Hyperliquid is a standalone layer-1 blockchain for trading perpetual futures and spot markets. The central order book runs fully on-chain: orders, cancellations, trades and liquidations pass through the chain's consensus rather than a pricing formula in a liquidity pool. HyperBFT, a protocol-native algorithm, provides that consensus.
Behind the protocol stands the Hyper Foundation. The foundation issued the network token HYPE on 29 November 2024 in a genesis event. As a decentralized exchange, Hyperliquid works differently from pool-based venues. Orders meet an order book with price-time priority instead of a liquidity pool. The focus lies on perpetual futures, meaning futures contracts without an expiry date. The same chain also runs a smart contract environment, HyperEVM. Hyperliquid therefore denotes two things: the trading venue and the blockchain it runs on.
How does Hyperliquid's order book work without an AMM
Hyperliquid's trading engine, HyperCore, runs the perpetual and spot order books on-chain. Every order, every cancellation, every trade and every liquidation passes through HyperBFT consensus. Each becomes final from the following block onward. HyperBFT is a protocol-native consensus algorithm that builds on ideas from HotStuff. Thus the entire market state lies open, not just the outcome of a completed trade.
Pool-based futures markets, however, rely on an automated market maker. There a formula inside the liquidity pool sets the price. Traders then trade against the pool instead of against each other. An order book maps supply and demand individually, while a pool formula shows only their net balance. Anyone who equates Hyperliquid with pool-based venues such as GMX misses exactly this difference. Many also confuse HyperCore and HyperEVM. HyperCore is the trading engine, HyperEVM the smart contract environment on top of it. HyperEVM is not a separate chain. Instead, it runs under the same consensus as the order books. Smart contracts there read price data directly from the HyperCore books through read precompiles, without their own oracle infrastructure.
The protocol also sets the trading fee, which depends on the role in the order book. At the base tier, makers pay 0.015% of the trade value and takers pay 0.045%. Those fees go entirely to the community. The HLP vault, the Assistance Fund and the deployers of the individual markets share them.
What the HYPE supply consists of
The total supply of HYPE, the network token of Hyperliquid, is capped at 1 billion tokens. At the genesis event, 31% of that went to the genesis participants free of charge and fully unlocked. The largest single block, however, remains unminted and is earmarked for future issuance and community rewards. Core contributor allocations were initially subject to a one-year lockup starting at the genesis event. The breakdown lists no separate allocation to venture capital investors.
| Allocation | Amount (HYPE) | Share |
|---|---|---|
| Genesis distribution to the community | 310,000,000 | 31.0% |
| Future issuance and community rewards | 388,880,000 | 38.888% |
| Core contributors | 238,000,000 | 23.8% |
| Hyper Foundation budget | 60,000,000 | 6.0% |
| Community grants | 3,000,000 | 0.3% |
| HIP-2 (Hyperliquidity) | 120,000 | 0.012% |
| Total supply | 1,000,000,000 | 100% |
In addition, HYPE serves as the native gas token on HyperEVM. The protocol burns both the base fee and the priority fee there, as EIP-1559 prescribes. A second burn channel runs through the Assistance Fund, a system address of the network. It converts trading fees into HYPE automatically, as part of execution on the layer 1. Whatever lands there leaves circulation and total supply permanently.
What happens during a liquidation through the HLP vault
Every leveraged position on Hyperliquid carries a maintenance margin: the minimum collateral, measured against the position value. Specifically, that threshold sits between 1.25% and 16.7%, depending on the chosen leverage tier. Once a position falls below it, the system first attempts a regular market order to close it. If that works in the order book, the process ends like an ordinary trade.
If that fails, a second mechanism takes over. Should account equity drop below two thirds of the maintenance margin threshold, the liquidator vault steps in as counterparty. It then settles the position through the order book. That vault belongs to HLP, the Hyperliquidity Provider, and therefore to the protocol itself. The system also handles large positions in stages. Part goes into the book as a market liquidation order first, and the rest follows after a cooldown period. This staggering dampens cascades, because it does not throw a large position into a thin book all at once.
HLP belongs to the community. The vault also provides liquidity through several market-making strategies and executes liquidations. In return, it receives a share of the trading fees. Consequently, depositors carry the profits and losses of these strategies. Anyone who deposits, however, cannot access that capital for four days, counted from the most recent deposit. Each new deposit restarts the period. Capital therefore cannot flow out within hours.
How decentralized is Hyperliquid
Validators carry the consensus, and the largest of them by total stake move into the active set. How many seats that set holds, however, is not fixed, and it has changed since launch. Candidates must self-delegate at least 10,000 HYPE, and that stake stays locked for one year. The stake guarantees no seat in the set.
Criticism focused on exactly that point. Kam Benbrik of node operator Chorus One publicly criticized the closed source code of the node binary. He also named the dependence on a single API. Anyone unable to inspect a node's code cannot verify its behavior independently. Moreover, a single API is a point of failure for everyone who accesses it.
Hyperliquid responded publicly on 8 January 2025. The team denied selling validator seats. It also announced that it would open the node source code once doing so was secure. The team named no deadline for that step, however. The criticism therefore came before the first validator intervention in a live market.
How the JELLY incident unfolded in March 2025
On 26 March 2025, an attacker opened a large short position on Hyperliquid. The position sat in the perpetual market for the memecoin JELLY. At the same time, he held opposing long positions on other addresses and stayed market-neutral himself. Subsequently, he withdrew margin. The short position was therefore undercollateralized, and the protocol had to liquidate it. The setup aimed at precisely that.
As designed, the HLP vault took over the liquidated short position as counterparty. Later the attacker drove the JELLY price up by roughly 400%. The position it had taken over therefore fell deep into the red, at the expense of HLP depositors. Thus the vault mechanism became a target for attack.
Validators finally voted on a delisting of the JELLY market. The vote closed within minutes. The protocol force-settled all open positions at a set price of USD 0.0095. That price sat well below the manipulated market price, so the attacker lost the gain from the manipulation. In the end, a governance decision resolved the case, not the liquidation logic.
