Currently, the entire cryptocurrency industry is immersed in the lively atmosphere of a bull market, with the crypto market intertwining with the dollar capital feast. Amidst the clinking of glasses, people seem to have forgotten the warning from the Bitcoin genesis block - 'The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.'
In the context of massive liquidity, it seems that the 'VC tokens' that have troubled the Web3 industry for years are no longer a problem. Major altcoins and even zombie projects are continuously going public, and DeFi projects are receiving capital injections from Wall Street. The traditional financial industry appears to have endless funds propping up the market cap of crypto projects, making the capital frenzy feel 'out of place' for sober observers.
Recently listed Hyperliquid has some 'eccentric' attributes, quoting several remarks from its founder:
The cryptocurrency industry overemphasizes short-term benefits
If we want to create new financial methods, having VCs hold 50% of the network share in the early stages will always be a stain.
Currently, the most 'successful' products in the industry often issue fraudulent tokens. Few projects genuinely adhere to a user-first model because acquiring real users is genuinely challenging. Most projects take shortcuts: first obtaining investments from large market makers and then attracting trading through incentive programs. This model is unsustainable in the long run.
From a historical perspective, society has consistently evolved towards individualism. Every progress towards individualism and human rights has been positive in terms of outcomes, whether measured by GDP or happiness. Hyperliquid continues to push this direction: from the earliest need to protect one’s farm with weapons (Yellowstone scenario), to the later ability to store money in banks, to now with Hyperliquid - where you can fully control your funds through cryptographic technology.
At this point, we seem to see a figure of the 'Dragon Slayer' emerging from the ruins and ashes of FTX. The crypto industry has only existed for just over a decade. Who is that dragon? In Web2, it could be the BAT monopolizing the market in the form of 'capital spokespersons', executing strategies of digital colonization and capturing most of society's benefits. With China's restrictions on the strategic investment departments of large tech firms, this trend has been alleviated. In Web3, it may be those increasingly centralized entities, those who have plunged into the embrace of traditional financial systems. At this moment, reflecting on the crypto users' opposition to the plans for Metamask and OpenSea to go public seems particularly significant.
Hyperliquid - The 'Dragon Slayer' emerging from the ruins of FTX
Hyperliquid's token HYPE underwent its genesis distribution at the end of November, airdropping over $1.6 billion worth of tokens, quickly becoming the seventh largest airdrop in cryptocurrency history. Within just two weeks of being online, the price of HYPE tokens surged from $3 to $28.8, with a fully diluted market cap exceeding $28.69 billion.
As a decentralized derivatives exchange, Hyperliquid boasts strong liquidity and user ecology, and will subsequently launch a blockchain specifically tailored for high-performance derivatives trading, Hyperliquid L1. Through the HyperBFT consensus algorithm, Hyperliquid L1 achieves extremely low latency, processing tens of thousands of orders per second while ensuring complete transparency and decentralization of all on-chain states.
Comparison of Hyperliquid with Sui and Aptos
By comparing, we can imagine the future form of Hyperliquid L1. Hyperliquid focuses on DeFi performance optimization and a user-centric philosophy; Sui focuses on flexible asset management and technological breakthroughs; Aptos emphasizes a high-performance foundational chain developer ecosystem. Each has its characteristics in goals and technological paths, but Hyperliquid is more focused on trading infrastructure and liquidity integration, while Sui and Aptos mainly aim for ecological expansion as public chains.
The combination of perpetual DEX and L1 can develop towards deeper and higher dimensions, for example, token launch platforms (already existing) and crypto asset-backed native stablecoins, breaking free from dependence on centralized exchange contracts and RWA assets, but it will also increase systemic risks. L1 is expected to activate the siphon engine for Hyperliquid, providing momentum for its second growth phase, which is anticipated to be realized in the coming months. Additionally, benefiting from the Arbitrum ecosystem, Hyperliquid is expected to usher in a wave of asset explosion.
Data Comparison - CEX VS Hyperliquid
Currently, Hyperliquid mainly focuses on perpetual contract trading, with the latest data from December 16 showing a total trading volume of $6.27 billion, ranking eighth 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 five, which may not be too difficult for a project that has been online for nearly two weeks. Hyperliquid's essence as a 'CEX killer' is undoubtedly revealed.
In addition, the total locked amount of USDC on the protocol has exceeded $2.2 billion, with deposited funds soon to enter the top ten of 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:
2. Dutch Auction: A Dutch auction, also known as a descending price auction.
Starting Price: The starting price for each new auction is set at double the winning price of the last auction. For example, if the last auction price was $100,000, the next starting price would be $200,000.
Price Decline: The price will decrease linearly over time.
Transaction: The first bidder to accept the current price wins the auction, obtaining the deployment rights for the token ticker and paying the corresponding fees.
3. Auction Frequency: Auctions are typically held every 31 hours.
4. Gas Fees: The project party needs to pay a gas fee, which will subsequently be returned 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 dark-box operations and insider trading; the Dutch auction adopted can reflect the true psychological expectations of bidders, thus facilitating transactions at relatively fair prices; due to the high costs of listing (i.e., ticker auction fees), this mechanism to some extent improves the quality of listed projects; the auction process also attracts broad attention and discussion from the community, enhancing community participation; furthermore, the gas auction price collected will subsequently be returned to the community in the form of staking, forming a virtuous cycle.
With the increasing visibility of Hyperliquid, ticker auction prices are continually hitting new highs. For instance, the ticker auction price for GOD reached as high as $975,700. Early auction tokens were primarily meme coins, but with the joining of quality projects like Solv, Hyperliquid is gradually attracting more mature projects. Especially after the launch of SOLV, it helps to downplay its VC background. If Solv succeeds, it will further enhance Hyperliquid's industry influence and attract more project attention.
The tragedy of the commons caused by CEX and VC in Web3
The tragedy of the commons refers to the phenomenon where individuals maximize their self-interest in shared resources, resulting in overconsumption of resources and ultimately harming everyone. This issue is also significantly present in the Web3 industry, particularly between centralized exchanges (CEX) and their collaborating venture capital institutions (VC).
CEX, by controlling traffic entry points, only regards users holding its own platform tokens as core crypto users and grants various rights to platform tokens (such as Launchpool and mining) to attract user participation. At the same time, CEX provides listing channels for tokens invested by VCs. Under this model, CEX and VC, through a 'self-directed and self-acted' approach, act both as athletes and referees, prioritizing their own profits while neglecting the long-term development of projects and the interests of ordinary users.
In this process, CEX and VC work together 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 ultimately become 'VC tokens', with ordinary users only able to buy in at market peaks, suffering losses. This behavior distorts the ecology of the crypto industry and sacrifices long-term value. Market participants are increasingly dissatisfied with the CEX + VC model, calling for the industry to return to a transparent, fair, and sustainable development path.
Hyperliquid is expected to revolutionize the cryptocurrency industry's token listing system, breaking the dominance of CEX in the issuance of new crypto assets, allowing the market to return to the market, and the community to return to the community. What is Caesar's is Caesar's, and the meaning of decentralization lies in the fact that no one can establish what constitutes the correct values, and no one can monopolize industry resources and development rights. However, Hyperliquid's auction mechanism also needs continuous optimization, or after being launched on EVM-supported public chains, it should provide more community projects with opportunities for showcasing, rather than simply relying on auctions to determine listing qualifications, otherwise, it may fall into a predicament similar to that of Polkadot's parachains.
As practitioners enjoy the financial freedom brought by the crypto world, the industry's autonomy and introspection capabilities appear insufficient, and the quagmire of the tragedy of the commons is deepening. This phenomenon compels us to review traditional market regulatory experiences in the financial sector, awakening the industry's self-governance capabilities. CEX should be aware that obtaining users and fee income through a large number of token investments and listings in the short term may bring superficial prosperity, but in the long run, users will eventually vote with their feet. Compared to the demand for profit, people are more eager to see the true realization of the decentralized vision in the crypto industry.
As Yale economists have said: 'Markets are driven not by logic but by the stories we tell ourselves. When those stories detach from reality, bubbles form.' High FDV (Fully Diluted Valuation) VC tokens not only make the market fragile but also push the crypto industry towards a more unstable direction.
Summary
Currently, CEX has become the base camp for VC token distribution. The combination of CEX and VC has replaced traditional financial market actors such as sponsors, accounting firms, law firms, and SEC regulatory reviews, making the Web3 ecosystem resemble the wild west of America: wealth, freedom, chaos, greed, and danger coexisting. This environment has left some people disheartened, especially new entrants in the crypto space. However, one should not be troubled by the short-term influence of VC tokens; continuous building is fundamental. The Web3 industry may one day escape the 'tragedy of the commons', which is precisely the cost of freedom and development.
With the support of liquidity in a bull market, HYPE has surged for some time. Swing traders can enter based on their judgment, while long-term investors may wait for a pullback. Additionally, Hyperliquid also faces some unstable factors, and investors should remain vigilant about related risks. Currently, validators are still not sufficiently decentralized, and there are execution risks for on-chain order books under explosive trading volume. The public chain has yet to tell a new growth story, and there are regulatory risks, as there is the precedent of FTX. The risk appetite of high-frequency quantitative traders may far exceed user expectations, especially reflected in the product's risk control system.
In fact, the biggest risk for Hyperliquid is still sliding towards centralization. The industry still hopes that Hyperliquid maintains the decentralized spirit of the Ethereum Foundation, continuously staying at the forefront of DeFi primitive innovation like Arbitrum & GMX, and possesses the ability to keenly capture user needs like Solana. Perhaps the aforementioned 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 decentralized spirit, with a team led by Jeff encouraging more builders to continue building the future. As for Hyperliquid's valuation, it can benchmark against CEX platform tokens in the short term, while in the long term, its value will converge towards a dual valuation of CEX + L1. In this process, decentralization is Hyperliquid's unique advantage. Eastern CEX is troubled by VC tokens, while the Western Base chain has yet to issue native tokens.
