Author: Alexon
Source: Wu Says Blockchain
Hyperliquid, as a decentralized derivatives exchange, has reached an astonishing FDV of nearly $15 billion without being listed on any CEXs, becoming a rare phenomenon this year. Alexon is the CIO of Ferryboat Research. This video reviews Alexon's thoughts on the hype: why, despite noticing Hyperliquid early on, he ultimately chose to pass, including an excessive obsession with decentralization and the failure to dig deeper into internal information. It interprets Hyperliquid's core strategy, believing its success is due to an efficient marketing model that maximizes project hype through airdrops and binding top-tier resources, precisely concentrating funds on key aspects. Unique insights into Hyperliquid's capital inflow, pricing power concentration, and exit mechanisms provide important references for the operation of on-chain projects. This is not only a review of a failure but also a profound analysis of successful models for on-chain projects.
Opening
Welcome to Episode 136 of Alex's Crypto Diary. Yesterday, I reviewed a question that I think has some value and is worth recording.
The question is: why did we notice Hyperliquid early on but did not participate, thus missing one of the most important opportunities of the year? This could be considered a kind of "airdrop"; after all, it looked like a sum of money we could earn, so why didn't we seize it? What was I thinking at the time? Why, despite discovering it early, did I not take action? There are many reasons involved in this process. Will I miss out again in similar situations?
Therefore, today's content will be divided into three parts:
- The first part is a review: if I could do it again, would I still miss it?
- The second part is reflection: if there was a mistake, where was it?
- The third part is to explore why Hyperliquid was able to rise so high, and how I would plan an exit strategy if I were the organizer of Hyperliquid.
Statement of Views
I also know that there are friends from Hyperliquid watching this video on our channel, so I want to state that my views are entirely personal opinions, with no malice intended. I hope you can develop well, but at the same time, I believe some of the designs are centralized. I also hope these discussions can inspire everyone.
Again, I emphasize that I only wish the best for the Hyperliquid team because I personally hope DeFi can truly rise. My views represent only my personal stance, with no other intentions. Alright, without further ado. Crypto is a high-volatility, high-risk, and highly financialized field. You might find a gold mine, or you might lose all your capital. So be prepared. Now, let's get started.
Part One: If Time Could Be Rewound, Would I Still Miss It?
First, the first question: if time could be rewound, would I still miss Hyperliquid? To be honest, I have thought about this question. I believe the answer is: most likely, I would still miss it.
Looking back, I first published an article about Hyperliquid on August 6, which was probably written when I encountered this project at the end of July. If you look back at the content from that time, you will find that the reason I missed it is very clear: I believed its nodes and bridge were centralized. My starting point was to focus on high-performance public chains, and my personal preference was to exclude completely centralized solutions. In my view, even if Hyperliquid has now risen to a market cap of $10 billion, this fact has not changed. This was my judgment at the time; I am not criticizing it.
However, I also admit my mistake. My mistake was: must we accept the existence of centralization? For example, initially, everyone could not accept the centralized design of Sequencer, but now, with the popularity of Layer 2, it seems that centralization has gradually been accepted by the market. However, from our team's perspective, our stance is not to accept this model. So even if I could do it again, I would still pass on Hyperliquid for this reason. We had already studied it seriously at the time, but ultimately chose to pass.
Part Two: Where Did We Go Wrong?
Mistake 1: Wrong Benchmarking
This leads to the second question: where exactly did we go wrong? The market is always right, and we as individuals may be wrong. Just because we couldn't make money from it doesn't mean we are right. We need to reflect on where the error actually occurred.
I believe there are mainly two issues. The first issue is that we chose the wrong benchmarks. At that time, my focus was on high-performance public chains, such as Monad, MegaETH, Sui, and Hyperliquid, especially on-chain order book projects, which I paid a lot of attention to.
Among these projects, Hyperliquid is the simplest and most straightforward solution—achieving high performance through centralized nodes and bridges. This model itself is not complex. But where I went wrong was that I only realized a key issue when it was about to conduct its TGE (Token Generation Event), or rather, a colleague in the team raised this question. He suddenly thought while studying the paper that, to some extent, Hyperliquid might be superior to existing centralized exchanges (CEX).
I think this perspective is something we hadn't considered before. All my benchmarks were basically high-performance projects that I thought were comparable. However, in reality, if viewed from another angle, Hyperliquid should be compared with centralized exchanges (CEX) like OKX, Binance, Bitget, or Coinbase. In this case, is it slightly more decentralized? Or is it smoother in on-chain interactions? Although it may not be completely on-chain, at this stage, the market might need a product like this.
From this perspective, I believe Hyperliquid is indeed more decentralized compared to Binance or other exchanges. I don't know if everyone can understand my point, but this is the first core mistake I made. If there was a mistake in this process, I believe my error was in choosing the wrong benchmarking direction. From the market results, my perspective on the issue was incorrect.
Mistake 2: Not Actively Investigating Internal Information
The second mistake is that I did not actively seek internal information. What does this mean? In fact, I had thought about this matter at the time and mentioned it in the content. At that time, Hyperliquid's TVL (Total Value Locked) was $700 million, of which $500 million was USDC. This puzzled me: whose $500 million USDC was it? I found this number strange, but since I couldn't find any public information, I didn't dig deeper. If it were in the secondary market, I would definitely investigate who was behind the accumulation, but on the issue of Hyperliquid, I made a serious mistake. When I found that there was no relevant information available in the public market, I did not seek to find internal news more deeply. In fact, I had channels around me, but I did not dig deeper to clarify the source of this $500 million USDC. If I had pursued and investigated it at that time, perhaps we would have taken action earlier, or even participated.
Looking back, I had no idea which faction, which force, what kind of people and styles were behind it. The only thing I knew was that there was $500 million lying on the books. I firmly believed that this was not just funds deposited by ordinary users. At that stage, having $500 million in cash directly on the books clearly indicated strong support. But in terms of digging for internal information, my work was inadequate.
To summarize the second part, I believe my two core mistakes were: choosing the wrong benchmarks and not investigating internal information thoroughly.
Part Three: Hyperliquid's Strategy and Insights
Next is the third part: why was Hyperliquid able to pump after going live? Or, what can we learn from the entire process? If I were the one in charge, how would I exit?
Marketing Strategy of Binding Top Resources + Airdrop Fission
First, let's look at its rise. You can see that its airdrop distribution was very clean, with many tokens directly unlocked and allocated to the community. As far as I know, its airdrop ratio is very large. Some friends who follow our channel often message me to discuss Hyperliquid, such as a friend named "Tea No Thought." At that time, almost no one in the Chinese community was discussing Hyperliquid, but he persistently shared a lot of information about Hyperliquid, resulting in him earning hundreds of thousands of dollars through Hyperliquid.
I don't know if that friend has sold yet, but he might have already made over a million dollars. I genuinely feel happy for him; whether it's speculation or investment, as long as what you focus on brings returns, I am glad for you. Honestly, I have never received an airdrop worth over a million dollars. However, I want to emphasize that we need to understand why this situation occurred. From the perspective of operators or entrepreneurs, Hyperliquid directly invested its marketing expenses into airdrops, meaning they used all the fission costs in the most effective place. This is a very successful strategy.
Hyperliquid is a case worth learning from in the "high-profile" strategy. Many people analyze airdrops and say, "This is to give back to the community," but in reality, the logic is not that simple. Essentially, airdrops are a means of acquiring traffic, similar to distribution. Tokens are their products, and airdrops are a way to attract users to purchase.
There are two common strategies:
The first is "high-profile," which means seeking super top resources. For example, in mainland China, if you want to sell goods, you can choose to collaborate with top streamers like Wei Ya, Li Jiaqi, Xiao Yang Ge, Luo Yonghao, or Dong Yuhui. They can quickly boost sales through their influence. Even if this method may not be profitable initially, you can further optimize your marketing strategy by leveraging their sales heat, such as using their sliced content to attract more mid-tier streamers to join the promotion, thereby enhancing your bargaining power. This approach is common in large consumer goods companies like Procter & Gamble.
The second strategy is "surrounding the city from the countryside." If we compare super streamers like Li Jiaqi to aircraft carriers, then another strategy is to find thousands of small boats to form a similar attacking force. This means using a large number of KOLs (Key Opinion Leaders) or KOCs (Key Opinion Consumers), these individual users with fewer fans but high authenticity, to help promote the product. Whether paying small fees or sending small gifts for exchange, the genuine interaction of these ordinary users can lead to higher conversion rates.
Today, this strategy is very common in the exchange industry. I receive many promotional invitations every day, some sending items, and some directly asking if I am willing to accept promotions. To be honest, although our channel is not currently accepting advertisements, I must say that some promotions are so cheap that accepting them would actually devalue us.
In this industry, KOLs and KOCs represent a very typical "Matthew Effect" phenomenon. Top resources monopolize everything, while these mid-tier opinion leaders have little room for survival. From the perspective of traffic growth, the environment for Chinese KOLs in the crypto field indeed has issues, falling into a negative cycle. Many KOLs can only survive by "cleaning up" for project parties or exchanges, which creates an awkward ecosystem. To learn, I have also paid to join some so-called paid groups, but to be honest, much of the content was unbearable— the sales pitches were too obvious, all soft advertisements.
However, let's stop the complaints here and return to Hyperliquid's marketing strategy. I just mentioned two strategies: one is the top-down approach with super top resources, and the other is the bottom-up approach with grassroots fission. Hyperliquid has done well in both areas. The first strategy is to bind large traffic resources; for example, in the first half of this year, I heard Ansem mention Hyperliquid. Although they hadn't launched at that time, the ability to quickly bind these resources indicates that there is definitely something significant behind it.
Currently, Hyperliquid has demonstrated strong financial strength. You will find that other projects bound by Ansem, like Fantom, which has been vocal since early on, often have around $500 million in reserve funds. The fact that Hyperliquid can bind resources of this scale indicates that there is very strong support behind it. This scale of financial foundation allows it to confidently push its strategies.
One noteworthy point is that Hyperliquid has not invested any funds in mid-tier resources. Their strategy is to radiate downwards through the influence of super top resources while allowing grassroots users to fission, ultimately driving mid-tier resources to participate passively. Their funding is mainly concentrated in two areas: first, directly airdropping to grassroots users and actual participants; second, binding with super top resources. This model is very clever, avoiding many intermediate costs, such as listing fees, promotion fees, and exchange intermediary fees, and using the saved funds to enhance the project's dissemination effect.
The logic of airdrops also needs to be understood deeply. Many people simply view airdrops as "giving away money," but that's not the case. Only when funds actually flow out can it be considered a real expenditure. If a project sets a price floor and repurchases when it falls below, net outflows can be controlled within a very small range. When the market performs well, this strategy can even require no additional expenditure, instead enhancing the project's brand image and market heat.
In this way, Hyperliquid concentrates all resources on airdrops and binding with super top resources, avoiding waste on other expenses. At the same time, they ensure that trading volume and pricing power are concentrated on their own platform. This approach not only gives value to their Layer 1 but also firmly grasps market pricing power.
If I Were the Operator, How Would I Exit?
If I were to plan the exit mechanism, I would choose to gradually exit from ecological projects. For example, by launching a Memecoin or other ecological projects to enhance overall valuation, while exiting a portion of liquidity at a high valuation state, and maintaining the main token at a high price level to ensure the sustainability of the ecosystem. This is one option.
Another option is to use a distribution strategy, firmly grasping pricing power, and gradually expanding to other exchanges after the project matures. At this point, the cost of tokens or funds offered would be significantly reduced because the project's market cap and trading volume would be sufficient to support its negotiating advantage. Regardless of the trading situation on other exchanges, Hyperliquid's liquidity would always be the highest, and pricing power would remain firmly in its hands.
The brilliance of this approach lies in its utilization of the advantages of a centralized structure. For example, Hyperliquid's core trading process can run on its own database, greatly reducing operational costs. At the same time, it avoids the high Gas fees that need to be paid in traditional on-chain trading. This characteristic gives Hyperliquid tremendous competitiveness, allowing it to maintain a strong market influence at very low costs. (Maintaining high volume and high FDV, from various angles of arbitrage, is extremely advantageous.)
Therefore, from the exit perspective, I believe the ideal way is to gradually complete the exit on other exchanges rather than relying on its own platform. Meanwhile, throughout the process, by becoming a market maker, Hyperliquid itself can earn sufficient profits, even without a true exit.
Conclusion
Finally, I recommend everyone listen to the WSH Podcast, which recently interviewed Hyperliquid's CEO, Jeff. This episode is very helpful for understanding the strategies and thoughts behind Hyperliquid. Although our team may still not directly participate in Hyperliquid, we will continue to pay attention to this project because it holds significant meaning in the market and industry development.
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