Author|Alexon
This article represents the author's personal views and does not represent the views of Wu Blockchain
As a decentralized derivatives exchange, Hyperliquid has reached an astonishing fully diluted valuation (FDV) of nearly $15 billion without listing on any CEXs, which is a very 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 over-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 of airdrops and binding top-tier resources, which precisely concentrates funds on the key steps to maximize project hype. Its unique insights into Hyperliquid's capital inflows, concentration of pricing power, and exit mechanisms provide important reference 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.
Opening
Welcome everyone to the 136th episode 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", after all, it's money that looks like it can be earned, so why didn't we grab 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 it if time went back;
2. The second part is a reflection, to see where the mistakes were if there were any;
3. The third part is to discuss why Hyperliquid was able to rise so high, and how I would plan the exit strategy if I were the coordinator of Hyperliquid.
Statement of Views
I also know that there are friends of Hyperliquid watching this video on our channel, so I want to make it clear that my views are purely personal opinions, without any malice. I hope you can develop well, but at the same time I think some of the designs are centralized. I also hope that these discussions can be enlightening to everyone.
Again, I only have blessings for the Hyperliquid team, because I personally really hope that DeFi can truly rise. My views represent my personal stance, without any other intentions. Okay, let's not say much more. Crypto is a high-volatility, high-risk, and strongly financial field. You may find a gold mine, or you may lose all your capital. So be well prepared. Well, let's get started.
Part 1: If time went back, would I still miss it?
First is the first question: if time went back, would I still miss Hyperliquid? To be honest, I've already thought about this question. I think the answer is: it's highly likely that I would still miss it.
Looking back, I posted an article about Hyperliquid as early as August 6th, which was probably written when I first came across this project in late July. If you go back and review the content at the time, you'll find the reason I missed it 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 value 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: is it necessary to accept the existence of centralization? For example, initially everyone could not accept the centralization design of Sequencer, 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 go back in time, I would still give up 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: The wrong benchmark object
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 objects. 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 easiest solution - to achieve high performance through centralized nodes and bridges. This model is not very complex in itself. But where I was wrong was that it wasn't until it was about to conduct a TGE (token generation event) that I realized a key issue, or a member of our team raised this issue. He suddenly realized while researching the paper 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 I thought were good, and I compared them together. However, in fact, if you look at it from another angle, Hyperliquid should be compared with CEXs like OKX, Binance, Bitget or Coinbase. In this case, is it slightly higher in terms of decentralization? Or is the on-chain interaction smoother? Although it may not be completely on-chain, at this stage the market may need such a product.
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 is the first 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 looked at the problem was wrong.
Error 2: Failure 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 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 made me very puzzled: 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 was in the secondary market, I would definitely have investigated to the bottom to find out who was behind the absorption of the shares, but on the Hyperliquid issue, I made a serious mistake. When I found that there was no relevant information at all in the public market, I did not go deeper to seek internal news. In fact, I had channels around me, but I did not get to the bottom of it and find out the source of this $500 million USDC. If I had investigated and clarified 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, what kind of force, or 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, to have $500 million in cash directly on the books clearly had strong backing. But in terms of digging into internal information, my work was not adequate.
In summary for the second part, I think my two core mistakes were: I chose the wrong benchmark object, and I did not deeply investigate the internal information.
Part 3: Hyperliquid's Strategy and Insights
Next is the third part: why was Hyperliquid able to pull up the price after going live? Or in other words, what can we learn from the whole process? If I were the one operating it, how would I exit?
Marketing strategy of binding top resources + airdrop viral spread
First, let's look at its rise process. You can see that its airdrop distribution was very clean, with many tokens directly unlocked and distributed to the community. From what I understand, its airdrop ratio was very large. Some friends who follow our channel, like "Tea Busi", often privately message me to discuss Hyperliquid. At the time, almost no one in the Chinese community was discussing Hyperliquid, but he persistently posted a lot of Hyperliquid information, and as a result he made tens of thousands of dollars through Hyperliquid.
I don't know if that friend hasn't sold it yet, but he might have made over $1 million by now. I'm genuinely 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 over $1 million. However, I want to emphasize that we need to understand why this happened. From the perspective of the operator or entrepreneur, Hyperliquid directly invested the marketing budget into the airdrop, which means they used all the viral costs in the most effective place. This is a very successful strategy.
Hyperliquid is a case worth learning in the "high-profile" strategy. Many people analyze airdrops and say "this is to give back to the community", but it's not that simple in 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 can quickly boost sales through their influence. Even if this method may not make money initially, you can further optimize your marketing strategy through their hot-selling momentum, such as using their slice 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 receive a lot of promotion invitations every day, some sending things, some directly asking if I'm willing to accept the promotion. To be honest, although our channel doesn't accept ads for now, I have to say that some promotions are really too cheap, and accepting them would make us look cheap.
In this industry, KOLs and KOCs are a very typical "Matthew effect" phenomenon. The head resources monopolize everything, and the mid-tier small opinion leaders basically have no survival space. From the perspective of traffic growth, the Chinese KOL environment in the crypto field does have problems and is trapped in a vicious circle. Many KOLs can only maintain their survival by "whitewashing" for project parties or exchanges, and this ecology feels awkward. For the sake of learning, 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 top-down super-head approach, and the other is the bottom-up amateur viral approach. 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 weren't online at the time, the ability to quickly bind these resources shows that it's not simple behind the scenes.
Currently, Hyperliquid has shown very strong financial strength. You'll find that the other projects Ansem has bound, like the early Fantom project, often have a reserve of around $500 million. Hyperliquid's ability to bind resources of this scale shows that it has very strong backing. This scale of financial foundation allows it to have more confidence in pushing 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 aspects: one is to directly airdrop to the grassroots users and actual participants; the other is to bind with the 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 it's not that simple. 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 its resources on airdrops and binding with super-head resources, avoiding other wasteful expenses. At the same time, they also ensured that the trading volume and pricing power are concentrated on their own platform. This approach not only gives their Layer 1 value, but also firmly grasps 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 ecosystem projects. For example, by launching MEME coins or other ecosystem projects to boost the overall valuation, and then exit some liquidity at the high valuation, while maintaining the main coin at a relatively high price level to ensure the sustainability of the ecosystem. This is one option.
Another option is to use the distribution strategy, by firmly grasping the pricing power, and gradually expanding 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 on 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 a strong market influence with extremely low fees. (Maintaining high Volume and high FDV, from various angles of arbitrage, is extremely advantageous.)
Therefore, from the perspective of exit, I think the most 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 a 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.
