Hyperliquid is a novel and somewhat controversial layer-1 network. This Hyperliquid review will dispel any myths and separate the facts from the fiction while giving a comprehensive breakdown of the platform. Here’s everything you need to know before you start trading.
KEY TAKEAWAYS
➤ Hyperliquid is a high-performance layer-1 blockchain tailored for spot and perpetual trading, with fast block times and low fees.
➤ Its on-chain order book and advanced order types, provides a trading experience closer to traditional finance.
➤ Hyperliquid utilizes community-owned liquidity and tokenomics that prioritize user benefits.
➤ Despite its innovative features, the platform faces significant centralization risks.
What is Hyperliquid?
Hyperliquid is a high-performance layer-1 (L1) blockchain built with native support for spot and perpetual trading. The crown jewel of this “hyper” performant L1 is its decentralized, spot, and perpetuals exchange, which utilizes user-owned liquidity.
The team and history
Hyperliquid Labs is the research and development organization behind Hyperliquid. Jeff Yan and iIliensinc, who were classmates at Harvard University, founded and entirely self-funded Hyperliquid Labs.
I decided I was going to just sit down and really build out a system and trade at scale…On my own. Initially, I worked with a few people here and there but it was pretty tough to find a co-founder that, you know, checked all the boxes.
Jeff Yan, Hyperliquid Labs founder via the When Shift Happens Podcast
A number of team members hail from Caltech and MIT, with employment histories across big-name finance and tech companies, such as:
- Airtable
- Citadel
- Hudson River Trading
- Nuro
The team cut its teeth with proprietary market-making in crypto in 2020 but later pivoted into decentralized finance (DeFi). Their goal was to build a product that was up to par with centralized counterparts, addressing issues such as poor market design, tech, and user experience.
The Hyperliquid team often publicly emphasizes the choice made refuse any external capital, have no paid market makers, and pay no fees to any companies. By being entirely community first, they are able to build without any external pressures.
Hyperliquid core features
The core features of Hyperliquid revolve around the native exchange and blockchain. Some of the core elements of each are:
HyperLiquid blockchain
- Fast block times
- Low fees
- EVM compatibility
- Native and bridged tokens
Perpetuals and spot DEX
- On-chain order book
- Order types
- Margining
- Trading fees
Blockchain features
One of the biggest problems with replicating traditional finance activities, particularly for trading, is the user experience. Trading in traditional finance requires speed, cost-effectiveness, and reliable order execution.
With blockchain, on-chain trading tends to be slow and expensive, and many transactions may fail. This is troublesome when you have large amounts of orders that are time-sensitive.
That is why many exchanges that launched on Ethereum during the early days of DeFi eventually migrated to layer-2 networks or created their own blockchains (ex. dYdX, Lyra, Uniswap, Synthetix, etc.).
Fast block times and low fees
To address these issues, Hyperliquid has 0.2-second block times. As a result, it can process up to 200,000 transactions per second. Below is the testnet explorer, which showcases the theoretical speed of the Hyperliquid blockchain.
Additionally, users incur zero gas fees and low trading fees on all orders.
EVM compatibility and tokens
Hyperliquid is EVM compatible (currently only on testnet), so Ethereum decentralized applications (DApps) and developers can easily port their projects to Hyperliquid. This feature is also extensible to Ethereum ERC-20 tokens. You can transfer spot assets back and forth between Hyperliquid and Ethereum.
Let’s break this down. Hyperliquid has what it calls native spot assets and EVM spot assets. Native spot assets originate on Hyperliquid, while EVM spot assets originate from Ethereum.
The spot deployer can link the native spot asset to the ERC-20 contract on Ethereum. Once you link a token, you can convert between native and spot.
HIP-1 is the token standard on Hyperliquid. The process of creating a token on Hyperliquid is both more exhaustive and more costly than that of most blockchains.
Note that tokens that are successfully created can also be listed on the exchange. The platform has a Dutch-style auction for listing tokens.
To make it plain, only a limited number of tokens can be created during a period of time, and significant fees will be incurred to do so. These are paid to the platform.
DEX and trading features
The Hyperliquid exchange inherits some benefits from its blockchain design. Here is a thorough breakdown.
Order book
The native DEX uses an on-chain order book. Order books are better designed for day trading than automated market makers because they handle pricing and slippage much better. On Hyperliquid, the order book is part of the blockchain’s state.
In the same way Ethereum maintains the state of every account and smart contract (i.e., its balance, previous transactions, and other data), Hyperliquid keeps a record of users’ orders, along with their associated details. In this way, the orders are verifiable on-chain.
Order types
Another problem that is latent with trading venues on blockchains is the ability to support advanced order types. This issue can surface for many reasons, including failed transactions, latency in message propagation, and MEV (e.g., frontrunning, sandwiching, etc.). Therefore, many exchanges tend to only offer simple order types. Hyperliquid offers the following:
Order types
- Market order
- Limit order
- Stop market
- Stop limit
- Scale
- TWAP
Order options
- Reduce only
- Good til cancel (GTC)
- Post only (ALO)
- Immediate or cancel (IOC)
- Take profit
- Stop loss
Although the margining and trading fees are indeed a core feature, we will cover them in a later section.
How does Hyperliquid work?
The most interesting user-facing parts of Hyperliquid can be broken down into the Hyperliquid blockchain, the trading features, vaults, and bridging. Here is how they work.
Hyperliquid L1
The Hyperliquid L1 has a lot of experimental features. The most interesting parts lie in the consensus mechanism and virtual machine.
Consensus mechanism
The Hyperliquid blockchain uses the byzantine fault-tolerant HyperBFT consensus mechanism, a variant of HotStuff. In short, this means that byzantine fault-tolerant (BFT) consensus mechanisms like HyperBFT can tolerate misbehaving or faulty nodes as long as they are less than 1/3 of the network.
While we can ascertain this much around how the consensus mechanism works, there is limited documentation that sets out how HyperBFT differs from HotStuff.
HyperBFT is optimized for latency. For orders placed by clients located near a node, the end-to-end latency — covering the time from order placement to confirmation — has a median of 0.2 seconds and reaches 0.9 seconds in the 99th percentile.
This performance allows automated trading strategies and provides near-instant feedback for retail users through their interface.
Hyperliquid is also a proof-of-stake (PoS) chain, and validators produce blocks at a proportional rate based on their stake. The state of the chain comprises the EVM (only currently on the testnet) and native financial components (e.g., margin and matching engine).
Virtual machine
The Hyperliquid L1 has two virtual machines (VM): a Rust-based VM and an Ethereum VM (EVM). The Rust-based VM handles trading and cannot support the level of complexity that the EVM can. The addition of the EVM will allow greater programmability on Hyperliquid.
Trading
As stated previously, Hyperliquid allows you to trade both spot and perpetual contracts and supports over 100+ assets. The platform mainly supports USDC for margining (or collateral), while the prices are denominated in USDT. Funding is peer-to-peer, and users incur no fees for these payments.
Traders can also enjoy 3x to 50x leverage on select assets. Half of the initial margin at maximum leverage is the maintenance margin. For example:
- Assume the position size is $10,000.
- At 20x leverage, the trader needs an initial margin of 5% (1/20 = 5%).
- The initial margin or collateral is $500 ($10,000 x 5% = $500 USD).
- The maintenance margin is half of the initial margin (half of 5% is 2.5%).
- For a position the size of $10,000, the initial margin is $250 ($10,000 x 2.5% = $250).
Leverage is the ratio of the borrowed funds to the trader’s collateral. The initial margin is the percentage of the position’s value that you must deposit to open the trade. The maintenance margin is the minimum amount of equity you must maintain in the position to avoid liquidation.
Trading fees on Hyperliquid are on par with those of centralized exchanges, and the platform uses a tiered fee model. However, the fees are based on the 14-day volume, as opposed to most exchanges, which use a 30-day volume.
VIP tiers
| Tier | 14 day volume | Taker fee | Maker fee |
|---|---|---|---|
| 0 | ≤ $5,000,000 | 0.035% | 0.010% |
| 1 | > $5,000,000 | 0.030% | 0.005% |
| 2 | > $25,000,000 | 0.025% | 0.000% |
| 3 | > $100,000,000 | 0.023% | 0.000% |
| 4 | > $500,000,000 | 0.021% | 0.000% |
| 5 | > $2,000,000,000 | 0.019% | 0.000% |
Market maker tiers
| Tier | 14 day volume | Maker fee |
|---|---|---|
| 1 | > 0.5% | -0.001% |
| 2 | >1.5% | -0.002% |
| 3 | > 3.0% | -0.003% |
Vaults
Hyperliquid vaults are pools of assets contributed by liquidity providers to facilitate market-making on the order book exchange.
Unlike AMMs, these vaults actively provide liquidity by placing strategic buy and sell limit orders, earning profits from spreads and trading fees, all while democratizing access to market-making opportunities.
Vaults are primitives on the Hyperliquid blockchain. There are two types of vaults: protocol vaults (those enshrined into the blockchain) and user vaults (created by users).
DAOs, protocols, organizations, or people can all deposit assets into a vault to receive a portion of the earnings. In return, the vault owner receives 10% of the overall income.
However, protocol vaults do not have fees or profit-sharing associated with them. Market makers can automate their vault management or handle them manually. Strategies running on vaults can implement advanced features like limit orders and liquidations.
HLP and Liquidator vaults
There are two protocol vaults on Hyperliquid, the Hyperliquidity Provider (HLP) and Liquidator vaults. Both the HLP and Liquidator vaults are community-owned and enshrined in the protocol.
Anyone can provide liquidity for these vaults and will share proportionally in the profit and loss (PNL) based on each depositor’s share of the vault.
When the account equity (margin or collateral) falls below the maintenance margin, the protocol initially attempts to liquidate it completely by issuing market orders to the order book.
If the account equity falls below two-thirds of the maintenance margin without a successful liquidation through the book, a backstop liquidation occurs via the liquidator vault. Backstop liquidations on Hyperliquid are part of the HLP’s strategy.
Bridge
Hyperliquid also has a bridge. The same set of validators as the L1 secures the bridge with a threshold mechanism. When someone deposits assets to the bridge, Hyperliquid credits the depositor only after 2/3 of the staking power signs the deposit. This threshold of signatures applies to withdrawals from the L1 as well.
After a user requests a withdrawal, there is a dispute or challenge period, just in case it is a malicious withdrawal request. During this period, the bridge can be locked. Two-thirds of the staking power must agree to unlock the bridge.
Hyperliquid has a bridge to Arbitrum. Withdrawals do not require any ARB-ETH (Arbitrum ETH). Users need only pay a 1 USDC fee on the L1 to cover gas costs.
HYPE: Hyperliquid’s native token
The native cryptocurrency of Hyperliquid is the HYPE token. It is used primarily for gas fees, staking, and trading accounts. HYPE launched on Nov. 29, 2024, with a maximum supply of 1,000,000,000. The distribution is the following:
- Future emissions and community rewards: 38.888%
- Genesis distribution: 31.0%
- Current and future core contributors: 23.8%
- Hyper Foundation budget: 6.0%
- Community grants: 0.3%
- To HIP-2: 0.012%
The tokens will be released over time, with 76.2% going to the community. During the genesis event, 310,000,000 HYPE went to the community. Many of the core team members’ allocations are vested until 2027-2028.
Hyperliquid airdrop
It would be remiss if this guide did not mention the hype around the Hyperliquid (HYPE) airdrop. The project made headlines due to its extremely generous and lucrative token generation event (TGE). HYPE was airdropped to over 90,000 users, many of which received thousands of tokens.
Because there was no venture capital (VC) investing, much of the token supply went directly to the community, with no threat of price dumping from VCs exiting their positions. Additionally, as opposed to most airdrops, the price of the token has actually appreciated, partially due to the aforementioned scenario.
Other reasons for this success can be attributed to the platform’s tokenomics. Essentially, the platform earns revenue from token listings via auction fees, the HLP vault, and platform fees.
A large portion of the fees earned by the platform go into purchasing HYPE. This adds a significant amount of buy pressure, which is extremely lucrative to those who received the airdrop and held it over time.
Staking
Hyperliquid has a native staking element. You can transfer HYPE between spot and staking accounts. Hyperliquid only supports delegated proof of stake (DPoS) as of early 2025. Note that the process for becoming a validator on the mainnet is currently gatekept by the Hyperliquid team, and is extremely difficult on the testnet.
You can, however, delegate HYPE to any number of validators. There is a lockup period for at least one day. After this period, you can partially or fully un-delegate your stake.
The reward rate is inversely proportional to the square root of the entire HYPE stake. Staking awards are sourced from the future emissions reserve. Rewards are earned and disbursed to stakeholder accounts every minute. They are automatically redelegated to the staked validator or compounded.
Pros and cons of Hyperliquid
As the old saying goes, “every coins has two sides.” This guide has covered many of the platform’s benefits; however, there are also drawbacks, many of which have gone viral. Here is what we have learned according to our review of the Hyperliquid platform.
| Pros | Cons |
|---|---|
| The blockchain is optimized for spot and perpetual trading, which offers low fees and latency. | The accuracy and safety of the Arbitrum bridge smart contracts are essential to the on-chain DEX. |
| The platform was not vested with venture capital, therefore the developers can build with little external influence. | There could be outages in the network because of consensus and other problems. |
| Much of the revenue made by the platform goes into purchasing the HYPE token, which benefits holders. | Hyperliquid gets its market data from price oracles that are kept up to date by the validators. The mark price may be impacted if an oracle is hacked or altered. |
| Hyperliquid utilizes community-owned liquidity which allows users to share in the profits and losses. | The validator set for the L1 is the same as the bridge and is extremely centralized. |
A look at security-related concerns
Some of the biggest problems with Hyperliquid can be attributed to its centralization and lack of documentation. For starters, the team was criticized for initially having an extremely small validator set size, comprising just four validators.
This number was eventually expanded to 16; however, the team still holds a supermajority of the stake. As this guide explained earlier, BFT systems can withstand up to 33% (1/3) of faulty or malicious nodes in the network.
After this threshold is reached, a single entity or group can halt the chain. If an entity or group holds 2/3 of the network, they can control the chain entirely.
Furthermore, because of closed-source code and a centralized API, validators encounter many difficulties that lead to inconsistent performance and frequent jailing of nodes.
In layman’s terms, the biggest security risks are simply those associated with centralization; however, the potential damage that could result from this is massive.
The below tweet, penned by a security expert, highlights a scenario where suspected North Korean hackers used the platform. It underscores a significant issue: the centralized nature of the system and the lack of documentation for validators limits the team’s ability to intervene effectively if bad actors exploit vulnerabilities.
This makes the platform not only susceptible to internal threats but also external ones, which could have catastrophic consequences for users.
Hyperliquid: A double-sided coin
As opposed to most on-chain derivatives exchanges, the Hyperliquid team built its platform with the end in mind. It is enshrined with specific functionalities and features and well-tailored to day trading. The refusal of any VC funding and support instead of community-owned liquidity shows the user is put first.
However, the platform is in its early stages and may face hiccups due to experimentation. Additionally, if Hyperliquid wants to ensure that the in-place safety measures are truly effective, it must urgently take steps to further decentralize.
Disclaimer: This article is for informational purposes only and should not be considered investment advice. Always do your own research (DYOR).
Frequently asked questions
Hyperliquid is layer-1 blockchain and decentralized exchange. It is purposefully built to support spot and perpetuals trading. It achieves this by offering fast block times and low fees, among other features.
Hyperliquid comes built with an on-chain order book. It’s Rust-based virtual machine is optimized for trading spot and perpetuals contracts. The platform uses community-owned liquidity for its order book.
Hyperliquid has some centralization concerns. Because the platform is relatively new and is largely experimental, it lacks the amount of testing as more established chains. User should approach the platform with caution and never use more capital than they can comfortably afford to lose.
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