What is HyperLiquid ?

HyperLiquid stands out as a cutting-edge perpetual futures decentralized exchange, redefining how traders experience the crypto market. It operates on custom-built blockchain powered by Tendermint consensus, ensuring lightning-fast execution of every order, cancellations, and liquidations, all on-chain, with block latency clocking in at less than one second.

Hyper Liquid L1 currently claims to handle over 20,000 orders per second, offering traders an unparalleled level of performance. What sets them apart is the fusion of GMX Pools and DYDX, creating a seamless blend that brings forth transparency, reliability in execution, and an ever-present pool of user liquidity.

Metrics

Over the past few months (post the launch of onchain tokens like RLB, UNIBOT and BITCOIN) and exclusive trading markets for Friend Tech index, LZ. Hyperliquid has been a CT darling. All Time volumes of HL stand at $4.7 Billion, which is pretty cool in such a short time. In the same time, TVL for exchange is at ATH - $8.6M.

In last 3 months, HLP ( Liquidator and MM for exchange) has generated $802k in profits. It might not sound a lot in absolute terms but generating 800k PnL on just $8 million pool in 3 months with around 10k users.

HyperValue Proposition

You might know them as the exchange with FriendTech perps, but it’s more than just that. It comes with an on-chain orderbook system which has capacity for 20k orders per second, and you can be the house by providing liquidity to the HLP vault (main market maker for exchange).

HyperLiquid allows users to open their vaults and run their strategies and anyone can deposit in 3rd party vaults. This makes HL orderbook comparatively decentralized as anyone can market make.

Liquidations

Liquidations on the platform are efficiently managed by the Liquidator, which is an effective strategy for generating profits for HLP. If a user's position falls below the maintenance margin, which can range from 1% to 16.7% depending on the asset, the liquidation function is triggered. The entire margin will be transferred to the liquidator and will not be refunded.

Yes, maintenance margin will not be returned. If position is isolated then only isolated margin is transferred. Other positions remain untouched. This is done to ensure that liquidations on platform are profitable on average.

After crazy liquidations on YGG last month when oracle prices were 50% higher than actual perp prices, they moved from using oracle price for liquidations as to mark price. Whereas DYDX still uses oracle price.

Fees

Taker fees- flat 2.5 bp (which is about standard)

Maker rebates- 0.2 bps

Referrers receive 10% of their referees' taker fees (0.25 bps)

Out of all the fees collected, 40% is distributed to the Insurance fund and OI rewards each and remaining 20% goes to HLP.

Execution

Mark price is used for TP/SL and limit orders. Slippage on TP/SL orders is increased from 2.5% to 10% because of complaints from community of unfilled TP/SL orders in periods of increased volatility.

Funding rates

Funding computation done by hyperliquid is almost as same as Binance so there is not much deviation in funding rates.

Funding Rate (F) = Average Premium Index (P) + clamp (interest rate - Premium Index (P), -0.0003, 0.0003) Max funding rate is capped at 4%/hour

So what can you do with it TODAY ?

1. Collect Open Interest rewards i.e. 40% of the fees (2x more than what goes to HLP). Every token gets equal allocation, the best ROI is to open a position on a token with very low OI. Doing that you get a higher % of allocation compared to position size. For example- If BTC has 100k open interest and you have a position with 10k worth OI you’ll receive equal interest If you open a position with 1K OI where total OI is just $10k.

2. Farm for potential Airdrop by taking delta neutral positions, using some other exchange for opposite positions. Best strategy - Take a long position on Hyperliquid and a short position on Vertex of equal size in order to achieve delta neutrality. This will allow you to participate in both airdrops at the same time, achieving two goals with one action.

3. Take position on pre launch coins (hyperps) and on chain coins. Save yourself from BUY/SELL tax, gas and overall bad experience of dex trading. This can be bearish thesis for all the TG bots which help in dex trading, and this became quite evident last week when perp volume on $banana was almost 2.5 times the spot.

4. Create your own vault and run your own strategy. Vault leaders receive a 10% profit share for managing the vault. Vaults can be a great way for a trader to share strategies with his or her community.

5. Plain Vanilla deposit in HLP and reap rewards.

In a sea of cheap GMX and Gains Trade forks, it is refreshing to use a CLOB exchange with an interesting architecture. Thank you for reading. We will be publishing a part 2 to detail out the risks associated with Hyperliquid and potential ways to mitigate them.

Disclosure - click here to learn more about 3poch’s Hyperliquid disclosure.