The perp DEX welcomes the "singularity moment"; why has Hyperliquid become the game changer?

Written by: imToken

"Derivatives are the holy grail of DeFi." The consensus on the fact that on-chain perp protocols serve as the ticket for the second half of DeFi was reached by the market as early as 2020.

But the reality is that for the past 5 years, whether constrained by performance or cost, perp DEX has always been making difficult trade-offs between "performance" and "decentralization." During this period, the AMM model represented by GMX has achieved permissionless trading, but it is difficult to compete with CEX in terms of trading speed, slippage, and depth.

Until the emergence of Hyperliquid, which achieved a seamless experience comparable to CEX with its unique on-chain order book architecture on a fully self-custodial blockchain, the recent passing of the HIP-3 proposal has further broken down the barriers between Crypto and TradFi, opening up infinite possibilities for trading more assets on-chain.

This article will also take everyone to deeply deconstruct the operational mechanism and sources of revenue of Hyperliquid, objectively analyze its potential risks, and explore the revolutionary variables it brings to the DeFi derivatives track.

perp DEX track cycle

Leverage is a core concept in finance. In mature financial markets, derivative trading far exceeds spot trading in terms of liquidity, capital volume, and trading scale. After all, through margin and leverage mechanisms, limited funds can leverage a larger market size, meeting diverse needs such as hedging, speculation, and yield management.

The crypto world has at least confirmed this rule in the CEX field. As early as 2020, derivatives trading represented by contract futures began to replace spot trading in CEX, gradually becoming the dominant market.

Coinglass data shows that in the past 24 hours, the daily trading volume of leading CEX futures contracts has reached hundreds of billions of dollars, with Binance exceeding 130 billion dollars.

Source: Coinglass

In contrast, on-chain perp DEX has been a long journey of five years. During this time, dYdX explored a closer-to-centralized experience through on-chain order books, but faced challenges in balancing performance and decentralization. The AMM model represented by GMX has achieved permissionless trading, yet still falls short of CEX in terms of trading speed, slippage, and depth.

In fact, the sudden collapse of FTX in early November 2022 temporarily stimulated a surge in trading volume and new user numbers for on-chain derivative protocols like GMX and dYdX. However, constrained by market conditions, on-chain trading performance, trading depth, and the variety of trades, the entire sector quickly fell silent again.

To be pragmatic, once users realize that they have to bear the same liquidation risks in on-chain transactions without being able to obtain the liquidity and experience of CEX level, their willingness to migrate will naturally drop to zero.

Therefore, the key issue is not whether there is a demand for "on-chain derivatives," but rather the persistent lack of a product form that can provide value that cannot be replaced by CEX, while also addressing performance bottlenecks.

The gap in the market is very clear: DeFi needs a perp DEX protocol that can truly deliver a CEX-level experience.

It is against this backdrop that the emergence of Hyperliquid brings new variables to the entire track. Interestingly, although Hyperliquid officially made its debut this year and entered the sights of many users, it actually launched as early as 2023 and has been continuously iterating and accumulating over the past two years.

Is Hyperliquid the ultimate form of "on-chain CEX"?

Faced with the long-standing dilemma of "performance vs. decentralization" in the perp DEX arena, Hyperliquid's goal is straightforward - to directly replicate the smooth experience of CEX on-chain.

To this end, it chose a radical path, not relying on the performance constraints of existing public chains, but instead building its own dedicated L1 application chain based on the Arbitrum Orbit technology stack, and equipping it with a fully on-chain order book and matching engine.

This means that from order placement, matching to settlement, all trading processes occur transparently on-chain, while achieving millisecond-level processing speed. Therefore, architecturally, Hyperliquid resembles a "fully on-chain version" of dYdX, as it no longer relies on any off-chain matching, aiming directly at the ultimate form of "on-chain CEX."

The effect of this radical approach is immediate.

Since the beginning of this year, Hyperliquid's daily trading volume has been on the rise, reaching as high as 20 billion USD. As of September 25, 2025, the total cumulative trading volume has exceeded 2.7 trillion USD, and its revenue scale even surpasses that of most second-tier CEXs. This fully demonstrates that on-chain derivatives are not lacking in demand, but rather in the absence of product forms that genuinely adapt to DeFi characteristics.

Source: Hyperliquid

Of course, such strong growth has quickly brought ecological attraction, and the recent bidding war for USDH issuance rights initiated by HyperLiquid has attracted heavyweight players like Circle, Paxos, and Frax Finance to publicly compete (see further reading "Where is the Pivot of DeFi Stablecoins Starting from HyperLiquid's USDH Becoming a Hot Commodity?"). This is the best example.

However, simply replicating the CEX experience is not the endpoint for Hyperliquid. The recently passed HIP-3 proposal introduces a permissionless perpetual contract market deployed by developers on the core infrastructure. Previously, only the core team could launch trading pairs, but now any user staking 1 million HYPE can directly deploy their own market on-chain.

In short, HIP-3 allows the creation and launch of any asset derivative market on Hyperliquid without permission. This completely breaks the limitation that previous Perp DEX could only trade mainstream cryptocurrencies. Within the framework of HIP-3, in the future we may see on Hyperliquid:

• Stock Market: Trade top global financial market assets such as Tesla (TSLA), Apple (AAPL);
• Commodities and Forex: Trade traditional financial products such as gold (XAU), silver (XAG), or euro/dollar (EUR/USD);
• Prediction Market: Place bets on various events, such as "Will the Federal Reserve cut interest rates next time?" or "The floor price of a certain blue-chip NFT."

This will undoubtedly greatly expand the asset classes and potential user base of Hyperliquid, blurring the lines between DeFi and TradFi. In other words, it allows users from around the world to access the core assets and financial practices of the traditional world in a decentralized and permissionless manner.

What is the other side of the coin

However, although Hyperliquid's high performance and innovative model are exciting, there are also significant risks behind it, especially at a time when it has not yet undergone a large-scale crisis "stress test."

Cross-chain bridge issues are paramount, which is the most discussed topic in the community. Hyperliquid connects to the mainnet through a cross-chain bridge controlled by a 3/4 multi-signature, which also constitutes a centralized trust node. If any of these signatures encounter issues due to accidents (such as private key loss) or malice (such as collusion), it will directly threaten the asset security of all users within the cross-chain bridge.

Secondly, there are risks associated with the treasury strategy, as the returns from the HLP treasury are not guaranteed. If the market maker's strategy incurs losses under certain market conditions, the principal deposited in the treasury will also decrease. While users enjoy the expectation of high returns, they must also bear the risk of strategy failure.

As an on-chain protocol, Hyperliquid also faces conventional DeFi risks such as smart contract vulnerabilities, oracle price feeding errors, and users being liquidated in leveraged trading. In fact, in recent months, the platform has repeatedly experienced large-scale extreme liquidation events due to malicious manipulation of the prices of some low-market-cap cryptocurrencies, exposing its need for improvement in risk control and market regulation.

Moreover, objectively speaking, there is another issue that many people have not considered, which is that as a rapidly growing platform, Hyperliquid has yet to undergo a major compliance review or face serious safety incidents. During the rapid expansion phase of a platform, risks are often overshadowed by the halo of rapid growth.

Overall, the story of perp DEX is far from over.

Hyperliquid is just the beginning. Its rapid rise not only proves the real demand for on-chain derivatives but also demonstrates the feasibility of breaking through performance bottlenecks through innovative architecture. HIP-3 further extends the imagination to stocks, gold, foreign exchange, and even prediction markets, blurring the boundaries between DeFi and TradFi for the first time.

Although high returns and high risks always go hand in hand, from a macro perspective, the attractiveness of the DeFi derivatives sector will not diminish due to the risks of a single project. In the future, it is possible that new projects will emerge to take the place of Hyperliquid/Aster as the new leaders in on-chain derivatives. Therefore, as long as we believe in the charm and imaginative potential of the DeFi ecosystem and the derivatives sector, we should pay enough attention to similar seed players.

Perhaps looking back several years from now, this will be a brand new historical opportunity.