Just a few days ago, the decentralized exchange HyperLiquid launched its token staking feature, once again causing a market trust crisis due to centralization controversies. A tweet from a node operator employee at ChorusOne pointed out the opacity of the protocol, and even though the official team later tried to alleviate concerns, the price of the HYPE token had already dropped by 12%.

(HyperLiquid launched the HYPE token staking feature on the mainnet)

Concerns raised about HyperLiquid's level of centralization

Kam Benbrik, an employee of blockchain node operator ChorusOne, pointed out multiple issues with HyperLiquid in a lengthy article:

Closed-source code and centralized APIs

Firstly, the closed code and lack of public documentation prevent validators from understanding the operational details and system architecture; relying on centralized APIs may also lead to single points of failure.

Validators often face 'jailing' penalties and may not even know the reasons, only able to speculate through Discord.

It is reported that when validators fail to meet network requirements due to certain actions, the blockchain protocol will temporarily or permanently remove them from the validator list through 'jailing'.

Insufficient decentralization of the mainnet

At the same time, 81% of the staking on the mainnet is controlled by foundation nodes, posing a high centralization risk; the selection criteria for mainnet validators are also opaque, partly based on testnet performance, and some reasons are not disclosed.

The foundation controls most nodes, making it difficult for validators to sustain themselves economically.

Additionally, validator income is insufficient to cover high operational costs and self-staking requirements, making it economically unsustainable.

Official response from HyperLiquid

In response to these concerns, HyperLiquid issued a reply on X, attempting to alleviate external worries. They stated that they would launch the 'Foundation Delegation Program' to support high-performance validators and further achieve network decentralization:

Regarding the open-source nature of the code, the team also acknowledges the importance of open sourcing:

Open sourcing will take place once development reaches a stable phase; the current lack of open source is due to HyperLiquid's development speed and scope far exceeding that of most projects.

Opacity is a major flaw for HyperLiquid.

As a rapidly growing L1 blockchain focused on DeFi, HyperLiquid's main application is a decentralized exchange (DEX) based on a fully on-chain order book, and at the time of writing, its TVL still ranks fifth among DEXs, reaching 1.65 billion USD.

However, multiple controversies in recent weeks have subjected HyperLiquid's TVL and token price to unprecedented negative sentiment, starkly contrasting with the encouraging situation at the token's initial issuance.

(The fatal blow to HyperLiquid (HYPE): North Korean hackers target lurking crises, centralized trading without KYC)

Since reaching a high of 34.7 USD on December 21, the HYPE price has fallen to 20.7 USD, a drop of 40.4%, indicating a blow to investor confidence.

At this point, whether HyperLiquid can genuinely open source and fulfill its transparency commitments, responding to market doubts with actions to regain trust and stabilize token value, will be crucial for its future development.

This article, 'HyperLiquid's centralization controversy reignites! HYPE token price drops 20% in a week', first appeared in Chain News ABMedia.