Author: Frank, PANews
As the new Layer 1 public chain that currently attracts the most attention in the market, Hyperliquid’s token market value exceeded US$11 billion after the airdrop, and its full circulation market value was once close to US$35 billion. Its ecological data has grown exponentially. While the market is extremely optimistic, it has also caused a lot of controversy recently.
These controversies mainly revolve around Hyperliquid’s unsatisfactory performance in decentralized governance and the introduction of more developers as a star Layer 1 project. Especially in terms of node participation, everything seems to be closed, which once again confirms the impression of many doubters that Hyperliquid is a "stand-alone chain". The official response also basically admitted that these problems exist on the Internet, but will gradually resolve them.
An open letter sparks governance controversy
On January 8, Kam, an employee of node operator Chorus One, published an open letter on social media, pointing out that Hyperliquid currently has many problems in closed source code, the black market of testnet tokens, and restrictions on decentralization. The remarks quickly sparked a lot of community discussion about Hyperliquid governance.
Kam mentioned in the open letter that the test network nodes are difficult to operate and have problems such as closed source, missing files, and over-reliance on centralized APIs. The incentive mechanism of the test network has design problems, and black market transactions of test coins occur. Problems such as excessive concentration of mainnet validators and insufficient centralization.
Judging from the content of this open letter, the target is that Hyperliquid has a low degree of decentralization in governance, and the official and foundation have absolute dominance in nodes and staking. Second, technical and operational information are not transparent, which is a bigger problem for expanding the ecosystem. Third, the economic incentive mechanism is imperfect and it is difficult for external nodes to maintain costs. Fourth, the communication between the official and the nodes is not smooth, the official guidance to the nodes cannot be obtained in time during the node operation, and the nodes also lack channels to feedback problems.
The above are basically the main issues criticized by the industry for Hyperliquid. In a crypto research report released in December, VanEck, a well-known asset management institution, also pointed out that Hyperliquid has a valuation of approximately US$28 billion, but it has not attracted a large number of developer communities to join. If the development community cannot grow, If expected, HYPE's token price may be difficult to maintain. Research firm Messari also issued an article on New Year’s Day stating that Hyperliquid’s outperformance may be over.
After Kam’s open letter was released, many industry players joined the discussion about Hyperliquid. Charles d'Haussy, CEO of the dYdX Foundation, a competitor on the same track, commented, "Closed source code + limited number of validators + most equity weights under 1 entity + lack of clarity and security in bridged multi-signature settings. Tokens Price action shouldn't blind so many people.
Others believe: “I don’t think the black market of testnet hype is a big problem because we have seen this on many other protocols.”
Officials admit that the problem exists, but there is still a long way to go to solve it
However, most people still question this phenomenon of excessive centralization. Faced with these doubts, Hyperliquid responded quickly that day, focusing on the following six points:
All validators are qualified based on testnet performance and cannot obtain seats through purchase; as the blockchain matures, the set of validators will gradually expand.
Will further promote the decentralization of the Internet.
Anyone can execute an API server pointing to any node, and the example client code sends a request to a specific API server, but this is not a basic requirement of the network.
The testnet HYPE black market is unacceptable and efforts will continue to improve the testnet entry process.
The node code is currently closed source; open source is very important, and the project will be open source after development reaches a stable state; Hyperliquid's development speed is orders of magnitude faster than most projects, and its scope is also orders of magnitude larger than most projects; program code Will be open sourced when it is safe to do so.
Currently there is only one binary bit. Even on a very mature network like Solana, the vast majority of validators run a single client.
In summary, Hyperliquid’s response did not deny the problems raised by Kam in the question, but basically admitted that the network has these problems, but will gradually solve them. Judging from the current verifier information of Hyperliquid, the top five nodes with pledged amount are all officially self-operated nodes. The amount of pledged tokens of these five nodes alone has reached 330 million, exceeding the sum of the pledged amounts of all other nodes. . In addition, although the official has launched a foundation, it has not yet launched governance voting and other related channels. From these perspectives, Hyperliquid’s open governance does still have a long way to go.
Valuation game, beat all DEX with Layer1 narrative valuation
Since the Hyperliquid airdrop, the data of the Hyperliquid ecosystem has experienced a sharp increase. As of January 8, the cumulative number of users has reached 300,000, and 100,000 new users have been added in more than a month. In addition, TVL data reached a peak of US$2.8 billion in December, a 14-fold increase in a single month. According to VanEck’s research report, its main competitor dYdX’s TVL did not exceed US$600 million within 15 months of its creation, and the market value of the token exceeded the total market value of all peers.
Hyperliquid’s excellent market performance is closely related to its dual attributes of Layer 1 and DEX. As of now, the attributes of Hyperliquid as a Layer 1 are incomplete. On the one hand, there is still a huge gap between decentralized open governance and mainstream Layer 1. On the other hand, the richness of the Hyperliquid ecosystem also needs to be improved urgently. The main applications of the current ecosystem are all operated by the official team.
As a DEX, Hyperliquid has relatively obvious advantages in terms of user experience brought by its 100,000-level TPS performance and independent public chain foundation.
Therefore, if Hyperliquid is positioned as a DEX, it is obviously successful. And if it is positioned as a Layer1, there is a longer way to go.
Positioning may be an important factor in future market pricing
It is also worth mentioning that many people believe that Hyperliquid may be another gold mining holy land after Solana. However, when PANews analyzed Hyperliquid's on-chain data, it was found that in the change curve of Hyperliquid traders' net profit and loss, it can be seen that the overall profit curve of Hyperliquid traders has been negative for a long time, and as the popularity of trading increases, the overall amount of losses is still It continues to expand. As of January 7, 2025, traders' cumulative losses were US$51.3 million. Compared with the same period a year ago, this data has expanded nearly 25 times. The cumulative liquidation amount also reached $6.69 billion, and the number of open contracts also increased, reaching $3.78 billion. From this perspective, Hyperliquid is more like another new on-chain casino.
On January 6, Hyperliquid announced that it would launch a new cross-chain bridge in conjunction with Router Protocol and begin supporting cross-chain deposits on more than 30 networks including Solana, Sui, Tron, Base and Ethereum. Compared with the current fund transfer that can only be done through Arbitrium, this cooperation can bring Hyperliquid more flexible channels for fund flow.
Overall, Hyperliquid's controversy is the same as the reason why many people are optimistic about it. As an exchange with DEX as its leading product, Layer 1 is currently more like the underlying supporting package of this exchange. Skeptics believe that as Layer 1, Hyperliquid lacks transparency and a decentralized governance framework. Supporters believe that Hyperliquid is the only DEX equipped with Layer1. As for the development of Hyperliquid itself, the next situation it will face may always revolve around the conflict between these two roles.
If it develops mainly into Layer 1, then Hyperliquid still has a lot of room for valuation and a lot of issues to deal with. If it is only positioned as a high-performance DEX, then a valuation that far exceeds that of its peers will arouse suspicion of overvaluation in the market. Moreover, as the ecosystem continues to open up, HYPE will enter more market transactions and get rid of the doubts of stand-alone currency, and will also face more market uncertainties. These issues are a test of the art of balance for Hyperliquid officials, and for concerned investors, they are even more difficult problems that require careful investigation.
(The above content is excerpted and reprinted with the authorization of our partner PANews, original text link)
Statement: The article only represents the author's personal views and opinions, and does not represent the objective views and positions of the blockchain. All contents and opinions are for reference only and do not constitute investment advice. Investors should make their own decisions and transactions, and the author and Blockchain Client will not be held responsible for any direct or indirect losses caused by investors' transactions.
"'Hyperliquid is popular and controversial, and the development of public chain ecology has become a problem in the future." This article was first published on (Block Guest).
