Hyperliquid’s long-term goal is to build its L1 into a platform for financial activities to occur
Interview: Jack, BlockBeats
Compiled by: Luccy, BlockBeats
Hyperliquid is a decentralized derivatives trading platform that currently offers over 100 asset trading pairs, supporting token contract trading for assets like TAO, RNDR, and ONDO. The project launched a points program last November.
Hyperliquid co-founder Jeff, a Harvard graduate, initially worked as a quantitative analyst at Hudson River Trading. While he enjoyed the quantitative work, in 2018 Jeff learned about Ethereum and decided to start building in the DeFi space. However, this was during a bear market, so Jeff instead began proprietary trading in the cryptocurrency space.
By the end of 2022, Jeff and his team members were already trading in the DeFi space. The FTX collapse presented an opportunity for Jeff to build a decentralized trading platform that people truly enjoy. In Jeff’s view, FTX was built for traders, but with its collapse, a void was left, and people finally recognized the value of DeFi’s transparency and decentralization.
Besides Jeff, Hyperliquid’s core team members have excellent academic backgrounds, graduating from Harvard, MIT, and Caltech. The team includes 5 engineers and 3 non-technical members. Although the team is relatively small, from 2020 to 2022, Hyperliquid was one of the largest market makers on many centralized trading platforms.
Hyperliquid’s goal is to build a scalable perpetual contract trading platform, but generic smart contract chains are not sufficient to support this idea, so Hyperliquid will build its own L1 chain. This application chain is manually built by the team, using only Tendermint for consensus. Reportedly, it can handle up to 20,000 operations per second, including orders, cancellations, and liquidations, which is about 20 times the current capability of dYdX v3.
Hyperliquid hopes that anyone can build on the Hyperliquid L1, similar to how Amazon built enough to launch AWS. Hyperliquid has decided to launch native spot trading.
On April 16th, Hyperliquid launched the spot trading function for its L1 mainnet’s first native token, PURR. PURR has a total supply of 1 billion, with 50% to be airdropped proportionally to Points holders, and the other 50% to be permanently locked in the PURR/USDC liquidity pool through the “Hyperliquidity” mechanism.
The issuance of PURR is based on two of Hyperliquid’s self-developed, permissionless native token standards. HIP-1 allows the deployment of native tokens and the creation of on-chain spot order books, while HIP-2 is the innovative “Hyperliquidity” mechanism, which can permanently lock liquidity in the spot order books of HIP-1 tokens, creating a synergistic effect with users’ order liquidity.
Similar to perpetual contracts, the PURR spot order book will also run entirely on-chain. Hyperliquid states that HIP-1 and HIP-2 are important steps towards a high-performance, general-purpose infrastructure. PURR will be the first native asset issued based on the HIP-1 standard, and in the future, HIP-1 is expected to become the permissionless infrastructure of the Hyperliquid L1, and create possibilities for cross-chain bridges from other chains.
Building L1 to support perpetual contracts
BlockBeats: Hyperliquid has two very interesting products: Liquidity Providers (HLP) and vaults, which introduce market making and copy trading. Where did these ideas come from? What are your expectations for these products?
Jeff: The motivation comes from the fact that FTX/Alameda is still fresh in people’s minds, and we have a similar background in mathematics, computer science, and trading. To prove to people that there is nothing suspicious going on, we did two things: first, we put the entire trading platform, including the order book, on-chain, and second, we democratized the full liquidity provision strategies in the HLP.
Anyone can deposit into the HLP, which treats all depositors equally and returns the platform’s value to users. The HLP also charges fees, rather than the team benefiting, which is uncommon in other projects. In this way, the team does not benefit from Hyperliquid, which resonates with users.
BlockBeats: You mentioned that Hyperliquid focuses on the end-user experience, while other perpetual decentralized trading platforms focus on “numbers” like trading fees, etc. What do you mean by this, and how does it impact the team’s decision-making process in building Hyperliquid? What did you have to give up?
Jeff: The cryptocurrency space seems to be one of the few areas that does not follow traditional wisdom and does not put user-loved products first. Founders seem to think that it is acceptable to rely on hollow promises, use false metrics for incentives, and then dump tokens onto retail buyers.
Hyperliquid has chosen the “hard” path to truly add value for users. Our vision is to build a high-performance L1 chain and optimize the DeFi primitives built on top of it. This is a challenging problem that involves building the trading platform, the blockchain, and the decentralized liquidity strategies, ultimately resulting in a place of liquidity and transparency that users love. To achieve this, we had to forgo many of the easy marketing paths that other projects might have chosen.
BlockBeats: When attempting to build a high-frequency, time-sensitive L1 to support perpetual contracts, what was the most time-consuming part for Hyperliquid?
Jeff: The most difficult part for the team was that we lacked experience in building low-level crypto infrastructure. However, we drew some insights from the system engineering principles of high-frequency trading. The first version of the L1 chain took about a quarter to get operational, and we have spent countless hours optimizing it as usage has grown. We are now completely rewriting a brand new consensus mechanism to achieve 10-100x higher TPS, as the current usage has finally hit the limits of the Tendermint-based chain (20,000 orders per second).
Building the chain alongside the perpetual contract trading platform is crucial to its success. For example, only by having the entire tech stack available for optimization can you achieve market mechanisms like liquidation, cancellation prioritizing over acceptance orders, etc. Generic smart contract chains are not sufficient to support a scalable perpetual contract trading platform like Hyperliquid.
BlockBeats: Many DeFi projects have started designing their tokens as deflationary models. What are your thoughts on the native token for the future?
Jeff: Unlike most projects in crypto, the native token is crucial for Hyperliquid. First, Hyperliquid is an L1 running on proof-of-stake, so the native token will be used to coordinate the validation of the blockchain. The specific token economics will be finalized after the chain exits the alpha stage.
Launching native spot trading
BlockBeats: Why develop spot trading? Hyperliquid now supports both perpetual contracts and native spot trading, with the first being a memecoin, PURR.
Jeff: Hyperliquid is innovating blockchain technology from the infrastructure to the application layer. Just like how Amazon built enough to launch AWS, allowing everyone to benefit, we have a similar idea of allowing anyone to build on the Hyperliquid L1. With the launch of native spot and perpetual contract trading, future DeFi builders on the Hyperliquid L1 will be able to access the best on-chain liquidity and other exciting features.
BlockBeats: Will you support other spot assets in the future? How will this work?
Jeff: Yes, as builders deploy tokens and other projects on the Hyperliquid L1, these assets will immediately gain access to Hyperliquid’s high-performance order book infrastructure and liquidity. There are also plans to integrate bridging of native assets from other major chains. The end result will be an on-chain ecosystem that completely eliminates the need for centralized intermediaries. Imagine if Binance was a native component of Ethereum, the synergies that would be unleashed when the entire crypto stack exists on a single chain.
BlockBeats: What are Hyperliquid’s short-term and long-term priorities?
Jeff: The short-term focus is to continue growing the user base, trading volume, and market share. DeFi is still small and needs to unlock real capital. Hyperliquid has solved many technical problems, but there are still hurdles to get users to try it.
The long-term goal is to make the Hyperliquid L1 the platform where financial activities happen. Things like banks, trading platforms, and even the currency itself will benefit from society’s decentralization. This goal requires years of effort, but it is a worthy mission that can bring immense value to society. We are excited to contribute our part to this.
