Hyperliquid Perptual Futures is now live! Is DeFi democratization the next Mango crash?

Hyperliquid will launch the HIP-3 protocol on its Mainnet in October 2025, allowing anyone to deploy a Perptual Futures market by staking 500,000 HYPE Tokens (approximately 20 million USD) without the need for committee approval. This revolutionary mechanism eliminates the traditional gatekeeper role and addresses risks through a three-layer protection system that includes economic deterrence, segregated Margin, and validators supervision.

However, the painful lesson of Mango Markets losing $112 million due to oracle manipulation in 2022 is still fresh in our minds. Is the open model of Hyperliquid Perptual Futures the boldest security experiment in DeFi, or is it the fuse for the next systemic collapse?

Hyperliquid Perptual Futures' HIP-3 Revolution: $20 Million Replaces Committee

(Source: Hyperliquid)

Launching new Perptual Futures on traditional decentralized exchanges requires lengthy governance voting, committee approvals, and technical assessments. This centralized gatekeeping mechanism runs counter to the decentralized philosophy of DeFi. Hyperliquid's HIP-3 protocol fundamentally changes these rules; it opens up the creation rights of the Perptual Futures market to all builders, with the only threshold being the economic stake.

The specific mechanism is very straightforward: any builder can deploy a Perptual Futures market without the need for committee approval, but must stake 500,000 HYPE Tokens as collateral. Based on the current market price, this stake is worth approximately 20 million USD. This astronomical threshold is not meant to limit participation, but to ensure that only serious projects with sufficient capital enter the market. Hyperliquid's documentation clearly states that the high Margin requirements implicitly filter out serious projects, with the goal of “ensuring a high-quality market and protecting users” from the impact of temporary listings.

The core of the staking mechanism lies in the threat of slashing. If builders manipulate prices, operate recklessly in the market, or threaten the network's solvency, validators can slash part or all of the staked HYPE tokens. This penalty remains effective even during the seven-day redemption period, ensuring that builders cannot quickly withdraw after causing damage. More importantly, the slashed HYPE is directly destroyed rather than distributed to users, a design that eliminates the motive for false accusations, as validators cannot profit from malicious claims.

Dutch Auction and Launch Mechanism

The new market is initiated through a Dutch auction that occurs every 31 hours. Builders bid HYPE to win deployment slots, with prices starting high and gradually decreasing until someone is willing to pay that price. This mechanism ensures that the market's genuine demand for deployment slots determines their price, rather than a fixed cost set artificially. To lower the entry barrier, the first three markets deployed by builders do not require participation in the auction, meaning that teams with truly innovative ideas can test the market without incurring additional costs.

In addition to winning the auction and staking 500,000 HYPE, no other approval processes are required. Any asset can go live as long as the deployer stakes support. The protocol only includes minimal go-live rules, such as if the token used as collateral for quoting assets is deemed unsafe, validators can vote to revoke its status, automatically disabling the markets that use it.

Oracle Manipulation Risk: The $112 Million Lesson from Mango Markets

The biggest controversy of Hyperliquid's Perptual Futures open model lies in oracle risk. The builders have complete control over the price oracles and update logic of their market, and this design allows for the listing of almost any asset, but it also introduces potential vulnerabilities to oracle manipulation. The disastrous event of Mango Markets in 2022 sounded alarm bells for the entire industry.

The fundamental reason for the collapse of Mango Markets was the allowance of trading illiquid tokens as collateral for a single source oracle. The attacker Avraham Eisenberg manipulated the thin MNGO token price off-platform, raising it from $0.03 to over $0.90, and then borrowed other assets on Mango Markets using the inflated price as collateral, ultimately causing the platform to lose $112 million and go bankrupt. Similar attacks also occurred on GMX v1, where the attacker manipulated the AVAX price and exploited zero slippage trading, resulting in a loss of $565,000.

Hyperliquid addresses this lethal risk through a multi-layered defense mechanism. Firstly, the massive $20 million stake itself serves as the strongest economic deterrent, and builders must choose reliable oracle sources, as their capital is directly exposed to manipulation risks. Secondly, the protocol requires builders to implement robust price indices and validators supervision mechanisms for soundness checks. If market information flow fails or contracts expire, builders can call the pause function to settle positions at fair value and freeze trading; this emergency brake can cut off risk transmission before a crisis escalates.

Validators play a final safeguarding role in this system. They continuously monitor the market and can punish those who use easily manipulable price feeds or allow abnormal operations by deployers. For violations that threaten the network's integrity or solvency, validators have the authority to impose a stake penalty of up to 100%. The Hyperliquid team stated that the system itself is strong enough that the mainnet theoretically “never” needs to impose penalties, but the existence of this ultimate weapon itself is the strongest deterrent.

Isolation and Limits: Three-Layer Risk Firewall

Hyperliquid Perptual Futures adopts a strict market isolation framework, where each market deployed by a builder operates as an independent Perptual Futures exchange, with its own order book, Margin, and risk parameters. The core logic of this design is to prevent the volatility of one market from affecting other markets, with the system explicitly prohibiting cross-margin trading with other assets.

HIP-3 implements two types of open contract limit mechanisms. The first is a nominal limit, which restricts the total dollar value of positions; for example, the total amount of open contracts in a new market cannot exceed 10 million dollars. The second is a scale limit, which restricts the absolute size of positions to prevent a single trader from holding too high a proportion of the market. These limits apply to each asset, as well as all assets listed by the builders. Builders can adjust the limits within the range defined by the protocol, but validators expect conservative defaults for more volatile or new assets.

The deployer also sets leverage limits and initial margin requirements. This framework prevents any new market from becoming crucial to the system overnight through mandatory conservative parameters. This incremental expansion strategy ensures that even if a particular market encounters issues, the scope of its impact is strictly contained within that market, without triggering systemic risks.

Comparison of dYdX, GMX, and Drift: Who has the stronger defense

Hyperliquid's open model is not the first in the industry, but its radicalness far exceeds that of its competitors. dYdX v4 is transitioning to an unauthorized market, but newly launched trades still require governance voting approval. The platform plans to implement a segregated margin system for risky assets and strictly enforce oracle requirements, ensuring that assets must be traded on at least six major exchanges to guarantee a robust source of price information. Chaos Labs has proposed a “trial asset” phase for dYdX, providing separate insurance funds and stricter trading ranges for new markets.

GMX v2 addresses similar issues through independent liquidity pools for each trading pair and Chainlink oracle pricing. The platform integrates Chaos Labs' Edge Risk Oracle system, which dynamically adjusts the open contract limits and price impact factors based on real-time conditions. Each GMX market is isolated, meaning that issues in one pool do not affect other pools, a design that is similar to Hyperliquid's isolation logic.

The Drift Protocol on Solana utilizes the permissionless oracle from Switchboard to quickly list new assets, while enforcing a 10% circuit breaker range. If the marked price deviates more than 10% from the oracle's five-minute time-weighted average, the market will prevent new orders that exceed that range. The Drift mechanism also limits the price impact of a single trade to 2%, providing an additional layer of protection during extreme volatility with this automatic circuit breaker.

In contrast, Hyperliquid's HIP-3 adopts the most radical open strategy, completely eliminating prior approval and transferring the responsibility of risk management to builders and validators. The advantage of this model is the ultimate permissionless nature and speed of launching, while the disadvantage is that it exposes the system to higher potential risks.

Testnet performance and real stress testing

During the evaluation phase of HIP-3 on the testnet, no significant technical issues were reported, which provides preliminary confidence for the mainnet deployment. However, the $21 million theft incident that occurred during the same period raised security concerns. Investigations revealed that the incident was a private key leak unrelated to market operations, caused by user operational errors, and not a vulnerability of the protocol itself. Nevertheless, this incident serves as a reminder to all participants that the security of decentralized systems relies not only on protocol design but also on users' security awareness.

The true test of Hyperliquid Perptual Futures will come after the Mainnet goes live, especially when third-party builders deploy new markets for external indices or real-world assets. These non-mainstream assets often lack deep liquidity and reliable price sources, which are the breeding ground for oracle manipulation. The design of HIP-3 will combine economic deterrence achieved through stake with technical constraints realized through caps and isolation, but whether the theoretical design can withstand real-world testing will only be proven by time.

QuickNode's analysis accurately summarizes the essence of HIP-3: “Replace gatekeepers with code, while maintaining quality and user safety through on-chain rules and incentives.” This model assumes that rational participants believe that a $20 million Margin is more effective at preventing manipulation than a committee's oversight, and it also assumes that validators will take action when necessary. The lessons learned from Mango and GMX directly inspired these safeguards; whether the combination of stake, isolation, and oversight can handle all extreme situations will be answered by the actual market.