Why Hyperliquid's DeFi Breakthrough Signals a Paradigm Shift in On-Chain Trading

Jeff Yan, the founder of Hyperliquid, has led the project to rapid growth in the decentralized finance (DeFi) sector, particularly in the derivatives trading space. Hyperliquid, a high-performance decentralized exchange (DEX), has positioned itself as a key player by offering near centralized exchange (CEX) speed and user experience without requiring KYC verification. As of December 9, the platform’s deposit bridge held over $1.58 billion in USDC, positioning it as one of the largest DeFi platforms in terms of on-chain asset custody.

The project gained significant traction following its token genesis event (TGE) in November 2024, during which it distributed 31% of its native token, HYPE, in a large-scale airdrop. This move not only increased user participation but also significantly raised the valuation of the on-chain derivatives sector. The HYPE token’s market capitalization surged to $47.5 billion, with a fully diluted valuation (FDV) reaching $142 billion. This represents a tenfold increase in the valuation of the on-chain derivatives token market, which previously saw projects like dYdX and GMX capped at less than $10 billion FDV.

Hyperliquid’s economic model has also been a key factor in its success. The platform operates with a dual tokenomics structure that includes a token assistance fund and a protocol vault known as Hyperliquid Provider (HLP). The assistance fund uses a portion of transaction fees to repurchase HYPE tokens, creating a buy-side pressure that supports token value. From December 5 to December 9, the fund repurchased approximately 567,000 HYPE tokens for $7.36 million, achieving an average price of $12.99. Meanwhile, HLP, a community-run vault, has accumulated over $2 billion in TVL and generated nearly $45 million in profit and loss (PnL), offering users an average annual return of 34%.

The platform’s trading performance has continued to strengthen despite the absence of trading incentives or airdrops. Since the TGE, the total value of open positions on Hyperliquid increased from $2.24 billion to $3.55 billion, a 58.5% growth. On December 5, as Bitcoin broke through the $100,000 level, the platform recorded a record $9.79 billion in daily derivatives trading volume. This growth is attributed to the platform’s high-speed execution, low-latency infrastructure, and deep liquidity, which provide a competitive experience similar to that of CEX platforms.

Hyperliquid’s ecosystem has also expanded with the launch of HyperEVM, a custom-built EVM-compatible L2 chain. This has attracted a range of DeFi projects, including HyperLend, a leading on-chain lending protocol with $370 million in TVL. Other notable projects include Hypurr Fun, a meme token launchpad, and HyperSwap, a low-slippage automated market maker (AMM). The emergence of these projects has contributed to the rapid development of the HyperEVM ecosystem, which now holds over $1.8 billion in TVL.

Hyperliquid’s revenue model is also unique. It generates income from both token ticket auctions and transaction fees. As of December 9, the platform had conducted 156 token ticket auctions since May, generating $2.22 million in fees. Additionally, the Hyperliquid Assistance Fund had received $53.3 million in USDC fees, a significant portion of which was used for HYPE token repurchases. The platform’s total revenue for the year is estimated to reach $99.4 million, making it one of the most profitable crypto protocols of 2024.

Despite its success, Hyperliquid faces potential risks, including regulatory scrutiny due to its non-KYC model and dependence on market volatility for revenue. However, the project’s combination of technological innovation, strong community incentives, and a sustainable economic model has positioned it as a leading force in the DeFi derivatives space.