Hyperliquid "Ingredient List": 9% Binance, 78% centralized

In the cryptocurrency industry, a seemingly ordinary transaction has evolved into a significant event with far-reaching implications. Initially, it was just a minor episode involving challenges to the decentralized concept and a blockchain platform's dilemma. However, as the situation progressed, it gradually became the focal point of the entire industry.

On March 26, Hyperliquid faced a crisis triggered by a Meme. The attacker used a method similar to the previous 50x leveraged whales, concentrating funds to exploit a loophole in the rules to attack the HLP liquidity pool.

This should have been just a contest between the attacker and Hyperliquid. Hyperliquid actually took on the counterparty transactions of the whales, transforming the player versus player (PVP) situation into player versus platform (PVH). For the Hyperliquid protocol, a loss of 4 million dollars is just a minor issue.

However, when certain mainstream trading platforms quickly launched the $JELLYJELLY contract, the situation became complicated. These platforms seem to want to take the opportunity to severely damage their competitors. Theoretically, if Hyperliquid can withstand the losses caused by whales due to its funding scale, then these large exchanges can also use their deeper liquidity to continuously weaken Hyperliquid until it falls into a death spiral similar to Luna-UST.

In the end, Hyperliquid made a controversial decision: going against the principle of decentralization, it delisted $JELLYJELLY "after voting", commonly known as "pulling the plug", admitting that it could not bear more losses.

Looking back at this event, Hyperliquid's response measures are common practices for centralized exchanges. It is foreseeable that after Hyperliquid, the on-chain ecosystem may gradually accept this "new normal." Whether it is completely decentralized is not the key; the transparency of governance is what matters more.

Decentralized exchanges do not need to pursue absolute decentralization, but should instead be more transparent than centralized exchanges, seeking a balance between crypto culture and capital efficiency for survival and development.

According to the data, Hyperliquid has accounted for approximately 9% of the contract trading volume on a large trading platform for two consecutive months. This is the fundamental reason why the platform is actively responding, trying to nip potential threats in the bud during its nascent stage, as Hyperliquid has already begun to show strong growth momentum.

The marketplace is like a battlefield. Yesterday, a certain platform was able to seize market share in wallets while its competitor's DEX was taken offline. Today, several major platforms can join forces against emerging challengers, indicating that the contract market has formed a three-way competition.

Looking back at recent industry hotspots, on-chain protocols are generally facing difficulties, and it is becoming increasingly challenging to maintain decentralization. A certain prediction market platform acknowledged that large holders manipulated the oracle to alter results, causing dissatisfaction within the community; Hyperliquid ultimately chose to "pull the plug" under pressure, receiving criticism from several well-known figures in the industry.

First of all, these criticisms are indeed valid. Hyperliquid does not choose an absolute decentralization philosophy, but prioritizes capital efficiency and protocol security. Personally, I believe that Hyperliquid's level of decentralization may be even less than that of some strictly regulated centralized exchanges. In fact, Hyperliquid is more like a centralized perpetual contract exchange with no KYC requirements.

Secondly, when judging Hyperliquid, one should consider its dual identity as an exchange and a perpetual contract DEX. The issues currently faced by Hyperliquid have all been experienced by centralized exchanges. Even platforms founded by those who criticize Hyperliquid for not being decentralized enough could have had catastrophic consequences for the entire crypto industry during the black swan event on March 12, 2020, if emergency measures had not been taken.

The choice between decentralization and centralization is a typical dilemma. Pursuing decentralization inevitably sacrifices some capital efficiency, while choosing centralization may fail to attract freely flowing funds.

Hyperliquid actually consists of a consensus mechanism and two business directions:

• Consensus is the HyperBFT algorithm and its instantiated product Hyperliquid L1;
• The business is built on HyperCore, which is a customized spot and contract exchange primarily controlled by Hyperliquid, along with the parallel HyperEVM, which is a standard "EVM-compatible chain."

In this architecture, cross-chain operations between L1 and HyperCore/HyperEVM, as well as interactions between HyperCore and HyperEVM, may become potential attack points. Therefore, the complexity of the organizational structure is also an inevitable result of the Hyperliquid project's team exercising high control.

In the development sequence of perpetual contract DEXs, Hyperliquid's innovation lies not in architectural reform but in adopting a "moderately centralized" approach, drawing on the LP tokenization model of a certain DEX, and combining it with token listings and airdrop strategies to continuously incentivize market participation, successfully entering the derivatives market long dominated by centralized exchanges.

This is not a defense of Hyperliquid, but rather the essence of perpetual contract DEXs. If one pursues absolute decentralized governance, it will be unable to respond promptly to black swan events and cannot react quickly. To respond efficiently to crises, a certain degree of centralized decision-making authority is inevitably required.

Just like how a certain NFT trading platform failed to disrupt the industry leader, it was ultimately another platform that successfully challenged the leading position. The discussions around centralization also have different levels, with Hyperliquid focusing more on the power of protocol changes. The emphasis of this article is not to argue about the level of centralization, but to highlight that capital efficiency will naturally drive the next generation of on-chain protocols to develop in this direction—exchanging moderate centralization for higher capital efficiency.

The uniqueness of Hyperliquid lies in pursuing the efficiency of centralized exchanges with on-chain structures, attracting liquidity through token economics, and ensuring security with a customized tech stack.

Beyond the technical architecture, Hyperliquid's real risk lies in the sustainability of its token economic model. As mentioned earlier, Hyperliquid is an LP tokenized upgrade of a certain DEX, allowing users to share protocol revenue, thereby creating more liquidity and supporting the project team in maintaining the token price.

However, the premise is that the project party needs to have sufficient control capability to ensure the normal operation of protocol revenue. Especially in the high-leverage contract market, while the returns are amplified, the risks also increase exponentially, which is the biggest difference from spot DEXs like Uniswap.

The above describes the economic principles behind Hyperliquid's choice of a relatively centralized architecture. Currently, out of 16 nodes, the Hyper Foundation controls 5, but in terms of staking ratio, the Foundation holds a total of 330 million Hyper coins, accounting for 78.54% of all nodes, far exceeding the 2/3 majority.

Reviewing the security incidents of the past six months:

In November 2024, someone accused the Hyperliquid architecture of being insufficiently decentralized: this is basically true.

Early 2025: 50x leverage whale incident: made the mistake that every exchange could make, but became the target of criticism due to on-chain transparency.

March 26, 2025: "Cutting the Net" liquidates JELLYJELLY, completely true, the foundation controls the vast majority of voting rights.

It is through repeated games and confrontations that the concept of decentralization gradually compromises with the reality of capital efficiency. Hyperliquid has tried to minimize the negative impacts of venture capital, airdrops, and internal liquidations (compared to the continuous selling by certain cryptocurrency founders), while retaining a normal product form as much as possible, and hopes to generate revenue through transaction fees.

Compared to the uncertainty of the NFT market, perpetual contract DEXs are a necessity on the chain, so I believe that the Hyperliquid model is very likely to be accepted by the market.

However, just like the community's suspicion that an exchange might profit from a hacker attack, after Hyperliquid experienced a crisis, the change in mindset of its founders and team is even more noteworthy. Will they continue to strive to be the good guys who are questioned, or will they sink to the level of traditional exchanges and further tighten the rules?

In other words, getting caught up in whether something is centralized or not may divert attention from the main discussion. Perhaps we should consider whether fully transparent protocol rules leading to open market hunting is an inevitable growing pain of on-chain protocols, or whether it will result in a regression of the on-chain migration process.

The truly profound lesson or experience is: should we adhere to the concept of decentralization, or should we directly bow to capital inefficiency? Just like this increasingly turbulent world, the middle ground is becoming narrower and narrower.

Should it be partially decentralized + transparent rules + intervention when necessary, or 100% centralized + black box operations + intervention at any time?

After the 2008 financial crisis, the U.S. government directly intervened in the market, saving Wall Street without taxpayer consent, exhausting the efforts of retail investors to maintain the survival of financial giants, which became the breeding ground for Bitcoin. Today, the Hyperliquid incident is merely a reprise of this old play, with the roles changed to an on-chain Wall Street in need of rescue.

After the Hyperliquid crisis, well-known figures in the industry have criticized it: from the founder of a certain exchange to the head of a certain project, all have demanded that Hyperliquid adhere to the principle of decentralization. This is also a continuation of on-chain business competition. The head of a certain project once questioned the feasibility of another project, but this does not prevent them from standing on the same side today.

Once you participate in the game, be prepared to become a pawn.

Whether on-chain or off-chain, there needs to be a firm philosophy and flexible bottom line.