How Lighter ate away Hyperliquid’s moat

This episode reveals how Lighter's zero-fee model and ZK-powered architecture are redefining decentralized exchange (DEX) competition, challenging established perps platforms and attracting institutional capital.

Lighter's Explosive Growth and Foundational Principles

• Lighter achieved its internal growth metrics for December by July, demonstrating significant community adoption.
• The platform differentiates itself through low cost, low latency, security, verifiability, and composability.
• Vlad acknowledges the value of competition, citing Ostium as an example for real-world asset (RWA) perps.
• Lighter claims to be the only product strong across all five foundational dimensions.

“We've achieved all five [goals]. There's on the composability part there's still more to do obviously... but I think like it is very low latency, it is on top of Ethereum, everything that happens on Lighter, every order, every cancel, every liquidation, there's a proof of all that.” – Vlad

Evolving Regulatory Dialogue and ZK-Powered Verifiability

• Policy discussions now focus on granular details, such as on-chain identity using ZK proofs and data storage.
• Lighter uses ZK proofs primarily for scalability, enabling the verification of millions of trades and orders off-chain.
• ZK circuits define all marketplace rules (time-price priority, liquidations, transfers); any deviation invalidates the proof.
• This system allows institutions to trade with specific counterparty restrictions without segmenting the broader liquidity pool.

“The questions were much more to the point about the details of some of the stuff and like I'll give you an example right like let's say for an institution to trade on Lighter, how do you make sure that like let's say there's an institution that is subject to regulations that they can only trade with certain types of counterparties. So how do you make sure you can do that while not fragmenting liquidity and while allowing the rest of the protocol, other participants who don't have those restrictions to trade with each other?” – Vlad

The Sidecar Protocol: Expanding Composability on Lighter L2

• The sidecar protocol will host applications like LayerZero and Circle, enabling native USDC issuance on Lighter.
• Lending applications are crucial for basis trading, a key institutional strategy.
• Existing smart contracts from Ethereum can function "out of the box" on Lighter via the sidecar, eliminating the need for ZK development teams for stablecoin issuers.
• Future plans include tokenizing Lighter positions, allowing them to be traded as assets on Ethereum without direct Lighter interaction.

“The long-term vision is that any asset on Ethereum can be collateral on Lighter... some of the first applications we expect to be built on the sidecar would be things like LayerZero, would be like Circle, so there'll be kind of a native USDC issued.” – Vlad

Zero-Fee Model and Strategic Monetization

• Zero fees democratize finance and expand the market by enabling more trading strategies and participants.
• Professional trading firms, rather than retail, are the primary monetization target, potentially through faster API access tiers.
• The model anticipates tighter spreads due to increased competition among market makers attracted by higher retail volume.
• Future revenue streams may include options trading (a significant revenue driver for TradFi brokers like Robinhood) and on-chain hedge funds.

“We think it's just like better, it expands the market. And even in the worst case, it'll look like the status quo and the best case is going to look like Robinhood.” – Vlad

Post-TGE Strategy and Tokenomics Transparency

• User acquisition will rely on new products, asset classes, and front-end partnerships.
• Incentive mechanisms, like points programs, will continue in future seasons, focusing on new products.
• Lighter aims to attract users from centralized exchanges by offering superior decentralized products.
• The team commits to publishing revenue details and audit reports for spot trading in the near future, ensuring transparency for the community.

“The whole point of having the community and the team and the investors on one token cap table is that there'll be kind of incentive alignment across all of them and that's where the value will occur.” – Vlad

Investor & Researcher Alpha

• Capital Movement: Lighter's zero-fee model and ZK-powered verifiability are attracting sophisticated trading firms and institutions, signaling a shift in liquidity from fee-based DEXes and even some centralized exchanges. Monitor capital flows into Lighter's sidecar protocols, especially lending and stablecoin integrations, as these will unlock new basis trading opportunities.
• New Bottleneck: The primary bottleneck for institutional DeFi adoption is no longer just regulatory clarity but the technical infrastructure to meet compliance needs (e.g., counterparty restrictions) without sacrificing decentralization or liquidity. ZK proofs, as implemented by Lighter, offer a viable solution.
• Research Direction: Research into "total cost of execution" metrics for DEXes should evolve beyond simple top-of-book spreads. Focus on how protocols facilitate efficient large-volume execution (e.g., TWAP strategies, API access tiers) and how ZK-enabled privacy and verifiability impact institutional trading costs.

Strategic Conclusion

Lighter's aggressive zero-fee strategy, underpinned by ZK proofs and a composable sidecar architecture, directly challenges the revenue models of existing perps DEXes. The next step for the industry involves a broader adoption of ZK-enabled, highly composable L2s that can onboard institutional capital by meeting both regulatory and performance demands.