See clearly from Hyperliquid: Vertical integration is the core of competition

Author: Joel John Source: X, @Decentralisedco Translation: Shan Opa, Golden Finance

How Hyperliquid, USDAI, MetaMask, Maple, and Centrifuge stack practical value through vertical integration to build industry moats.

Looking at the total revenue of $3.5 billion across the decentralized sector, a clear industry pattern has already emerged. About 40% of the revenue comes from derivatives trading platforms, with Hyperliquid alone generating approximately $902 million. The second-largest revenue track is decentralized exchanges, with leading project Uniswap earning about $927 million in fees. Lending platforms follow closely, with platforms like MakerDAO collectively earning nearly $500 million.

These top projects share a common core attribute: they are all capital-intensive businesses.

Such sectors cannot be quickly implemented through short-term code development alone; they require long-term, patient capital deep collaboration, and capital providers are willing to accept potential platform risks. Some leading protocols rely on complex supply-side resource networks to gradually build insurmountable competitive barriers. Take Jupiter, for example, its extensive ecosystem integration system is far beyond what peers can replicate in the short term.

The core value of blockchain lies in enabling fund circulation and verifying whether transaction behaviors conform to the rules set by developers. Because of this, only by supporting capital-intensive businesses can blockchain truly release value. Perpetual contract exchanges can repeatedly circulate huge sums of capital within a single day, continuously generating revenue; lending platforms extract a share from the interest income of vast assets, ensuring stable profits.

Take Aave as an example: over the past year, the platform’s total asset interest income was about $920 million, earning approximately $123 million in revenue. But for such capital-aggregation platforms to monopolize the market long-term, they must firmly control three core elements:

1. Liquidity supply side

2. User demand and traffic side

3. Global distribution channels

Hyperliquid is a unique benchmark in this field. Despite paying nearly $100 million in developer code incentives, most of its revenue still comes from the official native front-end channel. The platform can retain core high-value users while continuously expanding new user access points, achieving bidirectional ecosystem growth.

What is the underlying logic of this business model?

On the surface, Hyperliquid appears to be an ordinary supply-side capital aggregator, but its core value goes far beyond that.

In the Web3 sector, traffic distribution itself is a paid barrier business. Leading protocols often accumulate and lock in core users. Comparing the revenue gap between decentralized exchanges and on-chain order aggregators vividly illustrates this. Hyperliquid’s total accumulated revenue is about $1.1 billion, with developer partnership sharing only accounting for around 6%. Trust Wallet, deeply integrated into the Ethereum ecosystem, earned $184 million in fees last year from token swap services; Solana’s ecosystem wallet Phantom also approached $180 million in revenue. And this is just a small part of its vast ecosystem economy.

Traffic-based retail products built on a single leading protocol can only operate long-term if they rely on sufficient liquidity, active economic activity, and value transfer capability.

Vertical integration-capital aggregation platforms, with deep liquidity reserves, inherently possess the core advantage of attracting and retaining users. Viewing the industry from a new perspective reveals that the capital in the crypto market is no longer a standardized, homogeneous commodity but a core necessity for ecosystem operation. Vertical capital integration maximizes user retention willingness; within a closed-loop ecosystem, continuous capital flow generates massive liquidity, enabling efficient reuse of funds and ongoing value creation.

Capital is never a moat; it is an ancillary result of successful vertical integration; the true core barrier is vertical integration itself, with capital being a byproduct.

Relying solely on high locked assets (TVL) cannot guarantee long-term success. Idle, inefficiently utilized capital, once attacked by hackers, can become a huge hidden danger for platforms. This explains why current protocols are focusing on niche scenarios and creating differentiated economic output capabilities to build core competitiveness.

1. USDAI’s operating data shows: this quarter, nearly $100 million in lending scale has been implemented, with an additional $1.5 billion in financing projects underway; its high-risk asset layering products can achieve an annualized yield of about 16%.

2. Maple Finance’s high-risk liquidity pools maintain an annualized yield of 15%–20%, comparable or even higher than the current Aave USDC pool’s 12.6%. The platform gathers a large number of quality lending demand parties, continuously creating real economic value through sufficient liquidity.

3. Hyperliquid is an excellent example of capital-efficient reuse. Over the past year, its revenue reached $942 million, with an average daily locked asset of about $3.5 billion. Rough calculations: for every $1 of assets within the platform, the annual circulation frequency is as high as 285 times, with each unit of locked assets contributing $0.3 in fee revenue. In comparison, in Aave’s lending market, each $1 of locked assets only generates $0.05 in fees—a huge gap.

Admittedly, comparing Hyperliquid in the exchange sector with Aave in lending involves different scenarios. But in the crypto market, where user choice is free and brand loyalty is weak, capital always flows toward the most profitable and efficient sectors. Additionally, considering risks like hacking, investors will demand higher returns for high-risk sectors. Currently, perpetual contract exchanges are the only core sector capable of activating idle capital and continuously generating fee income through on-chain high-frequency reuse.

The wave of vertical integration in the crypto industry

More and more protocols are starting to implement vertical integration strategies.

In Web3, without a vertical integration system to lower collaboration barriers, capital providers will only become interchangeable, standardized resources. Only by achieving deep ecosystem integration and creating a unique closed-loop experience can user loyalty be established.

Maple’s core moat stems from years of experience serving hedge funds and market makers; Centrifuge, an off-chain real asset protocol, is deeply tied to institutions, having recently secured nearly $1 billion in bond cooperation funds from Grove Finance and Janus Henderson. These projects no longer merely fragment the ecosystem but provide a full-chain vertical integration, creating better integrated products for end users and building a solid moat that peers cannot replicate in the short term. In an era where capital and connections are scarce core barriers, Maple’s risk underwriting experience and Centrifuge’s trusted capital coordination are irreplaceable core competencies.

Companies pursuing vertical integration often outsource some business segments to third parties because the economic efficiency of self-operation is very low. Compared to high-yield businesses like token swaps and credit underwriting, self-developed custody services and issuing physical bank cards have very limited profit margins.

But when a company enters a stage of exponential growth, full-chain autonomous control becomes key to building long-term competitive advantage. This is also the core logic behind the wave of industry mergers and acquisitions. When a company achieves deep vertical integration, its competitive scope is no longer limited to a single product but encompasses a comprehensive, closed-loop user experience.

Take Hyperliquid’s upcoming HIP-4 proposal as an example: users can deposit and withdraw for free via Native Markets, open prediction market positions with one click, and use their holdings as collateral to directly trade perpetual contracts. The entire process relies on a self-developed risk engine for seamless integration. Even in traditional finance, such operations are difficult to achieve without professional investment banks.

Real community cases vividly demonstrate the value of ecosystem vertical integration: a user shared that they thought transferring funds from Hyperliquid via USDH to Interactive Brokers (IBKR) was complicated, but it only took 10 minutes to complete binding and test transfer, and the funds arrived the same day.

Native Markets official announcement: officially launched Hyperliquid’s zero-fee deposit and withdrawal service, seamlessly connected via USDH. Hyperliquid emphasizes self-custody, deep liquidity, zero gas transfer fees, and 24/7 stable trading as core advantages.

From deposit channels, risk control systems, trading interfaces, underlying liquidity, to native token issuance, Hyperliquid achieves full-chain autonomous control. New competitors wanting to challenge it must compete directly across six core sectors, making entry extremely difficult.

For new projects, leveraging mature integrated ecosystems to capture niche markets is far more practical than starting from zero on new chains like Monad. Data shows that Monad’s five perpetual contract protocols have a total derivatives trading volume of only $2.6 billion.

Ecosystems like Hyperliquid’s closed-loop integration can continuously attract developers, expand ecosystem cooperation, and garner industry attention while safeguarding token holder interests. Major exchanges have already grasped this trend. Coinbase acquired derivatives leader Deribit, built its own custody business, co-issued USDC with Circle, and built a wallet infrastructure and user deposit channels covering over 100 countries. It is also developing its own public chain, actively promoting full-chain vertical integration.

However, Coinbase’s early focus on retail users was somewhat premature; ordinary users lack on-chain content creation and decentralized social needs. Its ecosystem integration, though implemented, is limited by layers of regulation, internal processes, and strategic priorities. This restricts development. This highlights the core difference between open, integrated ecosystems and closed, walled-garden ecosystems. The leading exchange with a $60 billion market cap naturally lacks the motivation to serve small and medium developers.

In contrast, Hyperliquid, by refining top-tier trading experiences and improving ecosystem layout, continuously empowers its native token, forming a positive value cycle. In this model, the platform token is the value link and underlying consensus carrier of the entire vertical integration system, maintaining ecosystem operation and value accumulation. This clarifies two commonly confused concepts in the industry: tokenized protocols versus tokenized commercial entities. The core of tokenized protocols is to lower the barrier for third-party developers and enhance token value through ecosystem empowerment, often via buybacks and burns; while centralized giants like Coinbase and Robinhood, despite their strong financial power, cannot replicate Hyperliquid’s self-developed autonomous network and user governance.

Hyperliquid’s airdrop mechanism precisely selects ecosystem contributors, with token holders deeply aligned with platform interests, actively empowering the ecosystem. The platform also allocates 99% of revenue to buy back tokens in the secondary market. Similar to a traditional listed company, this is akin to a company using all revenue for employee stock buybacks. This distribution model is reshaping industry value logic.

Regardless of ideological differences, business realities will ultimately determine development directions: Solana emphasizes immutability, Ethereum focuses on censorship resistance and open source, but the flow of capital and traffic already indicates the industry is moving toward commercialization.

Coexisting with Chaos

Extreme full-chain vertical integration inevitably requires some concessions to the ideal of complete decentralization to achieve scalable economic growth. The internet industry has long proven this: in the 1990s, the vision of an unregulated, unrestricted open internet was ultimately constrained by chaos, leading to rule refinement. Legal scholar Tim Wu’s “Who Controls the Internet” deeply analyzes: all development trajectories of commercial networks transition from absolute freedom and full decentralization to a balanced model with rules, to meet business cooperation needs.

Moderately weakening original ideals and supplementing with rule systems can enable commercial scale expansion; pursuing absolute freedom only breeds chaos. The current rapid expansion and rule refinement in the crypto industry are highly reminiscent of the Western development boom and the internet bubble era. After wild growth, regulation and normalization are inevitable.

This trend offers clear lessons for entrepreneurs: based on profit data from Trust Wallet and Phantom Wallet, such downstream ecosystem products generate revenue far exceeding many Layer 2 chains. Infrastructure that is disconnected from actual needs or isolated exchanges without traffic support have long lost commercial viability, and potential risks like hacking only amplify operational crises. Focusing on on-the-ground products that attract liquidity and users remains the key to survival.

It’s unrealistic to replicate mature vertical integration products in the short term, but entrepreneurs can leverage leading ecosystems for secondary development and growth. The history of operating system iterations is similar: after BlackBerry’s decline and iOS’s dominance, developers naturally flocked to high-traffic hubs; the crypto industry is replicating this trend, and high capital incentives will further prolong sector consolidation.

I often cite Bangalore’s Cubbon Park as an example: for years, the park has remained tidy and well-managed, thanks to clear rules—such as closing at a set time and banning illegal gatherings. Strict rules may be harsh, but they are fundamental to maintaining efficient operation of public spaces. The same applies to internet platforms and blockchain protocols: regulatory constraints, though unpopular, are the foundation of ecosystem stability.

In the era of vertical integration, users will actively accept reasonable rules to safeguard their assets and sustain long-term participation in the crypto ecosystem. Stablecoins, real-world assets RWAs, closed-loop perpetual contracts, professional market makers, off-chain inquiry protocols like DeriveXYZ—all point to the same ultimate trend: vertical integration-capital aggregation platforms are actively relinquishing the ideal of complete decentralization, making appropriate trade-offs for long-term industry development and commercial realization.