Author | Alexon
This article represents the author's personal views and does not represent the views of Wu Blockchain
As a decentralized derivatives trading platform, Hyperliquid has reached an astonishing fully diluted valuation (FDV) of nearly $15 billion without listing on any CEXs, which is a rare phenomenon this year. Alexon is the CIO of Ferryboat Research. This video reviews Alexon's thoughts on Hyperliquid: why, despite being aware of it early on, he ultimately chose to give up, including his excessive obsession with decentralization and his failure to delve deeper into internal information. It interprets Hyperliquid's core strategy, believing that its success is due to an efficient marketing model that precisely concentrates funds on the key steps to maximize project hype through airdrops and binding of top-tier resources. Its unique insights into Hyperliquid's capital inflows, concentration of pricing power, and exit mechanisms provide important references for the operation of on-chain projects. This is not only a failed review, but also a profound analysis of the successful model of on-chain projects.
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Opening
Welcome to episode 136 of Alex's Crypto Diary. Yesterday, I reviewed a problem that I felt had some value and was worth recording.
The problem is: why did we notice Hyperliquid very early on, but did not participate in it, thereby missing out on one of the most important opportunities of the year? This can be considered a kind of "airdrop", a sum of money that seemed to be able to be earned, so why didn't we seize it? What was I thinking at the time? Why, despite discovering it early, did I not take action? There are many reasons behind this process. Will I miss out again in similar situations?
Therefore, today's content will be divided into three parts:
1. The first part is a review, to see if I would still miss out if I could turn back time;
2. The second part is a reflection, to see where the mistakes were if there were any;
3. The third part will discuss why Hyperliquid was able to rise so high, and how I would plan the exit strategy if I were the organizer of Hyperliquid.
Statement of Views
I know that there are friends of Hyperliquid watching this episode on our channel, so I want to make it clear that my views are purely personal opinions, without any malice. I hope you all develop well, but at the same time I believe that some of its designs are centralized. I also hope that these discussions can be enlightening for everyone.
Again, I only have blessings for the Hyperliquid team, because I personally very much hope that DeFi can truly rise. My views represent my personal stance, without any other intentions. Alright, let's not say too much. Crypto is a highly volatile, high-risk, and strongly financial domain. You may find a gold mine, or you may lose all your capital. So be well prepared. Now, let's begin.
Part 1: If I could turn back time, would I still miss out?
First, the first question: if I could turn back time, would I still miss out on Hyperliquid? To be honest, I've already thought about this question. I believe the answer is: I would most likely still miss out.
Looking back, I posted an article about Hyperliquid as early as August 6th, which was probably written when I first came across the project in late July. If you go back and review the content at the time, you'll find the reason I missed out is very clear: I thought its nodes and bridge were centralized. My starting point was to focus on high-performance public chains, and my personal preference was to exclude completely centralized solutions. In my view, even if Hyperliquid has now reached a market cap of $10 billion, this fact has not changed. This was my judgment at the time, and I was not criticizing it.
However, I also admit my mistake. My mistake was: must we accept the existence of centralization? For example, initially everyone could not accept the centralization of Sequencers, but now with the popularization of Layer 2, centralization seems to be gradually accepted by the market. However, from our team's perspective, our stance is not to accept this model. So even if I could go back in time, I would still give up on Hyperliquid for this reason. We had studied it very seriously at the time, but ultimately chose to pass.
Part 2: Where did we go wrong?
Error 1: Chose the wrong benchmark
This leads to the second question: where exactly did we go wrong? The market is always right, and we as individuals may be wrong. We can't think we're right just because we didn't make that money. We need to reflect on where the mistakes occurred.
I think there are two main issues. The first issue is that we chose the wrong benchmark. At the time, my focus was on high-performance public chains, such as Monad, MegaETH, Sui, and Hyperliquid, especially on-chain order book projects, which I was very interested in.
Among these projects, Hyperliquid is the simplest and most obvious solution - to achieve high performance through centralized nodes and bridges. This model is not complicated in itself. But where I was wrong was that it wasn't until it was about to conduct its TGE (Token Generation Event) that I realized a key issue, or rather, one of my teammates raised this issue. He suddenly realized while researching the papers that Hyperliquid might be somewhat better than the existing centralized exchanges (CEXs) in certain aspects.
I feel this angle is actually something we hadn't considered before. All my benchmark objects were basically the high-performance projects that I thought were good, and I compared them. However, in fact, if you look at it from another angle, Hyperliquid should be compared with centralized exchanges (CEXs) like OKX, Binance, Bitget or Coinbase. In this case, would it be slightly higher in terms of decentralization? Or in other words, would the on-chain interaction be smoother? Although it may not be completely on-chain, at this stage, the market may need a product like this.
From this perspective, I think Hyperliquid is indeed slightly more decentralized than Binance or other exchanges. I don't know if everyone can understand what I mean, but this was the core mistake I made. If there was a mistake in this process, I think my mistake was that I chose the wrong benchmark direction. Looking at the market results, the angle I viewed the problem from was wrong.
Error 2: Failed to actively investigate internal information
The second mistake is that I did not actively seek out internal information. What does this mean? In fact, I had thought about this issue at the time, and also mentioned it in the content. At the time, Hyperliquid's TVL (Total Value Locked) was $700 million, of which $500 million was USDC. This puzzled me a lot: who did this $500 million USDC belong to? At the time, I felt this number was very strange, but since I couldn't find any public information, I didn't dig deeper. If it were in the secondary market, I would definitely have investigated who was behind the accumulation, but in the case of Hyperliquid, I made a serious mistake. When I found that I couldn't find any relevant information in the public market, I didn't go deeper to seek out internal news. In fact, I had channels around me, but I didn't get to the bottom of it and find out the source of this $500 million USDC. If I had pursued and investigated this at the time, perhaps we would have taken action much earlier, and might even have participated in it.
Looking back, at the time I had no idea which faction, which force, what kind of people and style were behind it. The only thing I knew was that there was $500 million in cash sitting on the books. I firmly believe that this was not simply funds deposited by ordinary users. At that stage, having $500 million in cash directly on the books clearly had strong backing. But in terms of digging up internal information, my work was not adequate.
In summary for the second part, I believe my two core mistakes were: I chose the wrong benchmark, and I failed to deeply investigate internal information.
Part 3: Hyperliquid's Strategy and Insights
Next is the third part: why was Hyperliquid able to pump after launch? Or in other words, what can we learn from the whole process? If I were the one operating it, how would I plan the exit?
Binding top resources + airdrop-driven viral marketing strategy
First, let's look at its upward trend. You can see that its airdrop distribution is very clean, with many tokens directly unlocked and distributed to the community. As far as I know, its airdrop ratio is very large. Some friends who follow our channel also often send private messages to me to discuss Hyperliquid, such as a friend called "Cha Busi". At that time, the Chinese community almost didn't discuss Hyperliquid, but he kept posting a lot of Hyperliquid information, and as a result, he made several hundred thousand US dollars through Hyperliquid.
I don't know if that friend hasn't sold out yet, he may have already made more than 1 million US dollars. I'm truly happy for him, whether it's speculation or investment, as long as what you focus on can bring returns, I'm happy for you. To be honest, I've never received an airdrop of more than 1 million US dollars. However, what I want to emphasize is that we need to understand why such a situation has occurred. From the perspective of the operator or entrepreneur, Hyperliquid has directly invested the marketing expenses into the airdrop, that is, they have used all the viral costs in the most effective place. This is a very successful strategy.
Hyperliquid is a very worthy case to learn from in the "high-profile" strategy. Many people analyze airdrops and say "this is to give back to the community", but in fact it is not such a simple logic. Essentially, airdrops are a means of traffic acquisition, just like distribution. Tokens are their products, and airdrops are a way to attract users to buy them.
There are two common tactics:
1. The first is the "high-profile" approach, which is to find super-head resources. For example, in the mainland, if you want to sell goods, you can choose to cooperate with top-stream anchors like Viya, Li Jiaqi, Xiao Yang Ge, Luo Yonghao, or Dong Yuhui. They will quickly boost sales through their own influence. Even if this method may not make money in the early stage, you can further optimize the marketing strategy through their hot-selling heat, such as using their sliced content to attract more mid-tier anchors to join the promotion, thereby enhancing your bargaining power. This tactic is very common in large consumer goods companies like cleaning products.
2. The second tactic is the "encircling the cities from the countryside". If you compare a super anchor like Li Jiaqi to an aircraft carrier, then the other strategy is to find thousands of small boats to form a similar attack force. That is, through a large number of KOLs (opinion leaders) or KOCs (consumer leaders), these individual users with fewer fans but higher authenticity, to help promote the product. Whether it's paying a small fee or sending small gifts for exchange, the real interaction of these amateur users can bring a higher conversion rate.
Nowadays, this strategy is very common in the exchange industry. I can receive a lot of promotion invitations a day, some sending things, some directly asking if I'm willing to accept promotion. To be honest, although our channel does not currently accept advertisements, I have to say that some promotions are really too cheap, and accepting them would make it seem cheap.
In this industry, KOLs and KOCs are a very typical "Matthew effect" phenomenon. The head resources monopolize everything, and these small opinion leaders in the middle tier basically have no survival space. From the perspective of traffic growth, the Chinese KOL environment in the crypto field does have problems, and it has fallen into a vicious circle. Many KOLs can only maintain their survival by "whitewashing" for project parties or exchanges, and this ecology makes people feel awkward. In order to learn, I have also paid to join some so-called paid groups, but to be honest, a lot of the content makes me unable to continue - the rhetoric is too obvious, all soft ads.
However, let's stop the complaints here and go back to Hyperliquid's marketing strategy. I just mentioned two strategies: one is the super-head approach from top to bottom, and the other is the amateur viral approach from bottom to top. Hyperliquid has done very well in both aspects. The first strategy is to bind high-traffic resources, such as the fact that I heard Ansem mention Hyperliquid in the first half of this year. Although they were not online at that time, the ability to quickly bind these resources indicates that it is not simple behind the scenes.
Currently, Hyperliquid has shown very strong financial strength. You will find that for other projects bound by Ansem, such as Fantom, which was shouting early, they often have a reserve fund of around 500 million US dollars. Hyperliquid's ability to bind resources of this scale indicates that it has very strong support behind it. This scale of financial foundation allows it to have more confidence to push its own strategy.
One point worth noting is that Hyperliquid has not invested any funds in mid-tier resources. Their strategy is to radiate downwards through the influence of the super-head, while allowing the grassroots users to go viral, and ultimately passively drive the mid-tier resources to participate. Their funds are mainly concentrated in two points: one is to directly airdrop to grassroots users and actual participants; the other is to bind with super-head resources. This model is very smart, avoiding many intermediate costs such as listing fees, promotion fees, and exchange intermediary fees, and using the saved funds to strengthen the project's dissemination effect.
The logic of airdrops also needs to be deeply understood. Many people will simply see airdrops as "giving money", but in fact it is not. Only when the funds actually flow out can it be considered a real expenditure. If the project sets a price floor and buys back when it falls below, the net outflow will be controlled within a very small range. And when the market performs well, this strategy may not require any additional expenditure, but instead enhance the project's brand image and market heat.
In this way, Hyperliquid has concentrated all resources on airdrops and super-head resource binding, avoiding other waste of funds. At the same time, they also ensured that the trading volume and pricing power are concentrated on their own platform. This approach not only gave value to their Layer 1, but also firmly grasped the market pricing power.
If I were the operator, how would I exit?
If I were to plan the exit mechanism, I would choose to gradually exit from the ecological projects. For example, by launching Memecoins or other ecological projects to boost the overall valuation, and then exit part of the liquidity in the high valuation state, while maintaining the main coin at a relatively high price level to maintain the sustainability of the ecology. This is one option.
Another option is to use the distribution strategy, by firmly grasping the pricing power, and gradually expand to other exchanges as the project matures. At this time, the Token or capital cost given will be greatly reduced, because the market capitalization and trading volume of the project have already supported its negotiation advantage. And regardless of the trading situation of other exchanges, Hyperliquid's own liquidity will always be the highest, and the pricing power will still be firmly in its own hands.
The brilliance of this approach lies in the fact that it utilizes the advantages of the centralized architecture. For example, Hyperliquid's core trading process can run on its own database, greatly reducing the operating costs. At the same time, it also avoids the high Gas fees required in traditional on-chain transactions. This feature gives Hyperliquid great competitiveness, allowing it to maintain strong market influence at extremely low fees. (Maintaining high Volume and high FDV, from various angles of arbitrage, it has great advantages.)
Therefore, from the perspective of exit, I think the ideal way is to gradually complete the exit on other exchanges, rather than relying on its own platform. At the same time, throughout the process, by becoming the market maker, Hyperliquid itself can earn enough profits, and may not even need a real exit.
Epilogue
Finally, I recommend everyone to listen to the WSH Podcast, where they recently interviewed Hyperliquid's CEO Jeff. This episode is very helpful for understanding the strategy and thinking behind Hyperliquid. Although our team may still not directly participate in Hyperliquid, we will continue to follow this project, as it has important significance in the market and industry development.
