Hyperliquid, a two-year-old decentralized exchange built by a small team of engineers, has become the newest fixation of both crypto traders and Wall Street after the historic $10 billion wipeout left investors stunned. The platform, designed for perpetual futures, has already outperformed Coinbase in certain areas despite being far smaller than it and Binance, handling volumes within an industry that now exceeds $6 trillion a month. Hyperliquid’s rise has been fast and messy, but that’s the kind of story that defines crypto’s frontier. Big time backers Paradigm and Pantera Capital have both called it “a bet on digital finance’s future.” At a Coinbase summit, where executives from BlackRock and Coatue joined crypto insiders to map the sector’s next chapter, Jump Trading president Dave Olsen singled out Hyperliquid as “the first meaningful competitor” to Binance. Hyperliquid was co-founded by Jeff Yan and the pseudonymous “iliensinc.” Yan, a former Hudson River Trading trader, ran a crypto trading desk called Chameleon Trading before he went to build a system for raw speed, largely outside traditional oversight. Hyperliquid’s front end blocks U.S. users, but anyone can trade directly on-chain. That no-KYC setup mirrors earlier exchanges that eventually ran into regulators’ crosshairs. Think Mt. Gox. “The highest growth rates are in the newest and least established markets because most existing participants don’t understand why they exist,” said Tarun Chitra, founder of Gauntlet. Hyperliquid’s real edge is its Hyperliquidity Provider ( HLP ), an automated trading vault that acts as a counterparty using pooled user deposits. With more than $500 million in the system, its algorithms continuously post buy and sell quotes, guaranteeing someone is always on the other side. Felix Buchert of Wintermute called it “the fix to crypto’s chicken-and-egg problem,” since liquidity attracts traders and traders attract more liquidity. But ah, there’s a catch. The HLP sometimes trades against its users. “When you run an exchange, you should set the rules, not play on the field,” said Vishal Gupta, a former Coinbase executive. The code, however, records every HLP trade on-chain in real time; no hidden books, no custody of user funds. Still, the system has never undergone a third-party audit. During last week’s rout, the HLP reportedly made $40 million while traders were wiped out. That’s when Hyperliquid’s auto-deleveraging system (ADL) kicked in, cutting into profitable positions to absorb losses. Chitra called its ADL rules “textbook aggressive.” But oh Jeff defended the mechanism, saying the HLP “does not pick profitable liquidations” and only appeared to have higher liquidation numbers because its data are public , unlike centralized exchanges that hide theirs. Governance, token control, and the controversial JELLY incident If the HLP is the engine, the validators are the control tower. Hyperliquid has only 24 validators, compared to Ethereum’s one million. Nearly two-thirds of staked HYPE , its native token, is controlled by the Hyper Foundation, giving it serious governance power. That influence was tested during the JELLY incident, when a massive bet on an illiquid token threatened the HLP’s solvency. Validators voted to liquidate the position, and the Foundation reimbursed users with its own funds. Hyperliquid’s Jeff called it an “exceptional situation” that needed fast action. To some, that looked like a centralized intervention, the opposite of decentralization. Hyperliquid’s financial model is just as complex. It uses trading fees to buy back HYPE, fueling a loop where higher volumes push token prices. The Assistance Fund, which handles the buybacks, has already built a $1.4 billion war chest. Supporters call it efficient, but skeptics like Santiago Roel Santos warn it’s “highly reflexive,” especially since it only works if trading activity keeps rising. Wall Street money, massive upgrade, and looming regulatory attention Traditional finance is taking notice. Paradigm backed an $888 million Nasdaq-listed fund to hold HYPE, giving institutions exposure without touching the exchange. Its board includes Eric Rosengren, the former Boston Fed president. David Schamis of Atlas Merchant Capital, now CEO of that fund, said Hyperliquid is “like Coinbase and Ethereum combined,” claiming the company is already making over $1 billion in yearly free cash flow, with fewer than 15 employees. Over 100 projects are now building on the platform, according to DefiLlama, putting it in the same league as BNB Chain and Solana. A new upgrade rolled out this week lets wealthy users launch their own perpetual futures markets in minutes, no listing committee required. They must stake millions in HYPE as collateral, and validators can slash funds if abuse is detected. It’s a high-risk, high-bar system that opens the door for any custom market, even one tracking volatility. Hyperliquid Labs recently told the U.S. Commodity Futures Trading Commission (CFTC) that its perpetuals already meet, and sometimes exceed, U.S. market safeguards. Olsen from Jump Trading, seated beside CFTC acting chair Caroline Pham, said the project “is exposing gaps in the current regulatory framework.” Get up to $30,050 in trading rewards when you join Bybit today
