Forward the Original Title‘Hyperliquid: 9% Binance, 78% Centralized’

Initially, no one cared about this trade. It was just a farce, an “pulling the plug” event, the extinction of an idea (decentralization), and the disappearance of an L1. Until this disaster is closely related to everyone.

On March 26, Hyperliquid experienced a catastrophic event triggered by a Meme, similar to what happened previously with the 50x whale. The whale gathered funds and exploited a “loophole” in the rules to attack the HLP vault.

Image Caption: Attack Process | Source: @ai_9684xtpa

At first glance, this was merely a story of an attacker versus Hyperliquid. In reality, Hyperliquid took on the whale’s position, turning a PVP (player vs. player) scenario into PVH (player versus Hyperliquid). The resulting $4 million loss was merely a minor setback for the Hyperliquid protocol.

However, things took a turn when Binance and OKX quickly listed the $JELLYJELLY contract, a move that seemed like striking while Hyperliquid was down. The logic was simple—if Hyperliquid could absorb the whale’s losses due to its capital reserves, exchanges like Binance and OKX, with even deeper liquidity, could continue draining Hyperliquid’s resources. This process could eventually bleed Hyperliquid dry, pushing it into a death spiral similar to Luna-UST.

In the end, Hyperliquid chose to abandon its decentralization principles by voting to delist $JELLYJELLY, effectively performing a ‘rug pull’ and admitting it couldn’t afford to lose.

Upon reviewing this situation, Hyperliquid’s response is standard practice for centralized exchanges (CEX). This leads to a broader conclusion: after Hyperliquid, the on-chain ecosystem is likely to accept this ‘new normal’—where decentralization is no longer the top priority, and transparency in governance becomes more critical.

DEXs don’t need to be fully decentralized but should maintain a higher degree of transparency than CEXs. The key lies in striking a balance between crypto culture and capital efficiency, allowing the system to sustain itself in the long run.

9% of Binance: When Crypto Culture Surrenders to Capital Efficiency

Pulling the plug is weak, pinning orders is shady, and getting caught market-making is just foolish.

According to data from The Block, Hyperliquid has consistently accounted for around 9% of Binance’s contract trading volume for the past two months. This is the real reason Binance responded aggressively—to eliminate the threat before it grew out of control. Hyperliquid has already stepped out of its cradle.

Business is war. Yesterday, Binance seized market share in the wallet space when OKX delisted its DEX. Today, Binance and OKX can join forces to strike under the shadow of Hayek’s invisible hand, highlighting the evolving three-way power struggle in the contract market.

Looking back at the recent hot topics in the industry, on-chain protocols have been facing increasing challenges. Staying decentralized is difficult. Polymarket recently admitted that large players manipulated the UMA oracle results, leading to dissatisfaction within the community. Similarly, Hyperliquid ultimately “pulled the plug” under pressure from Binance, earning criticism from Bitget’s CEO and Arthur Hayes, the co-founder of BitMEX.

To be fair, their criticism is not unfounded. Hyperliquid chose to prioritize capital efficiency and protocol security over pure decentralization. In my opinion, Hyperliquid is even less decentralized than Coinbase—at least Coinbase operates under strict regulatory oversight. Hyperliquid, on the other hand, is effectively a no-KYC CEX disguised as a Perp DEX.

To fully critique Hyperliquid, one must acknowledge its dual identity—operating as both a CEX and a Perp DEX. All the issues Hyperliquid faces today are challenges that CEXs have dealt with before. Even Arthur Hayes, who criticized Hyperliquid’s lack of decentralization, had to pull the plug during the infamous March 12, 2020 (3/12) incident to prevent BitMEX from potentially collapsing the entire crypto industry.

The tension between decentralization and centralization is a classic trolley problem in crypto. Opting for decentralization sacrifices capital efficiency, while choosing centralization undermines the free flow of capital.

Image Caption: Hyperliquid Organizational Structure | Source: @zuoyeweb3

Hyperliquid is actually a consensus with two business vertices:

• The consensus lies in the HyperBFT algorithm and its tangible manifestation—Hyperliquid L1.
• The businesses are: HyperCore, a custom-built spot and derivatives exchange running on L1, primarily controlled by Hyperliquid; HyperEVM, running parallel to HyperCore, which serves as a conventional EVM chain built on the same L1.

In this architecture, the cross-chain behavior of L1 and HyperCore/HyperEVM, and the interaction between HyperCore and HyperEVM, are all potential attack points. Consequently, the organizational complexity is a necessary safeguard to maintain Hyperliquid’s strong control over the protocol.

When it comes to Perp DEXs, Hyperliquid’s innovation doesn’t lie in its architecture. Instead, it mirrors GMX’s LP tokenization strategy with a slightly centralized approach, while utilizing token listings and airdrop incentives to fuel market competition. This allowed Hyperliquid to successfully carve out a significant share of the derivatives market previously dominated by CEXs.

To be clear, this is not a defense of Hyperliquid—this is simply the essence of Perp DEXs. Absolute decentralization makes it impossible to respond effectively to black swan events. Swift and efficient action requires a “sword bearer”—someone who can make decisive moves when necessary.

This scenario is reminiscent of how LooksRare failed to dethrone OpenSea, while Blur eventually succeeded. The debate over centralization often occurs across multiple layers. In Hyperliquid’s case, most of the centralization concerns stem from protocol-level changes. But this article isn’t about debating whether Hyperliquid is truly decentralized or not—it’s about recognizing that capital efficiency naturally drives the next generation of on-chain protocols to lean toward increased centralization. In essence, a slight compromise on decentralization is often the price to pay for higher capital efficiency.

78% Centralization: An Inevitable Consequence of Token Economics

Hyperliquid stands out by trading on-chain structures for CEX efficiency, using token economics to drive liquidity, and relying on a customized tech stack to ensure security.

Beyond its technical architecture, the real risk of Hyperliquid lies in the sustainability of its token economics. As mentioned earlier, Hyperliquid is an upgraded, tokenized version of GMX’s LP model—users can share protocol revenue, creating more liquidity and supporting the project’s token price.

However, this model assumes that the project team maintains sufficient control to ensure the protocol’s revenue continues to operate smoothly. This is especially critical in the highly leveraged derivatives market, where amplified returns also bring heightened risks—setting it apart from spot DEXs like Uniswap.

This explains the economic rationale behind Hyperliquid’s decision to adopt a more centralized architecture. As of now, out of 16 nodes, Hyper Foundation controls 5 nodes. However, in terms of staking proportion, the Foundation holds 330 million HYPER tokens, accounting for 78.54% of the total staked amount, far exceeding the two-thirds majority required for control.

Image Caption: Hyperliquid Node Distribution | Source: @zuoyeweb3

Looking back at security incidents in the past six months:

1. November 2024: Prominent figure criticizes Hyperliquid’s lack of decentralization—largely accurate.
2. Early 2025: The 50x whale incident—a mistake any exchange could make, but Hyperliquid’s on-chain transparency made it an easy target.
3. March 26, 2025: Hyperliquid’s “rug pull” on JELLYJELLY liquidation—completely true, with the Foundation exercising dominant voting power.

Through repeated battles and confrontations, the ideal of decentralization is gradually giving way to the pragmatic reality of capital efficiency. Hyperliquid has made efforts to minimize potential misconduct by VCs, airdrops, and internal liquidation (unlike Ripple’s founders with XRP), preserving a relatively normal product form and hoping to generate revenue through transaction fees.

In contrast, while the NFT market has been discredited as a passing fad, Perp DEXs are an on-chain necessity—which is why I believe that Hyperliquid’s model will inevitably be accepted by the market.

However, the real question is what happens after Hyperliquid’s crisis. Just as Bybit faced community skepticism after a security breach, will Hyperliquid’s founders and team change their mindset? Will they choose to remain the “good guys” under constant pressure, or will they align with centralized exchanges, further tightening control behind closed doors?

In other words, debating centralization versus decentralization misses the point. Perhaps the more important question is whether open, transparent protocol rules inevitably lead to public on-chain predation—a painful rite of passage for on-chain protocols—or whether this will slow down the progress of on-chain migration.

The real lesson is profound: Do we continue to uphold the ideals of decentralization, or do we fully surrender to capital efficiency? The world, much like Hyperliquid, increasingly finds itself caught in the shrinking middle ground.

So, should it be partial centralization + transparent rules + intervention when necessary, or 100% centralization + black-box operations + constant intervention?

Conclusion

After the 2008 financial crisis, the U.S. government intervened directly to bail out Wall Street—siphoning the lifeblood of taxpayers to keep Wall Street alive, without public consent. This blatant act of saving the elite at the expense of the masses gave birth to Bitcoin, the antithesis of centralized control. Today, Hyperliquid is simply a modern on-chain version of the same old script—except this time, the role of the “too-big-to-fail” institution is played by a blockchain Wall Street in need of rescue.

In the aftermath of Hyperliquid’s crisis, prominent figures took turns scrutinizing the platform. From Arthur Hayes to Andre Cronje (AC), voices from all corners called for Hyperliquid to adhere to the ideals of decentralization. But this is just the continuation of the on-chain power struggle. Ironically, AC, who once questioned Ethena’s feasibility, now finds himself standing on the same side as Hayes—both advocating for a return to decentralization.

Once a player enters the game, they must be prepared to become a pawn. Whether on-chain or off-chain, adhering to absolute principles while maintaining a relative bottom line is the inescapable balancing act of every participant.

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