Some alpha for MMs and researchers:

1. Hyperliquid L1 has a novel microstructure benefiting retail and makers over toxic takers
2. Volume would be multiples higher without this design
3. Hyperliquid is optimized for the end user, period. Not for VC metrics, fees, or HLP pnl

Background

A well-designed exchange matches trades when both sides want to transact. Maximizing volume is a secondary goal. First and foremost buyers and sellers should both be happy with the price. This guiding principle applies to all markets: centralized or decentralized, CLOB/AMM/RFQ etc.

For example, a user market buys on the UI and matches against the maker order with the lowest price. Both sides are happy.

The problem

An order book sometimes satisfies the “well-designed” principle above. If someone has a resting buy order, that means they think the fair price is higher than the limit price, and are happy with a fill.

The major exception is trades between HFT takers and HFT makers. The maker and taker have similar price preferences. Often the maker has sent the cancel request already, but the taker order is slightly faster and picks off the maker. It’s no longer win-win. This is why this HFT taker volume is often called “toxic flow.”

Toxic flow hurts retail end users the most. Makers will quote wider to minimize collisions with takers. Spreads and liquidity degrade so retail gets worse execution. Everyone is happy except the end user.

Hyperliquid’s design

To address this flaw with the standard order book design, Hyperliquid makes a fundamental adjustment to the onchain order book: Cancels and post-only orders are prioritized above GTC and IOC orders.

This ordering is enforced onchain by the L1 itself. The only correct way for a node to execute a block on the Hyperliquid L1 is to sort cancels and post-only orders first.

Hyperliquid has the fastest L1 in production, so human users barely notice this ordering. Most users happily wait half a second to save hundreds of dollars on a trade.

The effects

On Hyperliquid, trades between HFT maker and HFT taker happen at a dramatically lower rate, at least 10x lower than other platforms as a fraction of total volume. Note that this flow is the majority of volume on most other venues. Liquidity on Hyperliquid becomes deeper and more solid during times of volatility. Retail users get reduced slippage and lower spread on large orders.

Alpha for automated traders

When cancels go through with high success, makers can quote much more confidently. Takers can still make money aggressing against retail limit orders, or limit orders that actually disagree with the taker’s price model.

Hyperliquid’s design empowers everyone except those trading against orders that didn’t want to be filled to begin with.

Closing thoughts

If Hyperliquid’s design is so great, why do no other DEXs or CEXs do it? Because most other venues are not optimized for the end user.

Most platforms instead optimize for some combination of fees and volume metrics. Investors often look at these aggregate stats instead of studying real user experiences.

Hyperliquid is solely focused on the end user. Fees and market maker pnl are all increasing exponentially, but this is a byproduct of the relentless focus on the end user. The stats speak for themselves: On a day where Hyperliquid does $1B in volume, more than $500M is retail.

This post was initially a tweet by Jeff: https://twitter.com/chameleon_jeff/status/1743650555879190808

New listing: NFTI-USD

Hyperliquid is debuting an NFT index perp called NFTI. An NFT index is an easy way to long or short the NFT market compared to trading individual collections, which have less liquidity. NFTI includes the following blue-chip collections: Bored Ape Yacht Club, Mutant Ape Yacht Club, Azuki, DeGods, Pudgy Penguins, and Milady Maker.

How does NFTI work?

The index is a 3-minute EMA of the aggregate floor price. The aggregate floor price is sum of the floor price of each collection, with BAYC divided by 10. Floor prices are taken from OpenSea; CryptoPunks were not included because they’re not listed on OpenSea. If there’s interest in trading CryptoPunks, they could be included in a separate product down the road.

Why add NFT trading to Hyperliquid?

After subdued volumes over the summer, NFT trading is starting to pick back up, and NFT platforms have been receiving renewed attention. In addition, some members of the Hyperliquid community are very passionate about NFTs and have been asking for ways to speculate on the NFT market on Hyperliquid.

Hyperliquid’s goal is to be the go-to platform for all crypto users, defi and cefi alike. Expanding the types of products on the platform is an important part of that growth journey.

Conclusion

NFTI-USD is now live on Hyperliquid: https://app.hyperliquid.xyz/trade/NFTI. Trading is on low leverage and isolated margin only. Beware of low liquidity, high volatility, and increased liquidation risk. Do not trade assets you are unfamiliar with and do not understand the risks for. Exercise control. NFA.

Feedback is always welcome. Community discussion takes place in the Discord server: https://discord.gg/hyperliquid.

The community plays a huge role in shaping Hyperliquid’s product direction and growth, so big thanks to all of you!

Here’s what happened this past quarter:

New asset types

Perps on Uniswap-only assets

Hyperliquid was the first exchange to list perps for HarryPotterObamaSonic10Inu ($BITCOIN), Rollbit, and Unibot in August. These assets use Uniswap AMMs for the underlying oracle price. Hyperliquid reached >5% of global RLB volume.

Friend.tech index perp

Hyperliquid was the first exchange to list an index perp for friend.tech. Originally this was based on TVL, but it was changed to the median price of a static set of 20 top subjects after it became clear the TVL definition could be manipulated, given the growing OI. Users who were liquidated in the ~12 hours since the index definition change had their maintenance margin refunded in recognition of how quickly things moved.

The friend.tech index definition is currently rebalanced weekly, and the scale factor is set at the time of rebalance to ensure a continuous change between old and new index definitions. You can check the index definition in the Docs.

Hyperps and LayerZero

Introduced a LayerZero hyperp to let users long or short the value of the unlaunched native LayerZero token. Hyperps are Hyperliquid-only perps which do not rely on any external data for the oracle price. Hyperps trade like perpetual contracts that users are familiar with, but do not require an external spot or index oracle price. Instead, the funding rate is determined relative to a moving average of the hyperp mark price. This makes the hyperp price more stable and less susceptible to manipulation, unlike usual pre-launch futures. Read more about hyperps in this blog post.

Product & trading

Protocol vault: HLP

HLP (Hyperliquidity Provider vault) continues to be one of Hyperliquid’s most popular features.

The liquidation strategy was merged into HLP in August; read more in this 3 month recap of HLP from August. Total pnl for HLP reached 750K USDC and TVL grew from <$2M at the end of Q2 to ~$7M. In addition, HLP’s deposit lock-up period increased from 1 hour to 4 days in September, so you can withdraw 4 days after your most recent deposit.

Open interest rewards

Beginning July 4, Hyperliquid began an open interest rewards program, which is 40% of the net fees collected. Rewards are calculated on a weekly basis and begin and end on Tuesdays at 16:00 UTC. Every 15 minutes, each user’s absolute position on each asset will be recorded as a fraction of that asset’s total absolute position (i.e. twice the open interest). Each user’s average score over all assets will determine their share of the total open interest rewards. This program incentivizes open positions on assets with lower open interest.

LogX integration

LogX (a perps aggregator) integrated Hyperliquid in September and has reached as high as $7M in daily volume routed.

Mobile browser

Introduced a mobile-friendly layout to trade on mobile browsers. More improvements to mobile are coming soon.

Advanced trading features

Added scale orders as a new order type, which let you place multiple limit orders in a specified price range in just one click. Scale orders are a popular advanced order type to split a larger order into smaller sizes. Scale orders can also be used to better manage your average price when opening or closing a position.

Limit orders now have TIF (time in force) options: GTC, IOC, and ALO (post-only). Users can toggle between $ and % gain/loss for TP/SL. Also added the ability to limit close positions, aggregate the order book, and see resting order indicators in the order book. User vaults were updated such that leaders can disable deposits and positions don’t automatically close unless there’s not enough margin to maintain open positions.

Liquidations

Liquidations are now sent as market orders to the book, and the user keeps any remaining collateral after closing the position. If the position reaches 2/3 of maintenance margin without successfully closing via market orders, the liquidator strategy within HLP will still take over the position. Almost all liquidations will see significant savings for the end user under this new system, especially liquidations on assets where the maintenance margin is large.

External stats

You can now find information about Hyperliquid on CoinGecko and Artemis. CoinGecko shows up-to-date information about the different assets on Hyperliquid. Artemis includes volume, TVL, and unique traders.

Community

Token2049

Jeff and iliensinc attended a crypto conference for the first time with Token2049 in Singapore. Jeff was a speaker on the DEX panel, but his favorite part was meeting users from around the world. Many thanks to everyone who took the time out of the day to meet and share feedback on their experience using Hyperliquid!

Community calls #2 and #3

Hyperliquid held its second and third community calls this quarter. It’s great to see faces (pfps), old and new contributing to the Hyperliquid community! Every user is treated as a VIP during Hyperliquid’s alpha.

Detective program

Hyperliquid set up a detective program in Discord for sharp-eyed users who find bugs and share feedback. Detectives have been a tremendous help with polishing new frontend features and product updates.

Multi-language community content

Users have been creating awesome content about Hyperliquid in various languages, including Chinese, French, Japanese, Korean, Russian, Spanish, Turkish, Vietnamese, and more. Here’s a user video in Chinese explaining the friend.tech index and how to use Hyperliquid: https://www.youtube.com/watch?v=cgtFKIvrSuA&t=42s&ab_channel=TALKCHAIN

Telegram

Added a TG announcements channel for those who prefer TG over Discord or Twitter.

New listing: ZRO-USD

ZRO-USD is a way for users to long or short the value of the unlaunched native LayerZero token (referred to as ZRO). The underlying index to which the price eventually converges is the ZRO fully diluted market cap divided by 2 billion.

What are hyperps?

Before the ZRO token launch, ZRO-USD will be the first hyperp on Hyperliquid. Hyperps are Hyperliquid-only perps which do not rely on any external data for the oracle price.

Hyperps trade like vanilla perpetual contracts that users are familiar with, but do not require an underlying spot or index oracle price. Instead, the funding rate is determined relative to a moving average hyperp mark price in place of the usual spot price. This makes the hyperp price more stable and less susceptible to manipulation, unlike usual pre-launch futures.

When trading hyperps, funding rates are very important to consider. If there is heavy price momentum in one direction, funding will heavily incentivize positions in the opposite direction for the next eight hours. As always, be sure to understand the contract before trading.

What happens when ZRO launches?

When ZRO/USDT is listed on Binance or OKX spot trading, ZRO-USD will convert to a normal ZRO-USD perp if the max supply is exactly 2 billion. Otherwise, ZRO-USD will settle to the fully diluted market cap divided by 2 billion a week after the CEX listing. After settlement, the hyperp will be delisted and a new vanilla perp will be listed. Either way, the price of the ZRO-USD hyperp eventually converges to the spot ZRO price after the token exists.

See docs: https://hyperliquid.gitbook.io/hyperliquid-docs/trading/hyperps for precise specifications about the hyperp mechanism and settlement.

Why launch hyperps?

Pre-launch futures are a challenging asset to support because market makers have difficulty quoting confidently around a fair price. This not only hurts liquidity for takers, but also makes the future prone to manipulation.

Hyperps address this issue by introducing a mean reversion alpha directly into the contract design. Much like funding for vanilla perpetual contracts incentivize the perp price to revert to spot price after dislocations, hyperps take the idea one step further and incentivize dislocations in the perp price to revert even without an external fair price.

Conclusion

ZRO-USD is now live on Hyperliquid. Trading is on low leverage (max 3x) and isolated margin only. Beware of low liquidity, high volatility, potentially extreme funding, and increased liquidation risk. As a reminder, assets on max 3x leverage have a maintenance margin of 16.67% (half of the initial margin at max leverage). When an isolated position is liquidated, that isolated position and isolated margin are transferred to the liquidator.

ZRO-USD is a hyperp contract that poses higher than normal risk. Do not trade contracts with which you are unfamiliar or for which you do not understand the risks. Please read the Docs to learn more about the hyperp mechanism and how it differs from vanilla perps. NFA.

Note: ZRO-USD has no affiliation with the LayerZero project and the official LayerZero token (if any) has not launched.

You can find the ZRO-USD hyperp here: https://app.hyperliquid.xyz/trade/ZRO.

HLP launched in May 2023 as Hyperliquid’s approach to community-owned liquidity. Now that it’s been running market making strategies for a quarter, it seemed time for a brief retrospective.

First, what is HLP?

The Hyperliquidity Provider (HLP) vault runs market making strategies on Hyperliquid and has been the primary source of liquidity during the protocol’s early days. Anyone can provide liquidity for HLP and share in the pnl. HLP doesn’t charge any fees, and pnl is shared proportionally based on each depositor’s share of the vault. HLP is Hyperliquid’s take on community owned liquidity.

The original blog post explaining HLP also discusses why the platform chose to open up market making to the community and how the market making strategies work: https://hyperliquid.xyz/blog/hyperliquidity-provider-hlp-democratizing-market-making/

HLP’s alpha

The source of HLP’s alpha to date has been market making, funding, and fee accrual. Market making involves making many trades with profitable short term markouts. Funding is the price paid for holding one-sided positions. Trading fees are 0.025% taker minus 0.002% maker per trade.

When HLP first launched, trading on Hyperliquid was zero gas and zero fee. Trading fees were implemented on June 13, 2023 and began accruing to HLP. On August 12, fees will begin accruing to the assistance fund and open interest incentive program in addition to HLP. The new breakdown will be 40% of net fees to the assistance fund, 40% to open interest rewards, and 20% to HLP.

In addition, HLP began performing liquidations on August 9, so market making and liquidation strategies are under the same protocol vault. Because HLP and the Liquidator were previously trading against each other to exit liquidated positions, it became arbitrary whether pnl was attributed to one vault over another. Consolidating the two strategies leads to more consistent outcomes for depositors and a more efficient use of capital.

The Liquidator vault is now deprecated. Liquidator depositors are free to withdraw their funds at any time. If HLP’s risk profile is acceptable to them, they can choose to move their funds to HLP.

HLP’s performance and trends

Hyperliquid traders are bulls, which means HLP has been net short 7 figures for over a month. As such, the raw pnl graph often looks like an upside down crypto index plus an alpha component.

The Stats page shows HLP’s performance across different cuts: raw pnl, hedged pnl (hedge each day’s returns by holding the previous day’s ending positions for each asset), net position, and position by coin.

Risks

The primary risk of HLP is that the strategy could take on losing trades. Like with GLP or Uniswap pools, there is no guarantee that vault counterparties lose money in aggregate. In addition, now that HLP is performing liquidations, it runs the risk of not exiting liquidated positions fast enough.

Though its actions are transparent, the future performance of HLP is always uncertain, and depositors should not risk more than they are comfortable losing. This post is neither financial advice nor an endorsement. You can track the historical performance of HLP online and see all open positions.

How to participate

To participate, deposit USDC in the HLP vault. You can withdraw after a brief lock-up period. The vault is not tokenized; you do not need to claim rewards regularly since they compound automatically.

As always, past performance does not guarantee future returns. This article is not financial advice. You can view HLP’s performance live here: https://app.hyperliquid.xyz/vaults/0xdfc24b077bc1425ad1dea75bcb6f8158e10df303.

Over the past quarter, Hyperliquid has grown to 4,000+ users with $200M+ non-HLP volume traded. 28 different assets are available to trade, with new assets continuing to be listed. The community has shared thoughtful feedback and suggested new features that have been implemented. Thank you to everyone who has contributed to Hyperliquid’s growth!

It’s been less than a year since Hyperliquid’s development began. To kick off this first update, here’s a recap of the journey so far.

Q3 22

• September: Development of an order book perpetual futures DEX begins

Q4 22

• November: Arbitrum Goerli testnet goes live with paper trading competition
• December: Hyperliquid L1 testnet goes live

Q1 23

• January: Vaults go live on Hyperliquid L1 testnet
• February: Mainnet closed alpha begins for 20–30 OG testers
• March: Referral program goes live, expanding closed alpha beyond whitelisted testers

Q2 23

• April: Liquidator vault opens to the community. API support goes live
• May: Hyperliquidity Provider (HLP) opens to the community. First community call is held
• June: Fees are implemented, with HLP receiving the majority of fees. Stats page is released

Now, for a deep dive on Q2:

Product & trading

Protocol vaults

Protocol vaults are one of Hyperliquid’s most distinctive features. They were introduced in April with the Liquidator vault, and HLP was opened shortly after in May. These vaults allow the community to participate in liquidation and market making strategies, which are typically reserved for exchange operators or privileged market makers. By providing liquidity in either vault, users can share in the pnl. You can read more in these blog posts about the Liquidator and HLP.

API

The goal is to make trading on Hyperliquid as easy as writing bots on centralized exchanges. To help you get started, there is an open sourced sample strategy end to end for users to easily plug in their own strategy logic. You can learn more about using the API in the Docs.

Advanced trading features

Hyperliquid has always supported TP/SL and one-click trading, which means you don’t need to sign each transaction while trading. To add more functionality to TP/SL, partial TP/SL, estimated impact in USD, and the ability to set a limit price were added in Q2.

Order history was also added, showing new orders, fills, cancels, rejected orders, etc. to provide a more comprehensive view than Trade History, which just shows fills.

USDC transfers between addresses on the Hyperliquid L1 were implemented, so it’s easy to refer a friend and send them USDC to get started. Cross-chain swaps are available via the Squid integration.

Fees

Fees were implemented in June, with takers paying a 2.5 bps fee, makers receiving a 0.2 bps rebate, referrers receiving 10% of their referees’ taker fees (0.25 bps), and HLP receiving the remaining fees.

Share PNL

Users can share pnl as an image from the Positions or Trade History tables. Users started designing their own meme overlays, which were added for everyone to use after popular request.

Stats

Thunderhead built a stats page for Hyperliquid, which includes detailed information about volume, users, pnl, inflows, liquidations, open interest, slippage, and funding rates by asset.

Referrals

During closed mainnet alpha, users need a referral code to gain access and start trading. Anyone can create a referral code after trading $100 in volume to share with friends and other traders.

During the referral pilot from March-June, USDC was distributed to users for trading volume and referral volume. Currently, users receive 10% of their referees’ taker fees.

Decentralization

Validators

Users can run non-validating nodes on testnet — a first step on the road to full decentralization. Necessary features for running validating nodes are being built out. Over the next quarter, expect validating nodes to go live on testnet.

Community

Community call #1

Hyperliquid held its first community call in May. It was exciting to share the platform’s vision and roadmap. Thank you to the community members who joined and asked questions. Staying close to users and understanding what matters most to the community is integral to Hyperliquid’s success.

Talks

Jeff spoke on a number of podcasts and spaces. For those interested in learning more about Hyperliquid and high frequency trading in crypto, his episode on Flirting with Models is a good place to start. Others included Bites Digital Group, Crypto Illuminati, and Blocmates.

Community research

Added a community research channel to Discord to showcase research and deep dives on Hyperliquid from the community. If you would like to be included, feel free to share your work in the Discord server.

Brand and swag

The landing page and app were redesigned to match the new brand. Community members have been asking about Hyperliquid hoodies, among other merch. There will be a way for users to earn Hyperliquid swag. Stay tuned.

Conclusion

Many platforms cut corners on the tech or product to go-to-market faster. Hyperliquid does not. Building a trustless, transparent, and scalable platform is at the core of all product and tech decisions. That’s why the order book is fully onchain on the Hyperliquid L1 and HLP and the Liquidator are public.

If you’re interested in hearing more about Hyperliquid’s progress, detailed weekly updates are shared in the Discord server.

What is HLP?

The Hyperliquidity Provider (HLP) vault runs market making strategies on Hyperliquid. Anyone can provide liquidity for HLP and share in the pnl. HLP doesn’t collect any fees, and pnl is shared proportionally based on each depositor’s share of the vault. Like the Liquidator vault, HLP is community owned.

Why open up market making to the community?

Many fledgling defi projects succumb to the pressure of predatory market making deals to bootstrap liquidity. It would be better if market making profits in early phases of the project instead accrued to users.

Core contributors to Hyperliquid come from a market making background and have been providing liquidity during closed alpha. To be very clear: the goal is not to build Hyperliquid to make quick gains from market making. However, it’s natural to be concerned that core contributors could have unfair advantages or asymmetric information, given past events in crypto. To assuage those concerns, market making strategies are in a vault open to the community. By opening up the HLP and Liquidator vaults, a new standard of transparency and equal access to exchanges is possible.

How do the market making strategies work?

At a high level, the strategy computes a fair price based on tick data from Hyperliquid and large centralized exchanges. The vault executes around this fair price by running making and taking strategies with the goal of profitably providing 24/7 liquidity on all assets immediately upon listing.

The strategy itself currently runs offchain but the positions, open orders, trade history, deposits, and withdrawals of HLP are visible in real time onchain for anyone to audit. Everything can be tracked on the explorer. The strategy is written to be robust under this transparency.

Over the long term, external market makers should step in to trade large volumes on Hyperliquid. In fact, one of the earliest priorities was to open source the API and SDK for ease of onboarding. Though counterintuitive, the introduction of other market makers will be positive for HLP. The sharpe ratio of the strategy will increase as HLP no longer needs to warehouse all risk.

Are there any risks to be aware of?

The primary risk of HLP is that the strategy could take on losing trades. Like with GLP or Uniswap pools, there is no guarantee that vault counterparties lose money in aggregate. Though its actions are transparent, the future performance of HLP is always uncertain, and depositors should not risk more than they are comfortable losing. You can track the historical performance of HLP online; analytics for additional insights are in the works.

How do I participate as a user?

To participate, just deposit USDC in the HLP vault. You can withdraw your initial deposit and rewards in USDC after a brief lock-up period. Compared to liquidity pools on other platforms, the vault is not tokenized. You do not need to claim rewards regularly since they compound automatically.

Conclusion

Market making and liquidations are some of the most consistent ways to make money trading, and they are typically reserved for exchange operators or privileged market makers. On Hyperliquid, they are available to the community via the Liquidator vault and HLP vault.

As always, past performance does not guarantee future returns, and this article is not financial advice. Check out the protocol vaults if you’re looking for a passive way to participate in Hyperliquid: http://app.hyperliquid.xyz/vaults

Among order book DEXs, there’s an important distinction between onchain and offchain matching engines. Hyperliquid has a fully onchain order book and built an L1 to support it. Why is this important?

Trustlessness

With an offchain order book, the matching engine is controlled by a single party that has special privileges with no oversight. The order book operator doesn’t need to follow the rules, other than what is cryptographically guaranteed by the signed orders. Sure, only signed orders can be matched, but the operator could censor your transactions, frontrun you, or preferentially treat other users. How? By refusing to cancel your order, matching you at a worse price, the list goes on. You trust the operator to follow the rules, but you can’t verify that it does. Sound familiar? That’s how centralized exchanges work.

When the order book is onchain, all transactions are executed transparently on the blockchain. You can verify that the platform is operating fairly according to the state transition rules of the L1. MEV is still a risk — validators can reorder transactions for their benefit — but it’s much easier for a single operator to reorder transactions than for a decentralized set of validators to coordinate to control transaction flow.

Redundancy

If the sole operator running the matching engine offchain has to shut down, be that due to legal or technical reasons, the entire platform would collapse. How decentralized can a platform be if a single party’s failure can determine its fate? In contrast, when the matching engine is onchain, even if one validator shuts down, other nodes in the network can continue to operate and ensure the platform stays live.

Conclusion

Decentralized exchanges are meant to be trustless and permissionless. Having user funds onchain alone does not make a platform decentralized. An offchain order book sounds like a small component, but the order book operator has special privileges and effectively runs a localized centralized exchange. A system is only as decentralized as its most centralized component.

Hyperliquid’s liquidator vault democratizes liquidations by letting the community provide collateral for liquidations and then share in the pnl. All liquidations happen on-chain and can be tracked on the explorer.

How liquidations work

A liquidation event occurs when a trader’s position is forcibly closed by a liquidator due to insufficient margin in their account to cover unrealized losses. This happens when the trader’s positions move against them to the point where the margin required to maintain the position falls below the maintenance margin level of 1%.

Unlike other platforms where the exchange operator or privileged market makers profit from liquidation flow, liquidations on Hyperliquid are democratized. Positions that are under the maintenance margin are marked as liquidatable, and another address can then liquidate that position. The address initiating the liquidation is called the liquidator.

Liquidator vault

Current liquidations are decentralized through the liquidator vault, which shares its profits among its depositors.

Liquidations may later be made available via API, but currently the only way to profit from liquidations of other traders is through the liquidator vault. The liquidator vault allows the community to fund a strategy that benefits from liquidations of overleveraged traders. This results in smoother operations during times of high volatility, with the liquidation pnl shared across all users in the vault.

Like all vaults on Hyperliquid, anyone can deposit into the liquidator vault. You can withdraw from the vault after a brief lock-up period. As a note: the liquidator vault only trades when a position is liquidatable and then exits the position. It does not make trades outside of this mandate.

How vaults work

Vaults are built natively into the Hyperliquid L1, so strategies running on vaults benefit from the same advanced features as the DEX. By depositing into a vault, you copy all its trades and earn a share of the pnl.

Just as anyone can deposit into a vault, anyone can create their own vault. Vaults can run automated strategies through the Hyperliquid SDK and API. Hyperliquid vaults enable sophisticated strategies, all while being fully transparent and on-chain.

Conclusion

The liquidator vault is decentralized, democratized, and currently profitable. You can check its ROI and historic performance at any point. As of today, the all-time ROI is 21% and APY is 120%. These stats are measured for a hypothetical depositor at the creation of the vault held until now. When annualizing returns, the calculation takes the maximum of 3 months and the vault’s current lifetime, so returns are less noisy for new vaults. As a reminder, past performance does not guarantee future returns, and this article is not financial advice.

Stay tuned for more protocol vaults that enable the community to benefit from real yield, which will make Hyperliquid the go-to for both active and passive traders.

Intro

Hyperliquid is an order book perpetual futures DEX that offers the same features, execution, and UX as centralized exchanges.

The Hyperliquid L1 is the blockchain that powers the DEX. It is designed from the ground up to be performant enough to operate the whole exchange — every order, cancel, trade, and liquidation happens transparently onchain with a block latency of under 1 second.

A standalone chain

At first, different market structures were explored, such as AMMs, RFQs, and dark pools, to build a decentralized exchange using existing L1 tech. However, none of these models can scale to displace centralized exchanges as the default venue for price discovery.

Off-chain order books were also not viable due to the potential for validators to wield too much centralizing power. If the order book state lives offchain, the order book operator effectively runs a localized centralized exchange with exclusive permissions. To ensure decentralization, a blockchain capable of supporting a fully onchain order book was necessary. Though existing chains quote impressive stats, none met the minimum latency and TPS requirements. And so, the Hyperliquid L1 was built from scratch.

Hyperliquid L1

The Hyperliquid L1 is custom built and laser focused on running a performant derivatives exchange. There are no plans to support general purpose smart contracts. This allows for aggressive optimizations to make a DEX that competes with CEXs in performance and throughput.

One of Hyperliquid’s core design principles is proper decentralization, which it achieves through Tendermint’s Byzantine fault-tolerant consensus, guaranteeing a consistent transaction order across all validators as long as ⅔ (weighted by tokens staked/delegated) are honest. The L1 state encompasses all margin and matching engine states, with no reliance on offchain order books as a crutch.

Implementation

Hyperliquid has been meticulously optimized across the entire technology stack, from infrastructure to application code, without relying on the Cosmos SDK or other frameworks. The L1 state transition logic is implemented in pure Rust, drawing from patterns and abstractions used in high-performance HFT systems.

The Hyperliquid L1 is secured by proof of stake, a widely used incentive design in most blockchains today, including Ethereum. The staking and slashing mechanisms of the Hyperliquid L1 work similarly to other Cosmos chains when enabled.

Fees

Fees and TPS for an L1 are often inversely correlated. The Hyperliquid L1’s surplus throughput allows validators to operate the network with no gas or trading fees during the mainnet closed alpha phase. Eventually, the Hyperliquid L1, like most proof-of-stake systems, will introduce fees on trades that accrue to validators and delegators. Although the exact fee structure remains undecided, the threshold gas per operation required for DDoS protection will be orders of magnitude lower compared to general-purpose L1s.

Latency

Consensus uses a tuned version of Tendermint optimized for end-to-end latency, which is measured as duration between sending a request to receiving its committed response.

Median end-to-end latency for a geographically co-located client’s order is 0.2 seconds, with a 99th percentile of 0.9 seconds. This performance allows users to port over automated strategies from centralized crypto venues with minimal changes and gives retail users instant feedback through the user interface.

Out-of-the-box Tendermint takes 2–5 times longer depending on the latency percentile measured, leading to a noticeably inferior user experience.

Throughput

Through efficient data representation and other low level engineering magic, the Hyperliquid L1 supports 20,000 operations/second, where operations include orders, cancels, and liquidations. In comparison, vanilla Tendermint’s upper bound is around 1,000 TPS. The Hyperliquid L1’s TPS capacity is sufficient for retail and market makers in the alpha phase. Additional research is being conducted to further improve TPS as needed.

Conclusion

From the L1 to the user flow, Hyperliquid was created to compete with and overtake centralized exchanges. Hyperliquid will continue to work towards greater decentralization and performance.

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