Author: Revc
The entire cryptocurrency industry is currently immersed in the lively atmosphere of a bull market, with the cryptocurrency market and the US dollar capital feast intertwined, and in the midst of toasting and changing cups, people seem to have forgotten the warning of the Genesis Block of Bitcoin - "The Chancellor is about to implement a second bailout of banks."
Against the backdrop of massive liquidity, the "VC coin" that has plagued the Web3 industry for years no longer seems to be a problem, with large Altcoins and even zombie projects being listed one after another, and DeFi projects also welcoming the injection of Wall Street capital, the traditional financial industry seemingly having endless funds to support the market capitalization of cryptocurrency projects, making the sober observers appear "out of place" in this capital frenzy.
The recently listed Hyperliquid has some "unconventional" views, quoting a few words from its founder:
The cryptocurrency industry is too focused on short-term interests
If you want to create a new financial model, letting VCs hold 50% of the network share in the early stage will be an eternal stain
The "most successful" products in the industry are often the issuance of fraudulent tokens. Few projects truly follow a user-centric model, because it is indeed very difficult to acquire real users. Most projects take shortcuts: first get investment from large market makers, and then attract trading through incentive programs. This model is unsustainable in the long run.
From the perspective of human history, society has always been developing towards individualism. Every progress towards individualism and human rights has been positive in the end, whether measured by GDP or happiness. Hyperliquid is continuing to push this direction: from the earliest need to use weapons to protect your own farm (the Yellowstone scenario), to later being able to deposit money in the bank, and now to Hyperliquid - you can fully control your own funds through encryption technology.
At this point, we seem to see the figure of a "dragon-slaying youth" emerging from the ruins and ashes of the FTX collapse. And the cryptocurrency industry has only been around for more than a decade, so who is that evil dragon? In Web2, it may be the BAT that monopolizes the market in the guise of "capital spokespersons", implementing a digital colonization strategy and grabbing most of the social benefits, and this trend has been alleviated with the constraints of the Chinese government on the strategic investment departments of large companies. In Web3, it may be those increasingly centralized entities that have plunged into the embrace of the traditional financial system, and at this moment, the idea of cryptocurrency users opposing the plans of companies like Metamask and OpenSea to go public seems particularly meaningful.
Hyperliquid - the "dragon-slaying youth" that emerged from the ruins of FTX
The Hyperliquid token HYPE conducted a Genesis distribution at the end of November, airdropping over $1.6 billion in tokens, quickly becoming the seventh largest airdrop in cryptocurrency history. Within two weeks of its launch, the HYPE token price skyrocketed from $3 to $28.8, with a total market capitalization exceeding $28.69 billion.
As a decentralized derivatives trading platform, Hyperliquid has strong liquidity and user ecology, and will subsequently launch the Hyperliquid L1 blockchain customized for high-performance derivatives trading. Through the HyperBFT consensus algorithm, Hyperliquid L1 achieves ultra-low latency, processing tens of thousands of orders per second, and ensures complete transparency and decentralization of all on-chain states.
Comparison of Hyperliquid, Sui, and Aptos
By comparison, we can imagine the future form of Hyperliquid L1. Hyperliquid focuses on DeFi performance optimization and user-centric philosophy; Sui focuses on flexible asset management and technological breakthroughs; Aptos focuses on developing a high-performance base-layer developer ecosystem. The three have their own characteristics in terms of goals and technical paths, but Hyperliquid is more focused on trading infrastructure and liquidity integration, while Sui and Aptos as public chains are mainly focused on ecosystem expansion.
The combination of perpetual DEX and L1 can develop towards a deeper and higher-dimensional direction, such as token launch platforms (already existing) and cryptocurrency-backed native stablecoins, breaking away from the dependence on centralized exchange contracts and RWA assets, but will also increase systemic risk. The L1 is expected to be able to start Hyperliquid's suction engine, providing momentum for its second stage of growth, which is expected to be realized in the coming months. And benefiting from the Arbitrum ecosystem, Hyperliquid is expected to usher in a wave of asset explosion.
Data Comparison - CEX VS Hyperliquid
Currently, Hyperliquid's main trading is in perpetual contracts, and the latest data on December 16th shows that the total trading volume has reached $6.27 billion, ranking 8th among CEX&DEX, surpassing Coinbase ($9.715 billion), BingX ($7.689 billion) and Crypto.com ($6.628 billion), and is about to break into the top 5, which may not be too difficult for a project that has been online for less than two weeks. Hyperliquid's role as a "CEX killer" is undoubtedly being revealed.
In addition, the total locked USDC on the protocol has exceeded $2.2 billion, and the deposited funds are about to enter the top 10 of the exchange rankings.
Hyperliquid's Token Listing Mechanism
Hyperliquid uses a Dutch auction (descending price auction) mechanism to determine which tokens can be listed on its spot market. This mechanism aims to improve the transparency and fairness of the listing process and generate revenue for the platform. The specific process is as follows:
1. HIP-1 Deployment Permission Application: Project parties first need to apply for the deployment permission of the HIP-1 native token (HIP-1 is the token standard formulated by Hyperliquid).
2. Dutch Auction: Dutch auction, also known as a descending price auction.
Starting Price: The starting price for each new auction is set at twice the winning price of the previous auction. For example, if the previous auction price was $100,000, the next starting price would be $200,000.
Price Decline: The price linearly decreases over time.
Settlement: The first bidder who accepts the current price wins the auction, obtains the deployment rights of the token ticker, and pays the corresponding fee.
3. Auction Frequency: Auctions are usually held every 31 hours.
4. Gas Fees: Project parties need to pay a gas fee, which will be refunded to the HLP Vault.
Hyperliquid's auction mechanism has significant advantages over the opaque listing process of centralized exchanges: it is more open and transparent, effectively reducing the possibility of insider trading and manipulation; the Dutch auction used can reflect the true psychological expectations of the bidders, resulting in relatively fair prices; the high listing cost (i.e., thetickerauction fee) to some extent improves the quality of the projects listed; the auction process also attracts widespread attention and discussion from the community, enhancing community participation; and the collectedgas auction pricewill subsequently be returned to the community in the form of staking, forming a virtuous cycle.
Link: https://data.asxn.xyz/dashboard/hl-auctions
As Hyperliquid's reputation has grown, the Altcoin auction prices have repeatedly hit new highs. For example, the Altcoin auction price for GOD reached $975,700. The early auction tokens were mainly Meme coins, but with the addition of quality projects like Solv, Hyperliquid is gradually attracting more mature projects. Especially after the launch of SOLV, it helps to dilute its VC background. If Solv is successful, it will further enhance Hyperliquid's industry influence and attract more project attention.
The "Tragedy of the Commons" caused by the alliance of CEX and VC in Web3
The tragedy of the commons refers to the phenomenon where individuals, in pursuit of their own maximum interests, lead to the over-consumption of shared resources, ultimately harming everyone. In the Web3 industry, this problem is also significant between centralized exchanges (CEXs) and their partnered venture capital firms (VCs).
CEXs, by controlling the traffic entry, only view users who hold their platform tokens as core crypto users, and grant various rights (such as Launchpool and mining) to the platform tokens to attract user participation. Meanwhile, CEXs provide listing channels for tokens invested by VCs. In this model, CEXs and VCs, acting as both players and referees, prioritize their own profits through "self-directed" means, neglecting the long-term development of projects and the interests of ordinary users.
In this process, CEXs and VCs collaborate to inflate the short-term value of specific projects, leading to unfair resource allocation and further exacerbating market speculation and bubbles. Project parties often need to pay high costs to obtain listing opportunities, and these tokens eventually become "VC coins", with ordinary users only able to buy at market highs and suffer losses. This behavior distorts the ecology of the crypto industry, sacrificing long-term value, and market participants are increasingly dissatisfied with the CEX + VC model, calling for a return to a transparent, fair, and sustainable development path for the industry.
Hyperliquidis expected to transform the Altcoin listing system in the crypto industry, breaking the dominance of CEXs over the issuance of new crypto assets, allowing the market to return to the market and the community to return to the community, with the meaning of decentralization being that no one can establish the correct value system, and no one can monopolize industry resources and development rights. However,Hyperliquid's auction mechanism also needs to be continuously optimized, or after launching on EVM-compatible public chains, provide more opportunities for community projects, rather than relying solely on auctions to determine listing qualifications, otherwise it may fall into a similar dilemma asPolkadotparachain.
While industry practitioners enjoy the financial freedom brought by the crypto world, the industry's self-governance and self-reflection capabilities seem insufficient, and the quagmire of the tragedy of the commons is deepening. This phenomenon compels us to review the regulatory experience of traditional markets in the financial field and awaken the industry's self-governance capability. CEXsshould clearly recognize that in the short term, obtaining user and fee income through large-scale token investment and listing may bring surface prosperity, but in the long run, users will vote with their feet. Compared to the need to make money, people are more eager to see the true realization of the decentralization vision in the crypto industry.
As the Yale economist said: "The market is not driven by logic, but by the stories we tell ourselves. When these stories deviate from reality, bubbles will form." High FDV (Fully Diluted Valuation) VC coins not only make the market fragile, but also push the crypto industry in a more unstable direction.
Relevant regulations and examples in the United States
Relevant regulations in China
Summary
Currently, CEXs have become the main distribution channel for VC coins, and the combination of CEXs and VCs has replaced the traditional financial market's underwriters, accounting firms, law firms, and SEC regulatory review processes, making the Web3 ecosystem akin to the American Wild West: wealth, freedom, chaos, greed, and danger coexist. This environment has left some people disillusioned, especially new crypto users. However, one should not be constrained by the short-term impact of VC coins and should continue to Build. The Web3 industry may one day overcome the "tragedy of the commons", and this is the cost of freedom and development.
HYPE has already surged for a while under the support of bull market liquidity, and swing traders can enter the market based on their own judgment, while long-term investors can wait for a correction. Additionally, Hyperliquid also faces some unstable factors, investors should also be aware of the relevant risks, such as the current lack of decentralization of validators, the execution risk of the on-chain order book under explosive trading volume, the lack of a new growth story for the public chain, and regulatory risks, after all, there is the precedent ofFTX, and the risk appetite of high-frequency quantitative traders may far exceed user expectations, especially as reflected in the product's risk control system.
In fact, Hyperliquid's biggest risk is still sliding towards centralization, launching its own VC, and the industry's expectation for it is still hoping that Hyperliquid will maintain the decentralized spirit of the Ethereum Foundation, continue to be at the forefront of DeFi primitive innovation like Arbitrum & GMX, and have the ability to capture user needs like Solana. Perhaps these expectations are too high, but they precisely reflect the industry's desire for positive changes in the crypto ecosystem. Hyperliquid represents the victory of the decentralization spirit, and the team led by Jeff is encouraging more Builders to continue building the future. As for Hyperliquid's valuation, in the short term it can be benchmarked against CEX platform tokens, and in the long run, its value will approach the dual valuation of CEX+L1, in which decentralization is Hyperliquid's unique advantage, as Eastern CEXs are trapped by VC coins, while Western Base chains have not yet issued native tokens.
