hyperliquid, the end game.
3/x. the cross between decentralized trading layer by layer and a way out.
art by unknown
What is Hyperliquid?
Hyperliquid is a decentralized perpetual exchange built on top of a custom blockchain built in Rust. HyperBFT. Most notably known for it’s ability to handle an insane throughput even during times of stress/volatility (2m TPS). Having built the protocol with intent of scaling verticals, a positive concurrence is the transparency built within the system.
The emphasize of importance here for me, is the protocol is “decentralized”. Meaning I wouldn’t have to submit my ID or passport (KYC). And I don’t have to trust someone else to hold my money. Almost every exchange becomes insolvent somehow and will just straight up steal money. Examples are FTX, Mt. Gox, Celsius, Voyager, and many more. Point is, I just can’t trust counterparties to hold my money. Money can be made on this platform without sacrificing anonymity. And the importance of anonymity will be talked about later.
How did it come to this?
For the most part, aside from dark web sites, CEXs (Centralized Exchanges) have been the main bridge and mechs for crypto trading profits. That was until DEXs (Decentralized Exchanges) came into play.
During 2020, post covid, a friend of mine blue-pilled me on DeFi. Telling me to read the Bancor Whitepaper along with try out it’s application and Kyber. Essentially giving the ability to swap Ethereum assets directly to other ETH assets without ever touching CEXs (Binance, Kraken, or Coinbase). At the time, it was a race for APY. People were locking up liquidity to earn any type of yield after the COVID crash. TVL was rising exponentially. And not much later, we got Uniswap V2. Uniswap was the leading protocol in terms of capturing the market attention, and user interface. They implemented a simple RFQ (Reference For Quote) UI. So people were able to swap from USDC <> ETH + any ERC-20 token that had a pool seemlessly. This technology was insane at the time.
So what is the tech?
AMMs (Automated Market Makers) such as Uniswap use Liquidity Pools crafted by smart contracts. These contracts are codes built on-chain and are immutable. People are able to become liquidity providers, essentially gaining a yield on their assets by depositing into these pools. Trades within the pool are executed based on predefined algorithms such as the constant product formula (x*y=k). Which results in anyone being able to swap or add liquidity to the pool without knowing too much of the technicals.
Here, I saw the emergence of a new market happen in real time (DeFi). So on top of this simple trading interface and technology, came about protocols that integrated even more functionality on top of what was built. Lending and borrowing protocols, liquidity games, many more things, and now, Hyperliquid.
Hyperliquid uses tech that combines AMM and virtual AMMs. Virtual AMMs simulate a trading environment essentually filling out orderbooks and providing liquidity in places that is needed instead of a pool. Since Hyperliquid’s product intent is a trading focused platform, they’ve built out order-books from virtual AMMs. Asset pricing data is grabbed from a weighted median of the top exchanges (although this means Hyperliquid perps can only co-exist with other CEXs). All whilst being a fully transparent DEX. All orders, trades, timings, and holding is visible on the chain.
Betting on the house
Crypto is highly controlled by market-makers. Private institutions who watch liquidity and order flow in order to stabilize price, arbitrage between exchanges, and profit.. alot… When you trade crypto on a CEX, you are battling against a market maker who sees your liquidation price. The barrier of entry to become a market maker is usually having a quantitative software engineer in a hedge fund background. Super high. But what if there’s a better way to get automated exposure to a Market Maker?
Hyper Liquidity Provider (HLP); a mechanism in the ecosystem that allows you to bet on the liquidator. HLP is an automated pool that absorbs the liquidations of users. Essentially absorbing large slippage liquidations, then gradually brings the market to a fairer valuation (arbing). 20% of the profits from this mechanism is shared within HLP users.
What’s next for Hyperliquid?
The initial vision was just a high speed perps protocol. But after realizing the growth, the team aims for more than this. A Layer 1 blockchain where people can build applications. Sounds like something happening again? Yes, Uniswap revolutionized RFQ DEX trading, and then many built on top of it. Now, it’s Hyperliquid’s turn.
I see the future of Hyperliquid being a decentralized financial ecosystem. Where they offer more than just high speed trading. I can envision assets such as commodities, indexes, and perhaps even pegged-stocks. Future assets I want to see Hyperliquid list are:
Gold
Silver
Oil
Stock Indexs
Simplified Crypto Indexes
NFT indexes (FriendTech doesn’t count)
Wrapped Stocks (AAPL, NVIDIA, etc.)
The next step for Hyperliquid is to be able to denominate under different chains (instead of just USDC) + increase decentralization. This is already coming into fruition. I believe there’ll be a large hidden incentive program to become a validator. As the only downside to the protocol is the narrow decentralization.
The threat of this to governments
As the rise of decentralization becomes prominent in Hyperliquid (and it will), the protocol serves large government risk. How? The unregulated listing of assets and non-permissible ability to trade allows for market manipulation, a hub for dirty money, and a place for anyone to profit. It is not possible to create a fully permission-less blockchain whilst holding up a standard of anonymity for users. At the end of the day, governments hate anonymity. I’m not qualified to speak on the further political compliance for this. So i’ll end that here.
Anonymity
Anonymity is and should be valued for everyone in crypto. Reason being, you cannot be rich on-chain in crypto whilst revealing personal information. And with the more fame that comes, the risk is just too high. Forming a digital identity is just as important to express views but backed by on-chain actions. There isn’t any crypto-verifiability on social platforms for sharp people to express their views. Those who’ve built an identity are those who’ve had historic actions to back their decisions and reputation. Now with the alternative of a CEX, there is a way to survive as a full-anon. For someone who can make money on any market move, a platform like Hyperliquid enhances the risk of going through a centralized exchange. This will be a new financial standard for users. The ability to survive off crypto with just Hyperliquid. The way out.
