How Lighter ate away Hyperliquid’s moat

Lighter, a project that pivoted from AI to building a perp DEX, has quickly become one of crypto's most talked-about protocols. Vlad, Lighter's founder, discusses their zero-fee model, the technical underpinnings of ZK proofs, and a long-term vision for a composable DeFi ecosystem.

Identify the "One Big Thing":

The "One Big Thing" is Lighter's strategic approach to building a verifiable, low-latency, zero-fee decentralized exchange (DEX) on Ethereum, leveraging ZK proofs for scalability and composability, with a long-term vision to expand into a full DeFi ecosystem that tokenizes positions and integrates real-world assets, all while navigating regulatory complexities and a competitive landscape. Their zero-fee model for retail is a key differentiator, aiming to expand the market rather than just capture existing value.

Extract Themes:

1. Lighter's Differentiated Approach & Core Tenets: How Lighter stands out in the crowded perp DEX market by focusing on specific technical and philosophical goals.

• Quote 1: "When we first started out, we had essentially like five goals: low cost, low latency, secure, verifiable, and composable. And I think we've achieved all five."
• Quote 2: "We're the only product in the market that is kind of strong across all five of those dimensions that we set out with."

2. Verifiability, ZK Proofs, and Regulatory Nuance: The technical foundation of Lighter and its implications for trust, scalability, and institutional adoption, alongside evolving regulatory discussions.

• Quote 3: "The actual thing you're trying to solve for is verifiability... the best approach to a lot of this is using zero knowledge proofs which... you can use them for privacy but the main thing we use them for is scalability."
• Quote 4: "The questions were much more to the point about the details of some of the stuff... like 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... while not fragmenting liquidity?"

3. The Zero-Fee Model & Future Monetization/Growth: Lighter's controversial zero-fee strategy, its economic rationale, and the broader roadmap for product expansion and sustainable value capture post-TGE.

• Quote 5: "We've philosophically it always made sense to us to do that... if you remove friction from the market that expands the set of strategies that are there and the number of traders that can be there."
• Quote 6: "The flywheel will continue. There will be incentives, future seasons, other forms of incentives... the best products in the decentralized part of the market are at parity or stronger than many of the centralized products."

Synthesize Insights:

Theme 1: Lighter's Differentiated Approach & Core Tenets

• Foundational Goals: Lighter was built on five core principles: low cost, low latency, security, verifiability, and composability. This comprehensive approach differentiates it from competitors who may excel in one or two areas.
• Early Mover Advantage (in building): Lighter started building three years ago, allowing them to develop robust core technology over 18 months before the recent "perp DEX season" hype. This long-term focus contrasts with projects that quickly spin up during market trends.
• Product-Market Fit Expansion: While starting with perps due to strong product-market fit, Lighter has expanded to spot trading and plans for more real-world assets (RWAs), options, and fixed income. This broadens their addressable market beyond speculative crypto trading.
• Competitive Landscape: Lighter acknowledges and learns from competitors (e.g., Aevo's RWA perps), viewing competition as a sign of customer interest rather than a threat.
• Analogy for "Composability": Think of composability like LEGO bricks. Each DeFi protocol is a LEGO brick, and Lighter aims to be a baseplate where any brick (protocol) can easily snap on and interact, creating new, complex structures.

Theme 2: Verifiability, ZK Proofs, and Regulatory Nuance

• Verifiability over Decentralization: The core problem Lighter solves is verifiability – ensuring every step of a trade is provably correct. Decentralization is a means to this end, not the end itself.
• ZK Proofs for Scalability: Lighter uses Zero-Knowledge (ZK) proofs primarily for scalability, not just privacy. Analogy for ZK Proofs: Imagine proving you know a secret password without ever revealing the password itself. ZK proofs allow Lighter to prove millions of trades happened correctly without posting every single transaction on Ethereum, drastically reducing costs and increasing speed.
• On-Chain Guarantees: If Lighter's L2 system is corrupted or manipulated, users can withdraw assets directly from Ethereum, providing a strong security guarantee. The ZK circuits define the marketplace rules (e.g., time-price priority, liquidations), and any deviation invalidates the proofs.
• Evolving Regulatory Dialogue: Conversations with policymakers are becoming more substantive, moving beyond basic "what is Bitcoin?" questions to detailed technical inquiries about ZK proofs, on-chain identity, and institutional trading requirements (e.g., counterparty restrictions without fragmenting liquidity).
• Tailored Regulation: The goal is not to copy-paste TradFi rules but to design common-sense regulations that fit DeFi's unique capabilities, such as using ZK proofs to enable institutional compliance while maintaining open liquidity.

Theme 3: The Zero-Fee Model & Future Monetization/Growth

• Market Expansion Philosophy: Lighter's zero-fee model for retail traders aims to expand the overall market by reducing friction, enabling more strategies and attracting more participants. Analogy for Zero-Fee: Like a toll-free highway, it encourages more drivers, which in turn attracts more service stations (market makers) and overall economic activity.
• Monetization from Professionals: The model anticipates capturing value from professional trading firms, who benefit from the expanded retail liquidity and tighter spreads, even if they pay for premium API access or other services.
• Robinhood Analogy (with nuance): While inspired by Robinhood's zero-fee success, Lighter acknowledges that DeFi's on-chain nature means it cannot simply replicate Robinhood's order flow payment model. Lighter's approach is a conceptual analogy, adapted for DeFi's unique attack vectors and transparency.
• Total Cost of Execution: Lighter tracks spreads against competitors but acknowledges that a single metric for "total cost of execution" is insufficient. Sophisticated traders use various strategies (e.g., TWAP) to optimize fills, making direct top-of-book comparisons incomplete.
• Future Revenue Streams: Beyond premium API access, Lighter explores options trading (which can be a significant revenue driver in TradFi), on-chain hedge funds, and operator fees for specialized liquidity pools. The focus is on building valuable products that naturally attract revenue.
• Post-TGE User Acquisition: Lighter plans to maintain traction post-token generation event (TGE) through continued product development (new asset classes, features), strategic partnerships (front-ends, integrations), and ongoing incentive programs ("further seasons" of points farming) that align early users with the protocol's success.

Filter for Action:

Opportunities for Investors:

• Long-term Bet on Verifiable DeFi: Lighter's deep technical foundation in ZK proofs and commitment to verifiability positions it for institutional adoption as regulatory clarity improves. Investors should look for protocols solving core trust issues with robust tech.
• Market Expansion Play: The zero-fee model, if successful in expanding the overall trading market, could lead to significant long-term value capture through increased activity and professional engagement, even if direct fees are low.
• Diversified Revenue Potential: Keep an eye on Lighter's expansion into options, fixed income, and tokenized real-world assets. These could open up substantial new revenue streams beyond traditional perp trading.
• Tokenomics Clarity: The upcoming tokenomics announcement and revenue transparency will be crucial for evaluating the token's value accrual mechanism.

Warnings for Investors:

• "Hype Cycle" Risk: While Lighter has strong fundamentals, the crypto market is prone to post-TGE drop-offs. Evaluate the sustainability of user acquisition beyond initial incentives.
• Regulatory Uncertainty: While conversations are improving, the path to full regulatory clarity for complex DeFi products like options and tokenized securities remains long and uncertain, especially for US markets.

Opportunities for Builders:

• Composability as a Platform: Lighter's "sidecar protocol" vision offers a platform for other DeFi projects (lending, stablecoins, tokenization) to build on its L2, leveraging its low latency and verifiability without needing to spin up their own ZK teams. This is a significant opportunity for dApp developers.
• Real-World Asset Integration: Builders focused on tokenizing real-world assets (stocks, fixed income, commodities) should explore Lighter's roadmap as a potential venue for trading and liquidity.
• ZK Proof Expertise: The emphasis on ZK proofs for scalability highlights a growing demand for ZK-native development and auditing expertise in the DeFi space.

Warnings for Builders:

• Complexity of ZK: Building on ZK-based L2s requires specialized knowledge. While Lighter aims to simplify this with its sidecar, developers should be prepared for the technical demands.
• Competitive Pressure: The perp DEX space is crowded. New builders need a strong differentiator beyond just "points farming" to gain sticky users.

Building for Verifiability, Not Just Decentralization

"The actual thing you're trying to solve for is verifiability... the best approach to a lot of this is using zero knowledge proofs which... you can use them for privacy but the main thing we use them for is scalability."

• Core Principles: Lighter's foundation rests on five goals: low cost, low latency, security, verifiability, and composability. This comprehensive approach aims to deliver a robust trading experience.
• ZK for Scale: Zero-Knowledge (ZK) proofs are central to Lighter's architecture, primarily for scalability. ZK proofs allow Lighter to prove millions of trades happened correctly without posting every transaction on Ethereum, drastically reducing costs and increasing speed. Think of it like proving you know a secret without ever revealing the secret itself.
• On-Chain Guarantees: Lighter's L2 provides a strong security guarantee: if the system is compromised, users can withdraw assets directly from Ethereum. The ZK circuits define the marketplace rules, ensuring any deviation invalidates proofs.

The Zero-Fee Model: Expanding the Market

"We've philosophically it always made sense to us to do that... if you remove friction from the market that expands the set of strategies that are there and the number of traders that can be there."

• Market Expansion: Lighter's zero-fee model for retail traders aims to expand the overall market by reducing friction, attracting more participants and enabling new trading strategies. This is like a toll-free highway, encouraging more drivers and, in turn, more service providers.
• Professional Monetization: Value capture is expected from professional trading firms, who benefit from increased liquidity and tighter spreads. These firms may pay for premium API access or other specialized services.
• Robinhood Analogy (with caveats): While inspired by Robinhood's zero-fee success, Lighter acknowledges that DeFi's on-chain nature prevents a direct replication of Robinhood's order flow payment model. Lighter's approach is a conceptual adaptation for DeFi's unique environment.

Composability and the Future of DeFi

"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, Circle... lending applications are important because if you want to do stuff like basis trading you need some form of lending market there."

• Sidecar Protocol: Lighter's "sidecar protocol" will allow other DeFi applications (lending, stablecoins, tokenization) to build on its L2, leveraging its low latency and verifiability. This enables a broader ecosystem without requiring every project to develop ZK expertise.
• Real-World Assets & Options: The roadmap includes integrating more real-world assets (tokenized stocks, fixed income) and options trading, which can be a significant revenue driver in TradFi and offers a cleaner structure than perps.
• Tokenization of Positions: A longer-term vision involves tokenizing positions on Lighter, allowing them to be bridged back to Ethereum and traded as assets without direct interaction with Lighter.

Key Takeaways:

• Verifiable Infrastructure: Lighter's ZK-centric approach to verifiability positions it as a robust platform for institutional adoption as regulatory clarity improves.
• Market Expansion Strategy: The zero-fee model is a bold play to expand the DeFi trading market, potentially attracting a new wave of users and professional liquidity.
• Ecosystem Play: The "sidecar protocol" and planned expansion into RWAs, options, and fixed income signal Lighter's ambition to become a foundational layer for a broader, more integrated DeFi.

For further insights and detailed discussions, watch the full podcast: Link