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Project review

What is Hyperliquid? What Does It Do?

Emre Yumlu
Update Date: 13 May 2025 23:12:26
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what is hyperlqiud (hype), what does hyperliquid (hype) do, how to use hyperliquid (hype)
13
May

Hyperliquid, as a decentralized L1 blockchain, is a platform optimized for perpetual futures contracts (perps) and spot asset trading. Hyperliquid stands out as a Layer 1 (L1) blockchain offering a high-performance, fully onchain financial market. Hyperliquid is an innovative platform designed specifically for perpetual futures and spot asset trading. So, what exactly is Hyperliquid, what does it do, and why is it attracting so much attention? In this article, we will explore Hyperliquid’s trading mechanisms, features, and its place in the DeFi world in detail.

What is Hyperliquid? What Does It Do?

Hyperliquid, as a decentralized L1 blockchain, offers a platform optimized for perpetual futures contracts (perps) and spot asset trading. Unlike traditional exchanges, all of Hyperliquid’s operations occur onchain and are supported by a high-performance order book engine called HyperCore. This system has a capacity to process 200,000 orders per second and provides a fast and reliable experience with one-block finality through the HyperBFT consensus mechanism.

The primary goal of Hyperliquid is to democratize financial markets and deliver the speed and liquidity offered by centralized exchanges (CEX) in a decentralized structure. The platform uses USDC as collateral, offering trading opportunities for over 100 perpetual futures contracts and spot assets. Additionally, Hyperliquid’s proprietary “hyperps” products stand out with a pricing model resistant to price manipulation.

Here are the platform’s core functions and the advantages it offers:

1. Perpetual Futures Contracts

Hyperliquid provides a robust infrastructure for perpetual futures contracts (perps) trading. Perps are derivative products without an expiration date, allowing traders to speculate on an asset’s price by taking long (bullish) or short (bearish) positions. Hyperliquid’s perps market uses USDC-collateralized and typically USDT-denominated linear contracts (quanto contracts). This means profits and losses are calculated in USDC.

The platform prefers USDT pricing for most contracts, except for cases like PURR-USD and HYPE-USD. These exceptional contracts are priced in USDC due to their liquidity in Hyperliquid’s spot market. The simple and standardized structure of the contracts offers an accessible experience even for beginners.

Hyperps

One of Hyperliquid’s most notable features is its “hyperps” perpetual futures product. While traditional perps rely on spot or index oracle prices, hyperps use a Hyperliquid-specific moving average hyperp mark price. This creates a system more resistant to price manipulation and supports price stability, especially during high volatility periods. Funding rates in hyperps are designed to encourage market balance, ensuring traders maintain balanced positions.

2. Onchain Order Book

Hyperliquid’s order book operates entirely onchain and is powered by HyperCore. This system is optimized to rival the speed of centralized exchanges. The order book uses mark prices that combine external exchange (CEX) prices with Hyperliquid’s own market state. This is critical for preventing manipulation, especially during liquidations.

The platform’s high-performance infrastructure can process hundreds of thousands of orders per second, and the HyperBFT consensus mechanism ensures transactions are finalized within a single block. This means low latency and a reliable experience for traders. Additionally, the transparent structure of the order book eliminates insider advantages and ensures market fairness.

3. Fee Structure and Community-Driven Model

Hyperliquid’s fee structure is defined separately for perpetual futures and spot trading. However, a trader’s fee tier is determined by their total trading volume (perpetual futures volume + 2x spot volume). Maker order rebates are continuously transferred to the trader’s wallet, while referral rewards can be claimed separately.

Unlike centralized exchanges, Hyperliquid’s fees benefit the community. Fees are distributed among the Hyperliquid Protocol (HLP), the assistance fund, and spot token deployers. Spot token deployers can retain up to 50% of the fees from their tokens. The assistance fund holds most of its assets in HYPE, Hyperliquid’s native liquid asset.

Builder Codes

DeFi developers can earn additional income on Hyperliquid through “builder codes.” A trader can approve a builder code for a specific order, setting a maximum fee. Builders must have at least 100 USDC in their perpetual futures account. This system encourages innovators in the DeFi ecosystem and reinforces the platform’s developer-friendly structure.

4. Order Types and Risk Management

Hyperliquid offers various order types tailored to traders’ needs:

  • Market Orders: Used for instant trading.

  • Limit Orders: Enable buying or selling at a specific price level.

  • Take Profit/Stop Loss (TP/SL): Allow traders to lock in profits or limit losses.

TP/SL orders are critical for risk management, especially in volatile markets. These orders are processed onchain and executed transparently, enabling traders to manage their positions automatically.

5. Margin and Liquidation Processes

Hyperliquid’s margin system is generally based on USDC collateral. Traders can choose between cross margin (a shared collateral pool for all positions) or isolated margin (collateral allocated to specific positions). The initial margin rate depends on the leverage used (e.g., 1% for 50x leverage, 16.7% for 3x leverage). The maintenance margin is half of the initial margin and determines the liquidation level.

Liquidation is triggered when an account’s equity falls below the maintenance margin. In this case, market orders are sent to close positions. If this is insufficient, backstop liquidation occurs via the liquidator vault, and the maintenance margin is not returned. Liquidation profits are distributed to the community (HLP) and do not benefit insiders. Traders can use stop-loss orders to avoid liquidation.

Auto-Deleveraging (ADL)

If liquidations cannot resolve negative balances, auto-deleveraging (ADL) is activated. ADL closes positions of traders with high leverage or high profit/loss ratios to maintain the platform’s solvency. This prevents bad debt and only affects traders with open positions.

6. Funding Rates

Funding rates ensure that perpetual futures contracts remain aligned with spot prices. On Hyperliquid, funding is paid hourly (1/8th of the 8-hour rate). The formula considers the average premium index and the interest rate difference, capped at 4% per hour. Funding rates encourage market imbalances, prompting traders to balance their positions.

Click here to sign up for Hyperliquid with a commission discount.

7. User Interface and Other Features

Hyperliquid’s user interface offers features like real-time order book data, position management, and estimated liquidation prices. However, liquidation price estimates may vary due to funding payments or liquidity changes. Traders are advised to follow precise liquidation formulas.

The platform also includes a self-trade prevention mechanism to combat market manipulation. This prevents traders from trading against their own orders, preserving market integrity.

Hyperliquid’s Advantages

  • Decentralization: All transactions occur onchain and are transparent.

  • High Performance: HyperCore and HyperBFT deliver a fast and reliable experience.

  • Community-Driven: Fees and liquidation profits benefit the community and developers.

  • Security: Mark prices and liquidation mechanisms are resistant to manipulation.

  • Accessibility: Can be used via DeFi wallets or email login.

HYPE Tokenomics

The total HYPE supply is 1 billion tokens, officially launched on November 29, 2024. No fundraising was conducted, so no allocation exists for investors. The distribution details are as follows:

  • 31.0%: Genesis distribution, allocated to early Hyperliquid users based on their points via airdrop. Fully liquid.

  • 38.888%: Reserved for future distributions and community rewards.

  • 23.8%: Allocated to the team; these tokens will be locked for 1 year before distribution begins. Most tokens will vest between 2027–2028, with some vesting continuing beyond 2028.

  • 6.0%: Allocated to the Hyper Foundation.

  • 0.3%: Reserved for community grants.

  • 0.012%: Reserved for HIP-2.

Hyperliquid Founding Team

Hyperliquid was founded in 2022 by Jeff Yan and iliensinc in Singapore. Both Harvard graduates, the duo turned to Hyperliquid to address the need for a decentralized derivatives exchange following the collapse of FTX.

The team includes experts from institutions like Caltech, MIT, Citadel, and Hudson River Trading. Led by Jeff Yan, previously a co-founder of the centralized exchange Chameleon Trading, the Hyperliquid team opted to proceed without venture capital support, relying on their own resources.

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