This episode navigates the turbulent crypto markets and dives deep into Hyperliquid's journey with founder Jeff, exploring its response to recent controversies, the path to decentralization, and a vision extending far beyond a typical exchange.
Market Downturn and Macro Environment
- The discussion kicks off acknowledging the significant crypto market downturn, with Bitcoin retreating from recent highs, Ethereum falling below $1,800, and Solana breaking its key $120 support level to hit $113. Jeff notes the market feels the quietest since August 2023, highlighted by extremely low Ethereum mainnet gas fees (around 1
gwei - a unit measuring transaction fees on Ethereum), suggesting reduced network activity.
- The hosts discuss former President Trump's recent, aggressive tariff announcements on Chinese goods (reaching over 50% combined) and their potential market impact. Jordy maintains his view that while painful, this aggressive stance is likely an opening negotiation tactic, expecting eventual capitulation, while acknowledging the immediate market turmoil it creates.
Hyperliquid's Resilience and Metrics in Volatile Markets
- Addressing how market quietness affects Hyperliquid, Jeff clarifies that sharp downturns often increase volume, citing nearly $10 billion traded on the platform recently. He emphasizes the team's long-term focus, stating, "We don't look at the markets too much we're just we're just building... not for the day not even for the year but kind of for just like the super long term."
- Jeff reveals that Hyperliquid tracks its market share relative to major centralized exchanges (CEXs) like Binance and Bybit. Interestingly, he notes Hyperliquid's market share tends to increase during periods of higher overall volume, suggesting stronger performance during active markets, possibly due to less reliance on High-Frequency Trading (HFT) volume compared to CEXs. This is seen as a positive indicator of organic user activity.
Achieving Product-Market Fit and the Founder's Experience
- Asked about the feeling of achieving product-market fit (PMF), Jeff describes it as a shift where external demands dictate daily priorities, forcing the team to constantly react and scale. He likens it to running a cupcake stand suddenly overwhelmed by a massive queue, diverting focus from new recipe development to simply meeting immediate demand.
- Jeff offers an unconventional take, suggesting that maintaining momentum post-PMF might be harder than achieving it initially, as scaling introduces new complexities and pressures.
Hyperliquid's Origin Story and the HLP Vault
- Jeff recounts Hyperliquid's genesis following the FTX collapse. The initial goal wasn't a grand vision but an incremental response to build a transparent, self-custodial
perps dex (Perpetual Futures Decentralized Exchange) that users could trust after being burned by CEX failures. The aim was feature parity with CEXs but with DeFi's transparency and self-custody benefits.
- The Hyperliquid Liquidity Provider (HLP) vault was conceived very early on. Stemming from the team's quantitative trading background and a desire to avoid opaque, internal market-making like Alameda Research, HLP was designed to decentralize liquidity provision. Jeff explains the rationale: "...why not really just like literally let anyone deposit into this thing that is protocol run and... if you think it's unfair like it's at least you're the one making money." This allows the community to participate in and profit from market-making, aligning incentives and fostering trust.
The Evolving Role of HLP and the Jelly Jelly Incident
- Jeff clarifies that HLP's role has diminished over time. Initially crucial, it now primarily acts as a backstop for liquidations. Hyperliquid uniquely routes liquidations to the order book first, allowing any user or market maker to capture this often-profitable flow. HLP only steps in if market-based liquidation fails, which is increasingly rare due to improved platform liquidity.
- Regarding the recent "Jelly Jelly" token incident, where HLP took on a large short position that faced a coordinated squeeze, Jeff acknowledges it was a learning experience involving edge cases in risk management. He notes the Open Interest (
OI - the total number of outstanding derivative contracts) cap was hit, but the $4 million position size relative to the token's market cap proved problematic under coordinated manipulation.
- Jeff addresses criticism about the settlement price, stating it wasn't arbitrary but set at the price before the manipulation began, determined by validator consensus. The foundation then compensated affected long positions, ensuring no user losses from the settlement itself. He views the incident, while regrettable, as a testament to the platform's transparency, as the events unfolded publicly on Twitter in near real-time.
Decentralization: Reality vs. FUD
- Jeff pushes back against claims that Hyperliquid is centralized "FUD" (Fear, Uncertainty, and Doubt), often spread by competitors or critics. He states Hyperliquid has had external validators (16 as of December 2023) for a significant time and plans further decentralization of the validator set via a foundation-led delegation program.
- While acknowledging Hyperliquid isn't as decentralized as Bitcoin or Ethereum, Jeff argues it's far more decentralized than critics admit and represents a significant step towards on-chain finance. He stresses the difficulty of balancing decentralization with the performance needed for a global financial platform, calling it a "very hard joint optimization problem."
Competition, Coexistence, and Core Principles
- Jeff addresses the dynamic with CEXs, particularly regarding the Jelly Jelly token listings on Binance and OKX coinciding with Hyperliquid's issues. While he wouldn't have done it, he views it as business competition and doesn't harbor ill will, though he notes the subsequent "coordinated misinformation" suggests CEXs may feel threatened.
- He emphasizes that Hyperliquid isn't aiming to simply replace CEXs but to build foundational infrastructure for on-chain finance. He believes CEXs and DeFi can coexist, each serving different purposes. Hyperliquid's focus is on transparency and permissionlessness, which Jeff argues are fundamental product improvements over the CEX model, even if not all users prioritize pure decentralization initially.
Hyperliquid's Broader Vision: Hypercore and Hyper EVM
- Jeff clarifies the vision beyond the perps DEX, introducing Hyperliquid as a single blockchain with one world state, split into two components:
- Hypercore: Houses the native, high-performance primitives like the perps DEX, spot DEX, and other core financial infrastructure designed to scale globally.
- Hyper EVM: An Ethereum Virtual Machine (EVM) compatible execution environment. Its primary purpose is not to compete directly with general-purpose L2s but to make Hypercore programmable.
- A key example is enabling native asset trading (like Bitcoin and Ether) on Hyperliquid's performant spot order books via bridging infrastructure built on Hyper EVM (e.g., by the Unit team). This allows users to trade real assets self-custodially with CEX-like performance, fulfilling a core DeFi promise. The programmability allows external developers to integrate deeply with Hyperliquid's core liquidity.
Ecosystem Building and Differentiation
- Jeff believes certain core functions, like the order book DEX, should be treated as infrastructure (built natively for performance) rather than applications built on generalized chains. Hyperliquid aims to provide these core primitives permissionlessly.
- Hyper EVM's differentiation isn't just being another EVM chain. Its value lies in:
- Accessing Hyperliquid's highly engaged user base of serious DeFi power users.
- Providing unique programmability hooks into Hypercore's deep liquidity and financial primitives, enabling applications impossible on other EVM chains.
Future Asset Expansion and Platform Neutrality
- Jeff confirms that tokenized assets like equities, commodities, and forex should eventually exist on Hyperliquid. However, he sees Hyperliquid's role shifting towards being an enabling platform (like AWS) rather than dictating specific product offerings (like Amazon.com). The goal is to empower external teams to build and list these assets.
- Regarding stablecoins, Jeff views them as critical infrastructure. Hyper EVM is key to enabling diverse, native stablecoins on Hyperliquid. While USDC was the starting point, the long-term goal is platform neutrality, allowing various stablecoins (including potential yield-bearing ones) to integrate deeply and potentially serve as collateral, fostering wider adoption and utility.
Community Dynamics and Tokenomics
- Jeff acknowledges the passionate, sometimes "toxic," tribalism within parts of the Hyperliquid community. While appreciating the energy and loyalty (often stemming from early believers rewarded by the airdrop), he doesn't endorse negativity and hopes for a more welcoming environment. He attributes some friction to the team's own shortcomings in communication ("comms").
- Addressing the token price decline (~70% from highs despite platform success), Jeff emphasizes the long-term vision. He attributes the sell pressure partly to the wide, user-focused "canonical genesis distribution" (airdrop), which put tokens in many hands at zero cost basis, leading to natural diversification. He maintains that current price is "irrelevant long term" if Hyperliquid succeeds in its mission to host significant financial activity on-chain.
Concluding Thoughts
- The episode closes with brief thoughts on meme coins (Jeff sees Bitcoin as the ultimate meme coin and values freedom of expression) and the competitive stablecoin landscape.
Conclusion: Strategic Implications for Crypto AI Investors & Researchers
- This discussion reveals Hyperliquid's ambition to build foundational, programmable financial infrastructure, not just a DEX. Investors and researchers should monitor Hyper EVM's ability to attract unique applications leveraging Hypercore's liquidity, assess the platform's ongoing decentralization efforts, and track its capacity to manage operational risks effectively.
