Hyperliquid: 9% Binance, 78% Centralization

DEX does not need to be completely decentralized, but will be more transparent than CEX.

At first, no one cared about this transaction. It was just a farce, a "plugging the network cable", the extinction of an idea (decentralization), and the disappearance of an L1. Until this disaster is closely related to everyone.

On March 26, Hyperliquid encountered a bloody case caused by a Meme, which was exactly the same as the previous 50x whale. The whale gathered funds and used the "loophole" of the rules to attack the HLP vault.

Originally, this was a story between an attacker and Hyperliquid. Hyperliquid actually took the opponent's order of the whale. PVP became PVH. The loss of $4 million was only a minor problem for the Hyperliquid protocol.

However, Binance and OKX followed up by launching the $JELLYJELLY contract, which was a bit like taking advantage of your weakness. The reason is similar. If Hyperliquid can take the losses of the whale with its capital volume, then exchanges such as Binance can also rely on deeper liquidity to continue bleeding Hyperliquid until it loses too much blood and enters a death loop similar to Luna-UST.

In the end, Hyperliquid chose to violate the concept of decentralization and chose to remove $JELLYJELLY "after voting", commonly known as "pulling the network cable", admitting that it can't afford to lose.

Recalling the situation, Hyperliquid's response is normal for CEX, and it can also be judged that after Hyperliquid, the on-chain ecosystem will gradually recognize this "new normal". Centralization or not is not important, and transparency of governance is more critical.

DEX does not need to be completely decentralized, but will be more transparent than CEX, and achieve a certain degree of balance between crypto culture and capital efficiency to make a living.

9% of Binance: Crypto culture surrenders to capital efficiency

Pulling out the network cable is bad, plugging in the pin is bad, and being caught for market making is stupid.

According to data from The Block, Hyperliquid has occupied about 9% of Binance's contract trading volume for two consecutive months. This is the fundamental reason for Binance's fierce response, strangling the danger at the starting line, and Hyperliquid has already stepped out of the cradle.

The mall is like a battlefield. Yesterday, Binance was able to grab the wallet market share when OKX DEX was delisted. Today, Binance and OK can jointly attack under Hayek's big hand, which has already shown the situation of three companies in the contract market.

Looking back at recent industry hot spots, on-chain protocols are very difficult, and it is difficult to insist on decentralization. Polymarket admitted that the community was dissatisfied with the results of the manipulation of the UMA oracle by large investors; Hyperliquid finally "pulled the plug" under the pressure of Binance, and was repeatedly accused by Bitget CEO and BitMEX co-founder Arthur Hayes.

First of all, what they said is right. Hyperliquid's choice is not an absolute decentralization concept, but capital efficiency and protocol security priority. Personally, I feel that Hyperliquid's degree of decentralization is not as good as Coinbase. After all, the latter is really strictly regulated, and the true face of Hyperliquid is No KYC CEX as Perp DEX.

Secondly, we need to criticize Hyperliquid in its dual identity with CEX and Perp DEX. CEX has experienced all the problems that Hyperliquid is facing now, including Arthur Hayes' BitMEX, which accused Hyperliquid of not being decentralized enough. If the network cable was not unplugged during the March 12 incident in 2020, the entire crypto industry might have been ruined.

Decentralization and centralization are a classic trolley problem. If you want to be decentralized, capital efficiency must be inferior to centralization. If you want to be centralized, you cannot attract free capital flow.

Hyperliquid is actually a consensus and two business points:

The consensus is the HyperBFT algorithm and its physical product Hyperliquid L1;

The businesses are HyperCore built on L1, which is a customized spot and contract exchange, basically controlled by Hyperliquid, and parallel to it is HyperEVM built on L1, which is the "EVM chain" in the usual sense.

In this architecture, the cross-chain behavior of L1 and HyperCore/HyperEVM, and the interaction between HyperCore and HyperEVM are all potential attack points, so the complexity of the organizational structure is also an inevitable move for the Hyperliquid project to be highly controlled.

In the Perp DEX sequence, Hyperliquid's innovation is not in the innovation of the architecture, but in using a "slightly centralized" approach to learn GMX's LP tokenization, and in conjunction with the listing and airdrop strategies, continue to stimulate market competition, and successfully seize the derivatives market firmly occupied by CEX.

This is not to defend hyperliquid, this is the background of Perp DEX. If you want absolute decentralized governance, you will not be able to deal with black swan events, and you will not have time to respond quickly. To respond efficiently, you must need a sword holder.

In fact, just like LooksRare failed to defeat OpenSea, Blur eventually defeated OpenSea. The centralization discussed by everyone is also hierarchical. Hyperliquid is more focused on the changes of the protocol. The focus of this article is not to debate whether it is centralized or not, but to emphasize that capital efficiency will automatically prompt the new generation of on-chain protocols to do so - more centralized in exchange for capital efficiency.

78% Centralization: The Inevitable Move of Token Economics

The special thing about Hyperliquid is that it uses on-chain structure to exchange CEX efficiency, token economics to exchange liquidity, and customized technology stack to exchange security.

In addition to the technical architecture, the real danger of Hyperliquid is the survival of token economics. As mentioned earlier, Hyperliquid is a tokenized upgraded version of GMX LP. Users can share in the protocol income, thereby creating more liquidity and supporting the token price for the project party.

But the premise is that the project party must have sufficient control capabilities to maintain the normal operation of the protocol income, especially in the contract market under the support of leverage. While the income is magnified, it is also more dangerous. This is also the biggest difference from spot DEX such as Uniswap.

The above is the economic principle behind Hyperliquid's choice of a more centralized architecture. At present, among the 16 nodes, Hyper Foundation controls 5, but in terms of pledge ratio, the Foundation has a total of 330 million Hyper, accounting for 78.54% of all nodes, far exceeding the 2/3 majority.

Review of security incidents in the past six months:

In November 2024, a big V accused Hyperliquid of not being centralized enough: basically true

In early 2025: 50x whale: made the same mistake that every exchange would make, but on-chain transparency became the target of public criticism

March 26, 2025: "Pulling the Internet Cable" to liquidate JELLYJELLY, completely true, the foundation controls the majority of voting rights

It is in the repeated games and confrontations that the concept of decentralization gradually bows to the reality of capital efficiency. Hyperliquid has tried to reduce the evil of VC, Airdrop, and internal liquidation (compared with the continuous sale of XRP founders), and tried to retain the normal product form, and hopes to make money from handling fees.

Compared with the falsification of the NFT market, and Perp DEX is a rigid demand on the chain, so I think hyperliquid's set will inevitably be accepted by the market.

However, just as the community doubted whether the exchange would fleece the Bybit after the theft, it is more worthy of attention whether the mentality of the founders and the team will change after the Hyperliquid crisis. Will they insist on being the good guy who is pointed at by others, or will they go along with the exchange and further close the rules.

In other words, entanglement with centralization or not deviates from the focus of discussion, or you can think about whether the fully transparent protocol rules leading to the public hunting of the entire market is the inevitable pain of the on-chain protocol, or will it lead to the regression of the on-chain migration process.

The real profound lesson or experience is: do we follow the concept of decentralization or surrender directly to capital efficiency? Just like this increasingly swaying world, the middle ground has become narrow.

Is it partial centralization + transparent rules + intervention when necessary, or 100% centralization + black box state + constant intervention?

Conclusion:

After the 2008 financial crisis, the US government directly rescued the market, saving Wall Street without the consent of taxpayers, draining the blood of leeks and continuing the veins of the street, becoming the mother body of Bitcoin. Now, Hyperliquid is just a remake of the old drama, but the role has become the on-chain Wall Street to be saved.

After the Hyperliquid crisis, big Vs took turns to torture: from Arthur Hayes to AC, Hyperliquid must adhere to the concept of decentralization, which is also the continuation of the on-chain business war. AC once criticized the feasibility of Ethena, which did not prevent the two from standing on the same front today.

Once a chess player enters the game, he must be prepared to become a chess piece.

Whether on or off the chain, there must be an absolute concept and a relative bottom line.