.

Pros and cons of Hyperliquid

Despite its high throughput, Hyperliquid's network was criticized for a long time due to the limited number of validators, which were only four. This posed a serious security risk to the blockchain, as hackers only needed to compromise three validators to successfully attack the Hyperliquid network.

However, according to AXSN data, as of December 2024, the Hyperliquid network is supported by 24 validators, although this number is not enough to ensure a high level of decentralization. Nevertheless, the project team is gradually expanding the list of validators and plans to do so in the future, increasing the decentralization and security of the Hyperliquid blockchain.

In addition, experts noted the risks associated with possible sanctions because Hyperliquid uses North Korean software despite being open source. This means that Hyperliquid could fall under sanctions from the Office of Foreign Assets Control (OFAC). However, experts also note that the increased number of validators could help avoid OFAC sanctions.

Among Hyperliquid's main pluses, in addition to high performance, transparency, and scalability, are low trading transaction costs (~$1), achieved through optimized smart contract design and an efficient trading order mechanism.