GMX is busy dealing with theft, while Hyperliquid is busy expanding its business.
This time, Hyperliquid is making significant strides into the Solana ecosystem. Unlike simple multi-chain deployment, this time it is providing liquidity support through the Phantom wallet. It is surprising that Phantom chose Hyperliquid over Drift and Jupiter.
Compared to simply supporting Solana chain and Phantom wallet login, Hyperliquid's thinking differs from predecessors like dYdX and GMX, resembling Binance's on-chain version, aiming to become the ultimate source and destination of liquidity for all protocols and dApps, using super liquidity to establish itself as a true on-chain cornerstone.
The third road
To understand Hyperliquid, one cannot simply discuss Hyperliquid itself.
It must be said in comparison with spot DEXs like Uniswap that contract products from the spot perspective are gambling on borrowed money and trading coins, making it extremely difficult to maintain liquidity. Please note that the difficulty of spot DEXs is liquidity creation, which is why AMM and Bonding Curves are so important.
Uniswap can promote more assets to participate in trading through multi-chain deployment. Even if it only operates on its own chain, it can promote the growth of protocol TVL. However, for contract DEXs, whether it's dYdX, GMX, or Hyperliquid, they all need to 'attract' liquidity to gather in one place. This is also the natural advantage of CEXs like Binance.
Centralization is naturally beneficial for liquidity concentration.
It must be stated in comparison with peers like dYdX and GMX that GMX's perspective on Perp DEX is a combination that integrates dYdX's off-chain order book matching, on-chain trading, and liquidity tokenization, which is the essence of GMX's crazy revenue in 2022, maintaining liquidity through LP Token —> GMX Token 'induction'.
Hyperliquid is the same, but its operations are more refined. The closed HyperCore is responsible for spot and contract trading, which is the main basis for viewing Hyperliquid as centralized. HyperEVM is responsible for the 'blockchain' part, where operational concepts are blurred, long-term allowing Hyperliquid to exist in a state of superposition between decentralization and centralization, with super liquidity and matching efficiency hidden within.
For overall architecture of Hyperliquid, refer to: Hyperliquid: 9% Binance, 78% centralized
Decentralization is naturally beneficial for brand effects.
It must grow in the dynamic game and companionship with Binance, becoming the strongest liquidity source, possessing the efficiency of centralization and the experience of decentralization, improving dYdX's order book matching mechanism, GMX's liquidity token 'bribery' mechanism, and the role of BNB connecting BNB Chain and the main site – $HYPE connects HyperCore and HyperEVM.
Ultimately, Hyperliquid has completed the coupling of various contradictions that were previously difficult to reconcile. Systems engineering has once again demonstrated its magic, with existing technical elements stacking to create the current market's optimal PMF, and even improving on Binance's approach.
• Multi-chain deployment / centralized liquidity
• Bridging / Chain abstraction / Aggregator / Intent
• Decentralized UI / Centralized UX
To become the infrastructure of the market, one must capture as many entry points as possible. Phantom is very suitable as a traffic guide for the Solana ecosystem, but one cannot subsidize to exchange for market share; revenue sharing is a wiser approach than token subsidies.
In the design thinking of Phantom Perps, unlike previous logins to dYdX or Drift, Hyperliquid is embedded within its own interface. The premise is that SOL on Solana is bridged into the Hyperliquid spot account and exchanged for USDC, which is then transferred to the Hyperliquid contract account as margin.
Bridging may be supported by Hyperunit provided by Unit protocol, but it is not entirely certain. Additional relevant information is welcome, and security assessment is also very important.
In the subsequent trading flow and settlement process, Phantom and Hyperliquid swap roles. The Phantom interface only displays relevant information, while actual operations are fully controlled by Hyperliquid. This is also the biggest difference from dYdX and Drift; user funds will genuinely enter the Hyperliquid system.
After deciding to close a position, the user's profit or loss will be valued in USDC but will gradually unwrap into SOL. Specifically, USDC needs to first enter the spot from the Hyperliquid contract account, then be exchanged for SOL in the spot, and finally be bridged back to the Solana chain, ultimately displayed as SOL in Phantom.
The benefit of doing so is that the freedom of capital is higher.
Once users' SOL enters Hyperliquid, they can trade any currency supported by Hyperliquid. Depending on capital size, they can choose a maximum of 40x leverage. However, after frequently encountering attacks, Hyperliquid's style is that the more niche the currency and the larger the capital size, the lower the leverage will be.
The downside of doing this is that system security will decrease.
The entry and exit of bridged assets will be tested during extreme market fluctuations.
During the trading process, users need to trust Hyperliquid, essentially needing to reach the same level of trust as CEXs like Binance, meaning that the exchange will not swallow user assets and will match according to user instructions.
Hyperliquid is not just a simple collaboration with Phantom; it hopes to use it as an ally to penetrate and control Solana, undoubtedly a proactive attack on local DEXs in Solana. CEXs represented by Binance and various local DEXs across different chains will need to consider how to face Hyperliquid next.
BNB performs far better than any exchange token, representing Binance's control over liquidity. Hyperliquid is the same. From spot to Perps, from Ethereum to Solana, it is no exception. This is a charge where failure means death.
Emerging profit points
Hyperliquid is not cheap; in other words, it has strong profitability.
Compared to dYdX and Binance, Hyperliquid has never won by being cheap. Coincidentally, Phantom is also a small profit maker, with strong diversification abilities from SOL staking to trading, from single chain to multi-chain.
MetaMask has long been a distant myth in the wallet world; Phantom is the reality.
But it is still not enough to be called the future. Backpack wants to compete on Solana, and OKX Wallet is a strong competitor as well. Since the integration of CEX and DEX is the main theme of this cycle, Binance + Pancakeswap, OKX main site + OKX Wallet, and Backpack Wallet + Backpack Exchange all have their own opportunities and strategies.
Stablecoins will continue to exist, but how long Meme and on-chain issuance and trading tools can last is uncertain. Public chains and DEX need to find their growth points again. Hyperliquid itself is a storage place for public chains, DEX, stablecoins, and Memes, but lacks wallet tools, or in other words, ways to reach a more retail and mass market.
This is indeed counterintuitive; however, the major players in Hyperliquid are the whales. Although they have sufficient capital size, the lack of a sufficient number of retail investors makes it difficult to operate stablecoins, Memes, or even RWA and other higher frequency, daily-use products.
The significance of retail investors lies in conducting marginal innovation and reaching the masses. A sufficient amount of data is necessary for 'emergent' intelligence, and randomness can trigger countless possibilities of evolution.
Just right, Phantom has enough retail investor numbers, at least the first in Solana.
In addition, the cooperation between the two is also profitable, as they have thoughtfully set up charging points at various angles and entry-exits. Both Phantom and Hyperliquid will charge at their gates. I wonder if competitors have good ideas for speeding up and reducing costs; will HL + Phantom also become the 'evil dragon'?
Conclusion
HL has decided to attract more new users through wallets. Phantom hopes to break out of the stereotype of Solana wallets and move towards a more mainstream market.
CEXs are competing with coins and stocks, while DEXs are actively acquiring users. It can be seen that the crypto flow has reached a bottleneck period; simple product types can no longer support their own business. Mutual competition, acquisitions, and attacks will become more frequent.
Every cycle will be an arena for exchanges and public chains. This time, will it be Hyperliquid against Binance, Solana against Ethereum?
