Hyperliquid Overview: The Protocol’s Features and Functionalities

Hyperliquid launched its testnet on Ethereum's scaling solution, Arbitrum, at the end of 2022 before transitioning to the HyperLiquid Layer 1 blockchain. Over time, the protocol expanded, adding new features and native components.  

At the time of this writing, the Hyperliquid chain ranks among the top 15 blockchains, by TVL, which stands above $674 million, according to DefiLlama.

Next, we’ll discuss different components of the Hyperliquid financial ecosystem. 

Hyperliquid DEX   

Hyperliquid is a top decentralized perpetual exchange with a current trading volume of over $1 billion, surpassing dYdX and Kine Protocol. The platform reached its all-time high in this metric on August 6, 2024, hitting $4.3 billion.

On Hyperliquid and other perpetual exchanges, traders can buy and sell contracts to speculate on cryptocurrency prices. This allows them to profit from price changes and open large positions without actually buying or selling the underlying assets.

Hyperliquid uses an on-chain order book to manage transactions and supports 133 cryptocurrencies. According to the website, the chain can handle 100,000 orders per second, offering traders low fees and instant finality. 

Traders can join Hyperliquid through their crypto wallets or email addresses. To start with a crypto wallet, they need an Ethereum-compatible wallet, such as MetaMask, and should select this option on the platform.

When using email onboarding, a user enters their email, and the network generates a new blockchain address for them. This process on Hyperliquid is decentralized and permissionless, thanks to the platform's integrated privacy solution by Privy.  

The Hyperliquid DEX supports advanced trading strategies, including Stop Loss, Take Profit, and Limit orders with up to 50x leverage. To start trading and place an order, users need to deposit USDC stablecoins.  

Hyperliquid’s Cumulative Trading Volume since March 2023. Source: DeFiLlama

Spot Trading and Native Token Standards   

In March 2024, Hyperliquid announced support for user-deployed spot trading and two native token standards: HIP-1 and HIP-2. Unlike perpetual trading, spot trading means a trader buys an asset at a certain price and takes immediate ownership of it.

HyperLiquid’s HIP-1 token standard allows users to create and trade tokens on the blockchain. The HIP-2, on the other hand, is a mechanism automating liquidity management for HIP-1 tokens and ensuring continuous liquidity.  

The first HIP-1 native token launched on the Hyperliquid L1 blockchain became PURR, a memecoin with a 1 billion maximum supply. PURR went live on the mainnet in April 2024 after its testing stage was completed.   

HyperLiquid Vaults   

Another feature of the HyperLiquid protocol is its vaults, which allow users to deposit funds and earn profits. HyperLiquid offers two types of vaults: user vaults and protocol vaults, each using different mechanisms for profit generation. These can be managed by individual traders or automated by market makers.

Depositing funds into a user vault allows the trader to automatically copy all trades, sharing profits and losses. Users can also create their own vaults by writing a description and depositing a minimum of 100 USDC.

Meanwhile, the protocol’s Hyperliquidity Provider feature is a community-owned vault with lower-risk strategies. It allows users to deposit funds for market-making and liquidation strategies, participating in both gains and losses.

Closing Thoughts   

Hyperliquid is one of the most competitive DeFi platforms, offering perpetual DEX, spot trading, and profit generation opportunities. The ecosystem also features points distribution and referral programs to reward active users with spot token airdrops and fee discounts.

Disclaimer: Please note that this article is for informational purposes only and does not include any trading recommendations. Be aware that trading involves risks and do your own research before starting with any platform.