The "Singularity Moment" of Perp DEX: Why Hyperliquid Can Kick Open the Door to On-Chain Derivation?

Written by: imToken

“Derivatives are the holy grail of DeFi”; regarding on-chain perp protocols being the ticket to the second half of DeFi, the market reached a consensus on this as early as 2020.

But the reality is that for the past 5 years, whether constrained by performance or cost, perp DEX has always faced a difficult trade-off between “performance” and “decentralization.” During this time, the AMM model represented by GMX has achieved permissionless trading, but it struggles to compete with CEX in terms of trading speed, slippage, and depth.

Until the emergence of Hyperliquid, which achieved a seamless experience comparable to CEX on a fully self-custodial blockchain with its unique on-chain order book architecture, the recent HIP-3 proposal has further broken down the barriers between Crypto and TradFi, opening up infinite possibilities for trading more assets on-chain.

This article will also take everyone deep into the operation mechanism of Hyperliquid, the sources of income, objectively analyze its potential risks, and explore the revolutionary variables it brings to the DeFi derivatives track.

the cycle of the perp DEX track

Leverage is the core primitive of finance. In mature financial markets, derivatives trading far exceeds spot trading in terms of liquidity, capital volume, and trading scale. After all, through margin and leverage mechanisms, limited funds can leverage a larger market volume, meeting various needs such as hedging, speculation, and yield management.

The crypto world, at least in the CEX field, has confirmed this rule. As early as 2020, derivative trading represented by contract futures began to replace spot trading in CEX, gradually becoming the dominant market.

Coinglass data shows that in the past 24 hours, the daily trading volume of top CEX futures contracts has reached hundreds of billions of dollars, with Binance exceeding 130 billion dollars.

Source: Coinglass

In contrast, on-chain perp DEX has been a long journey of five years. During this period, dYdX explored a more centralized experience through on-chain order books, but faced challenges in balancing performance and decentralization. The AMM model represented by GMX achieved permissionless trading, yet still falls short of CEX in terms of trading speed, slippage, and depth.

In fact, the sudden collapse of FTX in early November 2022 temporarily stimulated a surge in trading volume and new user numbers for on-chain derivatives protocols such as GMX and dYdX. However, constrained by factors like market conditions, on-chain trading performance, trading depth, and the variety of trades, the entire sector quickly fell back into silence.

To be frank, once users find that they have to bear the same liquidation risk in on-chain trading but cannot obtain the level of liquidity and experience of a CEX, their willingness to migrate will naturally drop to zero.

So the key issue is not whether there is demand for “on-chain derivatives,” but rather the persistent lack of a product form that can provide value that CEX cannot replace and also solve performance bottlenecks.

The gap in the market is very clear: DeFi needs a perp DEX protocol that can truly deliver a CEX-level experience.

It is against this backdrop that the emergence of Hyperliquid introduces new variables to the entire track. What is less known is that although Hyperliquid officially gained attention this year and entered the sights of many users, it was actually launched as early as 2023 and has been continuously iterating and accumulating over the past two years.

Is Hyperliquid the ultimate form of “on-chain CEX”?

Confronted with the long-standing dilemma of “performance vs. decentralization” in the perp DEX space, Hyperliquid's goal is straightforward - to directly replicate the smooth experience of CEX on-chain.

To this end, it chose an aggressive path, not relying on the performance constraints of existing public chains, but instead building a dedicated L1 application chain based on the Arbitrum Orbit technology stack, and equipping it with a fully on-chain order book and matching engine.

This means that from order placement, matching to settlement, all trading processes occur transparently on-chain, while achieving millisecond-level processing speeds. Therefore, in terms of architecture, Hyperliquid resembles a “fully on-chain version” of dYdX, as it no longer relies on any off-chain matching, with the goal aimed directly at the ultimate form of “on-chain CEX.”

The effect of this radical approach is immediate.

Since the beginning of this year, Hyperliquid's daily trading volume has risen sharply, reaching as high as $20 billion. As of September 25, 2025, the total cumulative trading volume has exceeded $2.7 trillion, and its revenue scale even surpasses that of most second-tier CEXs. This fully demonstrates that on-chain derivatives are not lacking in demand, but rather in the truly DeFi-compatible product forms.

Source: Hyperliquid

Of course, such strong growth has quickly brought ecological attraction. Recently, the bidding war for the issuance rights of USDH sparked by HyperLiquid attracted heavyweight players like Circle, Paxos, and Frax Finance to openly compete (see extended reading “Where is the fulcrum of DeFi stablecoins from HyperLiquid's USDH becoming a hot commodity?”). This is the best example.

However, merely replicating the CEX experience is not the endpoint for Hyperliquid. The recently passed HIP-3 proposal introduces a permissionless perpetual contract market deployed by developers on the core infrastructure. Previously, only the core team could launch trading pairs, but now any user who stakes 1,000,000 HYPE can directly deploy their own market on-chain.

In short, HIP-3 allows the creation and launch of any asset derivatives market on Hyperliquid without permission. This completely breaks the limitation that past Perp DEXs could only trade mainstream cryptocurrencies. Under the framework of HIP-3, in the future we might see on Hyperliquid:

Stock Market: Trade top global financial market assets like Tesla (TSLA), Apple (AAPL);

Commodities and Forex: Trade traditional financial products such as gold (XAU), silver (XAG), or euro / dollar (EUR/USD);

Prediction markets: Betting on various events, such as “Will the Federal Reserve lower interest rates next time?” or “The floor price of a certain blue-chip NFT.”

This will undoubtedly greatly expand the asset classes and potential user base of Hyperliquid, blurring the lines between DeFi and TradFi. In other words, it allows any user globally to access the core assets and financial practices of the traditional world in a decentralized and permissionless manner.

What is on the other side of the coin?

However, while the high performance and innovative model of Hyperliquid are exciting, there are also significant risks behind it, especially given that it has not yet undergone a major crisis “stress test.”

Cross-chain bridge issues are at the forefront, and this is the most discussed topic in the community. Hyperliquid connects to the mainnet through a cross-chain bridge controlled by a 3/4 multi-signature, which also constitutes a centralized trust node. If any of these signatures encounter problems due to unforeseen circumstances (such as lost private keys) or malicious intent (such as collusion), it will directly threaten the asset security of all users in the cross-chain bridge.

Secondly, there is the risk of the treasury strategy, as the returns of the HLP treasury are not guaranteed to be principal-protected. If the market maker's strategy incurs losses under specific market conditions, the principal deposited in the treasury will also decrease accordingly. Users must bear the risk of strategy failure while enjoying the expectation of high returns.

As an on-chain protocol, Hyperliquid also faces conventional DeFi risks such as smart contract vulnerabilities, oracle price feeding errors, and user liquidations in leveraged trading. In fact, in recent months, the platform has experienced multiple large-scale extreme liquidation events caused by malicious manipulation of the prices of certain low market cap tokens, which exposes its need for improvement in risk control and market regulation.

Moreover, objectively speaking, there is another issue that many people have not considered, which is that as a rapidly growing platform, Hyperliquid has yet to undergo a major compliance review or face a serious security incident. During a phase of rapid expansion, risks are often overshadowed by the halo of rapid growth.

Overall, the story of perp DEX is far from over.

Hyperliquid is just the beginning. Its rapid rise not only proves the genuine demand for on-chain derivatives but also demonstrates the feasibility of overcoming performance bottlenecks through architectural innovation. HIP-3 extends imagination to stocks, gold, foreign exchange, and even prediction markets, truly blurring the lines between DeFi and TradFi for the first time.

Although high returns are always accompanied by high risks, from a macro perspective, the attractiveness of the DeFi derivatives sector will not diminish due to the risks of a single project. It is not ruled out that new projects will emerge to take over from Hyperliquid/Aster as the next leading on-chain derivatives projects. Therefore, as long as we believe in the charm and potential of the DeFi ecosystem and the derivatives sector, we should give enough attention to similar seed players.

Perhaps looking back several years later, this will be a brand new historical opportunity.