Table of Contents
Jeff Amico reveals how Hyperliquid captured 75% of on-chain derivatives volume by prioritizing real users over high-frequency extractors.
Key Takeaways
- Hyperliquid dominates on-chain derivatives with 75% market share and approaches 5% of total global trading volume
- The platform prioritizes cancel orders over taker orders, eliminating "toxic flow" from high-frequency arbitrageurs
- Transparent trading allows market makers to identify and discriminate against predatory versus genuine trading activity
- HIP 3 protocol upgrade enables permissionless derivatives creation on any asset with custom oracle specifications
- No venture capital backing and over $1 billion airdrop distribution created genuine community ownership
- Product-focused approach with zero marketing team relies entirely on user experience to drive adoption
- Annual fee run rate exceeds $1 billion with programmatic token buybacks creating deflationary tokenomics
The Hyperliquid Phenomenon: Numbers That Speak Volumes
Hyperliquid has achieved something unprecedented in decentralized finance. The platform now commands roughly 75% of all on-chain perpetual futures volume, reaching approximately 5% of total global derivatives trading across all exchanges. With open interest representing 14% of the global market, Hyperliquid processes volumes equivalent to 5-10% of Binance depending on the metric.
The protocol generates an annual fee run rate exceeding $1 billion, with revenues programmatically used for token buybacks. This economic model, combined with the largest airdrop in crypto history worth over $1 billion at distribution, has created a self-reinforcing ecosystem where users become stakeholders.
Jeff Amico, Hyperliquid's founder, leads an 11-person core team at Hyperliquid Labs. Yet he emphasizes the platform represents something much larger—a decentralized ecosystem where developers, community members, and users collectively build adjacent and synergistic applications. The protocol operates without traditional marketing, relying entirely on product quality to drive organic adoption.
This community-driven approach has generated unprecedented founder favorability in crypto. Unlike previous "main characters" who attracted criticism alongside success, Amico maintains universal respect even from competitors. The brand strategy centers on letting the product speak rather than engaging in typical crypto marketing theatrics.
Transparent Markets: Why Visibility Beats Privacy
Hyperliquid's most controversial innovation involves complete trading transparency. Unlike centralized exchanges where order information remains opaque, Hyperliquid allows participants to see all positions, stop losses, and liquidation points. This visibility fundamentally changes market dynamics in favor of what Amico calls "real users."
The platform's design explicitly discourages "toxic taking flow"—sophisticated high-frequency strategies that extract value through technological asymmetries rather than genuine price discovery. These operations typically involve picking off market makers who haven't updated quotes fast enough, forcing spreads wider and degrading execution for ordinary traders.
Market makers can identify different user types and adjust pricing accordingly. A retail trader making directional bets receives tighter spreads than a sophisticated arbitrageur running algorithmic strategies. This price discrimination rewards genuine trading activity while penalizing extractive behavior.
The system prioritizes cancel orders over new orders, allowing market makers to withdraw quotes before getting "picked off" by high-frequency takers. While this slightly reduces total volume, it dramatically improves execution quality for users who aren't running sophisticated technological infrastructure.
Critics like former Binance CEO Changpeng Zhao argue for privacy-preserving alternatives using zero-knowledge cryptography. However, Amico contends that transparency enables better risk allocation and market efficiency by allowing sophisticated participants to make informed decisions about their counterparties.
Real Users Versus Predatory Flow
Hyperliquid's philosophical foundation rests on distinguishing between value-creating and value-extracting market participants. The platform welcomes sophisticated traders making genuine directional bets based on fundamental analysis or superior information. Intelligence and skill in predicting market movements represent legitimate competitive advantages.
However, the system actively discourages participants whose counterparties consistently regret trading against them shortly after execution. These interactions typically result from technological rather than informational advantages—faster networks, better hardware, or superior algorithmic execution rather than market insight.
The distinction matters because predatory flow forces market makers to widen spreads defensively, degrading execution quality for everyone else. When high-frequency takers consistently pick off stale quotes, market makers must price in this adverse selection, ultimately harming legitimate users seeking efficient price discovery.
This design philosophy extends beyond individual transactions to ecosystem health. Markets function best when participants with genuine economic needs can efficiently transfer risk. Technological rent-seeking that skims value without improving price discovery or liquidity provision represents a tax on productive economic activity.
Amico acknowledges the complexity of these distinctions. Many sophisticated traders engage in both value-creating and value-extracting activities within the same strategy. The goal isn't to eliminate all sophisticated activity but to create incentive structures favoring genuine market making and informed trading over pure technological arbitrage.
HIP 3: Permissionless Derivatives on Everything
The upcoming HIP 3 protocol upgrade represents Hyperliquid's most ambitious expansion. This feature enables external parties to create perpetual futures markets on any asset by staking HYPE tokens and providing custom oracle specifications. These markets integrate with Hyperliquid's existing infrastructure while remaining permissionless and composable.
Unlike traditional derivatives platforms where asset listing requires centralized approval, HIP 3 allows anyone to deploy markets on stocks, commodities, currencies, or novel synthetic assets. The deployer controls oracle mechanisms and funding parameters while leveraging Hyperliquid's order book technology, settlement infrastructure, and existing liquidity ecosystem.
This approach democratizes financial markets by removing gatekeepers from asset listing decisions. Rather than waiting for centralized exchanges to approve new products, builders can launch derivatives on emerging assets, regional markets, or specialized use cases that might never achieve sufficient scale for traditional platforms.
The infrastructure abstracts away complex technical requirements for market creation. Deployers can focus on oracle design and user acquisition while trusting Hyperliquid's proven systems for order matching, margin calculations, and settlement finality. This division of labor enables rapid experimentation with novel derivative structures.
Builder codes provide revenue sharing that scales proportionally with volume, creating strong incentives for interface development and user acquisition. These economics enable exchange-scale businesses built on top of Hyperliquid's infrastructure rather than requiring massive upfront capital for core technology development.
Product Philosophy: Metrics Versus Mission
Hyperliquid deliberately avoids traditional key performance indicators and quantitative success metrics. Amico argues that once teams optimize for specific numbers, they inevitably make short-term decisions that compromise long-term product quality. Token price represents the worst possible optimization target due to its susceptibility to manipulation and market sentiment.
This philosophy manifests in design decisions that prioritize user experience over volume maximization. The cancel prioritization system actually reduces total trading volume while improving execution quality. Most centralized exchanges would reject such changes because they decrease fee revenue in the short term.
The team views Hyperliquid as "a platform to house all of finance" rather than simply a derivatives exchange. This expansive vision requires patient capital and long-term thinking incompatible with quarterly metrics optimization. Success metrics remain deliberately qualitative and subjective rather than precisely measurable.
Volume and market share provide useful indicators but don't serve as objective functions for decision making. The distinction matters because converting metrics from monitoring tools into optimization targets fundamentally changes organizational behavior. Teams start gaming metrics rather than improving underlying user value.
This approach requires exceptional discipline when facing competitive pressure or investor expectations. Most organizations default toward measurable proxies for success, especially during periods of rapid growth or market uncertainty. Hyperliquid's commitment to product-first development represents a conscious rejection of conventional startup orthodoxy.
Competition and Industry Dynamics
Despite commanding dominant market share in on-chain derivatives, Amico doesn't view centralized exchanges as direct competitors. He envisions scenarios where both models coexist and serve different market segments. Centralized platforms may always process higher absolute volumes while decentralized alternatives capture specific use cases requiring transparency, composability, or regulatory neutrality.
The competitive landscape includes both direct protocol competitors and traditional financial infrastructure. Recent conflicts with major centralized exchanges highlight tensions between incumbent platforms and emerging decentralized alternatives. The "Jelly Jelly incident" involving suspicious market manipulation and coordinated listing activities demonstrates how established players might respond to disruptive competition.
Hyperliquid's approach to competitive threats emphasizes mathematical robustness over political maneuvering. The protocol's design assumes adversarial conditions and maintains solvency regardless of external manipulation attempts. Rather than engaging in public disputes or defensive marketing, the team focuses on systematic improvements to protocol security and user experience.
This strategy requires significant technical sophistication in areas like margin calculations, liquidation mechanisms, and oracle security. The system must function correctly even when facing coordinated attacks from well-resourced adversaries. Mathematical guarantees provide stronger protection than regulatory enforcement or industry cooperation agreements.
The long-term competitive advantage lies in ecosystem network effects rather than proprietary technology. As more developers build applications on Hyperliquid infrastructure and more users adopt the platform, switching costs increase organically without requiring artificial lock-in mechanisms.
Beyond Trading: The Vision for Decentralized Finance
Hyperliquid's ultimate vision extends far beyond derivatives trading toward comprehensive financial infrastructure. The platform aims to demonstrate that blockchain-based systems can match or exceed traditional financial performance while maintaining transparency, composability, and global accessibility.
This mission requires proving that decentralized systems can handle institutional-scale volume and complexity. Current achievements in derivatives trading serve as proof points for broader capabilities rather than end goals. The technology stack must eventually support lending, structured products, cross-border payments, and other core financial services.
The permissionless nature of blockchain infrastructure enables innovation that traditional financial systems cannot accommodate. New financial instruments, automated market mechanisms, and cross-border coordination become possible when removing intermediaries and regulatory friction. However, these possibilities only matter if the underlying infrastructure achieves sufficient performance and adoption.
Hyperliquid's success validates the potential for crypto-native financial systems while highlighting remaining challenges. Institutional adoption requires not just technical capability but also regulatory clarity, operational maturity, and integration with existing financial workflows. The platform's growth demonstrates market demand for transparent, globally accessible financial infrastructure.
Hyperliquid represents a crucial test case for whether decentralized systems can achieve mainstream adoption through superior user experience rather than speculative enthusiasm. The platform's product-focused approach and community ownership model provide a template for sustainable crypto adoption beyond hype cycles and venture capital bubbles.
