What Is Hyperliquid?

Introduction

For years, cryptocurrency investors hailing from the United States have been barred from engaging in perpetual futures contracts. Allowing leveraged speculation on cryptocurrency prices without expiration, perpetuals have the potential to be one of the most powerful investment tools. Pioneered by the Seychelles-headquarted BitMEX in 2016, the high-risk nature of perpetuals and the lack of a clear regulatory framework around them has restricted the availability of perpetuals to American investors. However, under the more crypto-friendly Trump administration, the Commodity Futures Trading Commission officially ruled that customers in the United States can trade perpetuals, opening the door for major exchanges to rush into the perpetuals space.

In anticipation of regulatory acceptance of perpetuals in the United States, Coinbase made strategic moves to enter the perpetuals market. The cryptocurrency exchange recently acquired Deribit, one of the largest international cryptocurrency derivatives platforms. Deribit's infrastructure and global user base provide Coinbase a springboard for scaling derivatives in the United States and abroad. At the same time, Coinbase is developing its own perpetual contracts product.

What Is Hyperliquid?

As traditional exchanges prepare to move in, Hyperliquid has already carved out a massive slice of the perpetuals market. Built as a decentralized exchange specifically for perpetuals, Hyperliquid uses an onchain central limit order book along with most exchanges globally to match customer oders. Notably, Hyperliquid employs a no-KYC (Know Your Customer) model, which means that Hyperliquid users can trade anonymously. Hyperliquid owes a big part of its early success to its no-KYC model, which made the exchange the go-to destination for traders from countries such as the United States where centralized perpetuals were inaccessible. 

HYPE, Hyperliquid's native token, has also been extremely successful. HYPE currently stands as the fifth-largest asset by futures open interest at $2.06 billion. This value refers to amount of capital currently locked in open long and short perpetual futures contracts. Since April, the token has nearly quadrupled, largely because Hyperliquid uses 97% of revenue from fees to buy $HYPE tokens on public markets. Today, Hyperliquid is the leader in onchain perpetuals, accounting for 60% of all decentralized perpetuals trading volume.

Hyperliquid's Outlook

However, Hyperliquid's competitive edge may now be fading. With the United States greenlighting perpetuals, platforms such as Coinbase and Robinhood are poised to offer compliant, polished products that can legally target the American retail market. For users who are not concerned with privacy, the perpetuals offered by these platforms will be a safer, more appealing choice than Hyperliquid. Hyperliquid may consequently see a portion of its user base leave for centralized exchanges as they roll out their perpetuals contracts products.

In spite of looming competition, Hyperliquid remains a cultural powerhouse on social media and particularly relevant to the more privacy-conscious and tech-savvy traders. Hyperliquid's brand loyalty has been reinforced by engagement with its memecoin, Hypurr (PURR), which functions as a community token.

Conclusion

While Hyperliquid will not disappear overnight, its upside may be capped as more compliant, capital-heavy players enter the perpetuals market. Now that Coinbase and Robinhood can legally serve its core audience, Hyperliquid may lose its dominance among traders based in the United States. As the perpetuals market evolves, Hyperliquid faces the challenge of maintaining its edge in a world where privacy is no longer the only path to access and success.