"January 2024 Interview with Jeff: Hype Will Account for 90% of Total Network Trading Volume in the Future"
Question: Can you tell us about Hyperliquid? What is it and what are its features?
Jeff: Hyperliquid was initially incubated by Chameleon Trading, but now it is an independent foundation dedicated to building a decentralized trading platform, aiming to be as user-friendly as Binance while being completely decentralized.
We have done a lot of work to refine it, such as in user registration and login. Now, when you go to Hyperliquid, you just need to enter your email; there's no need to create a wallet. The email will help you create a secure private key, making the whole process very convenient, even easier than centralized exchanges. Additionally, in terms of liquidity, we have a community-owned HLP (Hyperliquid Protocol) that operates through smart algorithms and has achieved impressive results, trading billions of dollars and providing deep and tight liquidity, with a runtime of 100%. This is a unique aspect of Hyperliquid.
Furthermore, we are continuously optimizing the platform's interface and features, aiming to create a high-performance, user-friendly, decentralized derivatives DEX (decentralized exchange).
Question: Why did you choose to build Hyperliquid on Arbitrum, and how does the interaction work?
Jeff: There is a common misconception that Hyperliquid is an application of Arbitrum. However, since users primarily interact through Arbitrum and funds are bridged from Arbitrum, it’s easy to think that way.
Building a layer one network is quite important for creating a good derivatives DEX, but there is the chicken-and-egg problem with layer one, meaning there are no native valuable assets at the start, so we have to bridge from other chains. We believe Arbitrum has a lot of liquidity; GMX has done a great job attracting retail investors, and there are already billions of dollars on Arbitrum, so we started with users from there. This has proven to be the right approach, as people are willing to use Hyperliquid and will find ways to operate on Arbitrum.
In fact, the main operations of Hyperliquid run on its own layer one, but users generally do not feel this during their interactions, resulting in a smooth experience, with validators verifying transactions and operations on Hyperliquid's layer one.
Question: Is Hyperliquid's layer one exclusively for its own use? Are there plans to allow other trading platforms to use it in the future?
Jeff: Currently, the focus is indeed on being a layer one dedicated to Hyperliquid. Our entire team is working together to optimize the full stack, which is crucial for building a good derivatives DEX. We are continuously investing effort into innovation and improvement in areas such as infrastructure, user experience, liquidity provision, and the layer one itself.
In the long term, we are also researching and improving the consensus part of layer one, hoping to significantly enhance performance, although this is a relatively slow process.
As for allowing other projects to use this layer one in the future, it is not something we are in a hurry to do. After all, the priority is to build Hyperliquid itself well and ensure that its crypto derivatives trading functions are widely used.
Question: What do you think about some of dYdX's recent actions, such as the transition from v3 to building the dYdX chain with Cosmos SDK?
Jeff: We have also researched similar approaches before. The initial plan was quite similar to dYdX v3 or what Vertex is doing. We conducted actual tests and trading competitions on the Arbitrum testnet and found it usable, but there were two issues.
First, it cannot be completely decentralized; there will always be centralized components operating the order book. The second issue is that performance cannot meet actual needs, as all trade matching must occur on layer two. While layer two is cheaper and relatively fast, it is still not ideal and can be affected by shared resource usage. For example, when demand surges, the experience can deteriorate.
Therefore, after comprehensive consideration, we decided to build our own layer one, believing that this approach is safer and more capable of achieving decentralization in the long run.
Question: Recently, Hyperliquid's attention, trading volume, and user base have been increasing. What changes have you made in operations or planning?
Jeff: We actually hope to clearly understand all the reasons, but we can't say we fully grasp it. Our team is not very good at creating hype on social media or promoting our brand, nor are we skilled at seeking venture capital to inflate our valuation for attention.
I believe that the increase in Hyperliquid's usage is mainly due to the product itself being quite good. People are gradually discovering that it is indeed a great trading platform, leading to word-of-mouth growth in user numbers. It feels like we have reached a tipping point for user dissemination, and we have basically not spent money on promotional marketing or paid market makers, nor do we have external investors pushing this. It’s all about genuinely improving the product, and users find it good, which drives organic growth.
Question: You have not raised funds so far. What is your perspective on fundraising? Are there plans for fundraising in the future?
Jeff: Many teams raise funds because they genuinely need money to do things. But for us, Hyperliquid's goal is not simply to make money; we want to build it into a service that people are willing to use, which will naturally generate value, such as future returns for those holding related tokens.
Building a layer one and a derivatives DEX are long-term projects that are quite challenging and require repeated iterations. It’s not the kind of thing that makes money easily, so if we don’t really need the funds, we prefer to focus on perfecting the product. However, that doesn’t mean we will never raise funds. If fundraising can bring useful value to the protocol, such as gaining attention, obtaining external validation, or setting token price expectations, then it would be meaningful at the right time, but we haven’t reached that point yet.
Question: Hyperliquid is currently in the closed alpha phase of the mainnet and will soon enter the beta phase. What are the differences between these two phases, and what role will tokens play on the platform?
Jeff: There will ultimately be a token, as this network is a proof-of-stake layer one that requires tokens for delegation staking and decentralized governance, among other uses. However, we currently do not have specific details about the token.
The previous closed alpha phase required a referral code to enter, mainly involving a small group of users testing the platform. The rewards in this phase are related to a points system, which is different from other protocols. We do not want incentives to be the main reason for using the protocol, so the points are not transparent. This is to reward users who use the platform normally and to avoid people trying to "game the system" for rewards. In the beta phase, the overall platform will be further improved and opened to more users, with more features and stability, and we are continuously moving towards complete decentralization.
Question: Some people believe that the points system may affect decentralization and that some individuals might try to reverse-engineer the points acquisition rules to "milk the system." What is your view on the role of the points system in the ecosystem?
Jeff: The points system does have its pros and cons. The benefit is that it can balance transparency and rewarding real users. If the points rules were completely transparent, professional "points farmers" would come in, making it difficult for regular users to receive reasonable rewards. Ultimately, it might just be the big "interested parties" who profit, and they do not care about the platform itself.
While we sacrifice some transparency, we have always emphasized that there are no investors and no incentives for specific individuals to do anything. Users are not foolish; they can perceive the platform's value. In the long run, as long as it benefits users and the platform, I believe it is worthwhile. I hope that in the future, people will look back and recognize that this was the right choice.
Question: What is your favorite feature on Hyperliquid? Were there any inspirations from other projects or people in the ecosystem for these features?
Jeff: I think HLP might be the biggest standout feature on Hyperliquid. It is similar to Uniswap, based on the concept of liquidity pools, but Uniswap has issues with "points farming" and not being very profitable. HLP addresses this by holding some derivative positions and using high-frequency trading strategies to earn small profits on average trades, allowing the liquidity pool to be profitable. It also reflects the community ownership concept in the crypto space, representing an innovation in a traditional order book trading scenario that is often dominated by large players.
In terms of user interface (UI), we are committed to creating features that professional traders like, such as the newly added order scaling feature and various types of take-profit and stop-loss settings. We will also introduce TWAP and other features in the future, aiming to gradually implement all the functionalities that professional traders need. However, since layer one is decentralized, implementing these features does have its challenges, but we will do our best to make them usable.
Question: What new features can we expect from Hyperliquid in the future? Will there be a permissionless market?
Jeff: Hyperliquid's goal is to achieve complete permissionlessness. It’s not just about having a separate permissionless market feature; its oracle is built into layer one, and validators will publish oracle prices. In the long run, as long as the code matures enough to achieve decentralization, we can reach the goal of permissionlessness, allowing transactions and other operations to be conducted without permission. People can even build their own UIs and trading terminals based on Hyperliquid.
We already have cross-chain aggregators like LogX and perpetual contract protocols integrated with Hyperliquid, and most of the traffic is directed to Hyperliquid because of its good liquidity and pricing. We are also very willing to support various integrations to enrich the entire ecosystem.
Question: What is your vision for the development of DeFi in the next three years? In what areas do you think changes will occur?
Jeff: I am quite confident that in the next three years, most order book trading volume will shift to decentralized venues, potentially reaching 90%.
I believe this is partly because decentralization itself is a better way of doing things. Just as the trend of human societal development has moved from being very decentralized to centralized, and now is progressing towards a more democratic and decentralized direction, DeFi in the crypto space is an extension of this trend.
Currently, many people do not choose DEXs because they are not good enough. As long as we build DEXs to be sufficiently good, people will be willing to choose a more autonomous and independent decentralized trading method. Additionally, from the perspective of the crypto space itself, I believe we need to build dedicated layer ones for important applications, creating complex, high-performance protocols that can operate well under high loads and are truly decentralized. This is the only way to better replace centralized exchanges and achieve larger-scale development.
Question: As the proportion of DEXs increases, what actions do you think centralized exchanges will take? Will they participate more in decentralized solutions?
Jeff: I suspect that if centralized exchanges have not realized it yet, they will eventually see the value of decentralization and shift towards some hybrid solutions. However, the problem is that they have a massive existing business to protect, so they are actually reluctant to take risks that, while beneficial, also carry significant dangers. For example, if Binance were to choose a path with a 20% chance of becoming the largest DEX, but it doesn't go well, they might lose Binance's users, or even have their entire business affected. I doubt anyone internally at Binance would make such a business decision.
However, if they do not change, under the current industry development trend, they are likely to be eliminated, similar to how large companies in other industries sometimes struggle to innovate and transform quickly. Of course, they might also participate in this trend by acquiring some DEX tokens, but it's hard to say exactly how that will unfold.
Question: Lastly, what do you personally invest in? Bitcoin, Ethereum, or something else?
Jeff: I am actually not very good at investing. For instance, in venture capital, my cumulative return rate is about -100% so far. Investment is not my strong suit; I prefer to focus on trading and building Hyperliquid, which are areas I am more familiar with.
For the original interview video, please visit. This article is translated by Dayu.
https://youtu.be/tHoQuJ4N7UI?si=Gf9N-xYc1apG_kPp
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https://app.hyperliquid.xyz/join/DY
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