Author: Zuo Ye
Hyperliquid comes to the Solana ecosystem via Phantom, while Phantom abandons Jupiter to step out of the Solana ecosystem.
GMX is busy dealing with theft, while Hyperliquid is busy expanding its business.
This time, Hyperliquid is making a big leap into the Solana ecosystem. Unlike pure multi-chain deployment, this time it provides liquidity support through the Phantom wallet. It is surprising that Phantom chose Hyperliquid instead of Drift and Jupiter.
Compared to simply supporting the Solana chain and Phantom wallet login, Hyperliquid's approach differs from predecessors like dYdX and GMX. It is more like a chain-based version of Binance, aiming to become the ultimate source and destination of liquidity for all protocols and dApps, using super liquidity to become a true on-chain cornerstone.
The third path
To understand Hyperliquid, one cannot simply talk about Hyperliquid itself.
It must be said in comparison to spot DEXs like Uniswap that contract products from the perspective of spot trading are gambling with borrowed money to speculate on coins, and liquidity is extremely difficult to maintain. Please note that the difficulty of spot DEXs lies in liquidity creation, which is why AMM and Bonding Curve are incredibly important.
Uniswap can promote more assets to participate in trading through multi-chain deployment. Even if only on the same chain, it can promote protocol TVL growth. However, for contract DEXs, whether dYdX, GMX, or Hyperliquid, they all need to 'attract' liquidity to gather in one place, which is also the natural advantage of CEXs like Binance.
Centralization naturally favors liquidity concentration.
It must be said in comparison to peers like dYdX and GMX that GMX's perspective on Perp DEX is a combination of off-chain matching of dYdX's order book, on-chain trading, and liquidity tokenization. This is also the essence of GMX's crazy revenue in 2022, maintaining liquidity through LP Token -> GMX Token 'induction'.
The same goes for Hyperliquid, but the operation is more refined. The closed HyperCore is responsible for spot and contract trading, which is the main basis for considering Hyperliquid centralized. HyperEVM is responsible for the 'blockchain' part, and the operational concept is vague, leaving Hyperliquid in a superposition state of decentralization and centralization for a long time, with super strong liquidity and matching efficiency hidden within.
Decentralization naturally favors brand effects.
It must grow in the dynamic game with Binance, to become the strongest liquidity, to have the efficiency of centralization and the experience of decentralization, improving dYdX's order book matching mechanism, GMX's liquidity token 'bribing' mechanism, and the role of BNB connecting BNB Chain and the main site - $HYPE connects HyperCore and HyperEVM.
In the end, Hyperliquid has completed multiple contradictions that were previously difficult to couple. Systems engineering has once again demonstrated its magic, stacking existing technical elements to create the optimal PMF in the current market, and even improving on Binance's ideas.
Multi-chain deployment / centralized liquidity
Bridging / chain abstraction / aggregator / intention
Decentralized UI / centralized UX
To become the infrastructure of the market, it is necessary to capture as many entrances as possible. Phantom is very suitable as a traffic diverter for the Solana ecosystem, but it cannot subsidize to gain market share. Profit sharing is a wiser approach than token subsidies.
Image description: Phantom contract workflow, image source: @zuoyeweb3
In the design concept of Phantom Perps, unlike logging into dYdX or Drift in the past, it integrates Hyperliquid into 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 completely certain. Relevant information is welcomed, and safety assessment is also very important.
In the subsequent trading process and clearing phase, Phantom and Hyperliquid swap roles. The Phantom interface only displays relevant information, while actual operations are completely controlled by Hyperliquid. This is also the biggest difference from dYdX and Drift, as user funds will truly 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 market from the Hyperliquid contract account, then exchange for SOL in the spot market, and finally bridge back to the Solana chain, ultimately displaying in SOL form within Phantom.
The benefit of doing this is that there is greater capital freedom.
Once the user's SOL enters Hyperliquid, they can trade any currency supported by Hyperliquid. Depending on the amount of capital, they can choose up to 40x leverage. However, after frequent attacks, Hyperliquid's style is that the more niche the currency and the larger the capital amount, the lower the leverage multiple.
Image description: HL leverage system, image source: @zuoyeweb3
The downside of this approach 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, which essentially requires achieving the same level of trust as centralized exchanges like Binance, meaning the exchange will not swallow user assets and will match according to user instructions.
Hyperliquid is not simply cooperating with Phantom, but hopes to use it as an ally to penetrate and control Solana. This is undoubtedly an active attack on local DEXs in Solana, and CEXs represented by Binance and local DEXs across various chains must consider how to face Hyperliquid.
BNB performs far better than any exchange token, representing Binance's grasp of liquidity. Hyperliquid is the same, from spot to Perps, from Ethereum to Solana, it is no exception. This is a charge where success is the only option.
Emerging income 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 capabilities from SOL staking to trading, from single chain to multi-chain.
MetaMask has become a distant myth in the wallet world, while Phantom is the reality.
But it is still not enough to be called the future. Backpack wants to compete within Solana, and OKX Wallet is also a strong competitor nearby. Since the integration of CEX and DEX is the main theme of this cycle, Binance + Pancakeswap, OKX main site + OKX Wallet, Backpack Wallet + Backpack Exchange all have their own opportunities and strategies.
Image description: Protocol revenue, image source: @MessariCrypto
Stablecoins will continue to exist. It is uncertain how long Meme and on-chain issued trading tools can last. Public chains and DEXs need to find their growth points again. Hyperliquid itself is the storage place for public chains, DEXs, stablecoins, and Meme, but lacks wallet tools, or rather, reaching a more retail and broader market.
This is indeed counterintuitive, but the whales are the main players of Hyperliquid. Although the capital size is large enough, without a sufficient number of retail investors, it is difficult to operate stablecoins, Meme, or even higher frequency, everyday products like RWA.
The significance of retail investors is to conduct marginal innovations and reach the masses. A sufficient amount of data is needed to 'emerge' intelligence, and randomness can trigger all kinds of possibilities for evolution.
Coincidentally, Phantom has enough retail investor numbers, at least the first in Solana.
Image description: Main costs of Perps, image source: @phantom
In addition, the cooperation between both parties is also profitable. Charging anchor points are thoughtfully set up at various angles and entrances. Phantom and Hyperliquid will charge fees at their two gates. I wonder if competitors have good ideas for speeding up and reducing costs. Will HL+Phantom also become a dark dragon?
Conclusion
HL decides to attract more new users through wallets, while Phantom hopes to break free from the stereotype of being a Solana wallet and move towards a more mainstream market.
CEXs compete with coin stocks, while DEXs actively acquire customers. It can be seen that crypto traffic has reached a bottleneck, and simple product types can no longer support their own business. Competition, acquisitions, and attacks will become increasingly frequent.
Every cycle will be an arena for exchanges and public chains. This time, will it be Hyperliquid against Binance, Solana against Ethereum?