"Derivatives are the holy grail of DeFi." As early as 2020, the market has reached a consensus that on-chain perp protocols are the ticket to the second half of DeFi.

But the reality is that over the past five years, whether due to performance or cost constraints, perp DEX has always been making difficult trade-offs between "performance" and "decentralization". During this period, although the AMM model represented by GMX has achieved permissionless transactions, it is difficult to match CEX in terms of transaction speed, slippage and depth.

Until the emergence of Hyperliquid, with its unique on-chain order book architecture, it achieved a smooth experience comparable to CEX on a fully self-hosted blockchain. The recently passed HIP-3 proposal has further torn down the walls between Crypto and TradFi, opening up unlimited possibilities for trading more assets on the chain.

This article will also take you through an in-depth analysis of Hyperliquid’s operating mechanism and revenue sources, objectively analyze its potential risks, and explore the revolutionary variables it brings to the DeFi derivatives track.

The cycle of perp DEX

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

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

Coinglass data shows that in the past 24 hours, the daily trading volume of leading CEX contract futures has reached tens of billions of US dollars, and Binance has exceeded 130 billion US dollars.

Source: Coinglass

In contrast, on-chain perp DEX has been on a long road for five years. During this period, dYdX explored a more centralized experience through on-chain order books, but faced challenges in balancing performance and decentralization. Although the AMM model represented by GMX has achieved permissionless transactions, it is still far behind CEX in terms of transaction speed, slippage and depth.

In fact, the sudden collapse of FTX in early November 2022 also stimulated a surge in trading volume and new user numbers for on-chain derivatives protocols such as GMX and dYdX for a period of time. However, due to the constraints of the market environment, on-chain trading performance, trading depth, trading types and other comprehensive trading experiences, the entire track soon fell silent again.

To be honest, once users find that they have to bear the same risk of liquidation when trading on the chain but cannot obtain CEX-level liquidity and experience, their willingness to migrate will naturally drop to zero.

Therefore, the key issue is not "whether there is demand for on-chain derivatives", but the lack of a product form that can provide irreplaceable value of CEX and solve 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 in this context that the emergence of Hyperliquid has brought new variables to the entire track. What is less known is that although Hyperliquid was only officially launched this year and entered the vision of many users, it was actually launched as early as 2023 and has continued to iterate and accumulate in the past two years.

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

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

To this end, it has chosen a radical path, not relying on the performance constraints of existing public chains, but building its own exclusive L1 application chain based on the Arbitrum Orbit technology stack, and equipping it with an order book and matching engine that runs entirely on the chain.

This means that all transaction links, from order placement and matching to settlement, occur transparently on-chain, while achieving millisecond-level processing speeds. Therefore, from an architectural perspective, Hyperliquid is more like a "fully on-chain version" of dYdX. It no longer relies on any off-chain matching and aims directly at the ultimate form of "on-chain CEX".

The effects of this radical approach were immediate.

Since the beginning of this year, Hyperliquid's daily trading volume has been rising all the way, reaching US$20 billion at one point. As of September 25, 2025, the cumulative total trading volume has exceeded US$2.7 trillion. Its revenue scale even exceeds that of most second-tier CEXs. This fully demonstrates that there is no lack of demand for on-chain derivatives, but a lack of product forms that are truly adapted to the characteristics of DeFi.

Source: Hyperliquid

Of course, such strong growth has also quickly brought it ecological attraction. The recent bidding war for USDH issuance rights launched by HyperLiquid, which attracted heavyweight players such as Circle, Paxos, and Frax Finance to openly compete (further reading: " From the perspective of HyperLiquid's USDH becoming a hot commodity: Where is the fulcrum of DeFi stablecoins? "), is the best example.

However, simply replicating the CEX experience is not the end of Hyperliquid. The recently passed HIP-3 proposal introduced a permissionless, developer-deployed perpetual contract market on the core infrastructure. Previously, only the core team could list trading pairs, but now any user who stakes 1 million HYPE can deploy their own market directly on the chain.

In short, HIP-3 allows the permissionless creation and listing of derivatives markets for any asset on Hyperliquid. This completely breaks the limitation of the previous Perp DEX, which only traded mainstream cryptocurrencies. Under the framework of HIP-3, we may see the following on Hyperliquid in the future:

• Stock Market: Trade leading global financial assets such as Tesla (TSLA) and Apple (AAPL);
• Commodities and Forex: Trade traditional financial instruments such as Gold (XAU), Silver (XAG) or Euro/USD;
• Prediction Market: Betting on various events, such as "Will the Federal Reserve cut interest rates next time?", "What will be the floor price of a certain blue-chip NFT?", etc.

This will undoubtedly greatly expand Hyperliquid's asset categories and potential user base, blurring the boundaries between DeFi and TradFi. In other words, it allows any user in the world to access the core assets and financial gameplay of the traditional world in a decentralized, permissionless manner.

What is the other side of the coin?

However, while Hyperliquid's high performance and innovative model are exciting, there are also risks behind it that cannot be ignored, especially since it has not yet experienced the "stress test" of a major crisis.

The cross-chain bridge issue is a primary concern and a frequently discussed topic within the community. Hyperliquid connects to the mainnet via a cross-chain bridge controlled by a 3/4 multi-signature, creating a centralized trust node. If these signatures fail, either accidentally (e.g., due to loss of private keys) or maliciously (e.g., collusion), the assets of all users on the bridge will be directly threatened.

Secondly, there is the risk of vault strategies, as HLP vault returns are not guaranteed. If the market maker's strategy incurs losses under certain market conditions, the principal deposited in the vault will also be reduced. While users enjoy the expected high returns, they 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 feed errors, and user liquidation in leveraged trading. In fact, in recent months, the platform has repeatedly experienced large-scale extreme market liquidation events due to malicious manipulation of the prices of some small-cap currencies, exposing its need for improvement in risk control and market supervision.

Objectively speaking, there is another issue that many people have not considered openly. As a fast-growing platform, Hyperliquid has not yet experienced the test of large-scale compliance reviews or serious security incidents. During the rapid expansion stage of a platform, risks are often obscured 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 architectural innovation. HIP-3 expands imagination to stocks, gold, foreign exchange and even prediction markets, making the boundaries between DeFi and TradFi truly blurred for the first time.

Although high returns always go hand in hand with high risks, from a macro perspective, the attractiveness of the DeFi derivatives track will not fade due to the risks of a single project. It is not ruled out that there will emerge in the future to take over from Hyperliquid/Aster and become the new leader of on-chain derivatives. Therefore, as long as we believe in the charm and imagination of the DeFi ecosystem and derivatives track, we should pay enough attention to similar seed players.

Perhaps looking back in a few years, this will be a brand new historical opportunity.