Hyperliquid, which is famous for its popularity and has many right and wrongs, has once again caused controversy, and the development of public chain ecology has become a difficult problem in the future.

Author: Frank, PANews

As the new Layer 1 public chain that attracts the most attention in the current market, Hyperliquid’s token market value exceeded US$11 billion after the airdrop. Its full circulation market value was once close to US$35 billion, and its ecological data has grown exponentially. While the market is extremely optimistic, it has also caused a lot of controversy recently.

These disputes mainly revolve around Hyperliquid's unsatisfactory performance as a Layer 1 in terms of decentralized governance and the introduction of more developers. Especially in terms of node participation, it seems to be full of closedness, which once again confirms the impression of many doubters about the Hyperliquid stand-alone chain. The official response also basically admitted that these problems exist in the network, but will gradually resolve them.

An open letter sparks governance controversy

On January 8, Kam, an employee from node operator Chorus One, published an open letter on social media, pointing out that Hyperliquid currently has many problems in closed source code, black market for testnet tokens, and restrictions on decentralization. This comment quickly triggered many discussions in the community about Hyperliquid governance.

Kam mentioned in the open letter that the operation of testnet nodes is difficult, and there are problems such as closed source, lack of documentation, and over-reliance on centralized APIs. The incentive mechanism of the test network has design problems, and black market transactions of test coins occur. Problems such as excessive concentration of mainnet validators and insufficient centralization.

Judging from the content of this open letter, the target is that Hyperliquid has a low degree of decentralization in governance, with the official and the foundation having absolute dominance in nodes and staking. Second, technical and operational information is not transparent, which is a bigger problem for the expanded ecosystem. Third, the economic incentive mechanism is imperfect and it is difficult for external nodes to maintain costs. Fourth, the communication between the official and the nodes is not smooth, the official guidance to the nodes cannot be obtained in time during the node operation process, and the nodes also lack a channel to feedback problems.

The above are basically the main issues criticized by the industry against Hyperliquid. In a crypto research report released by VanEck, a well-known asset management institution, in December, it was pointed out that Hyperliquid’s valuation is approximately US$28 billion, but it has not attracted a large number of developer communities to join. If the growth expectations of the development community cannot be achieved, Then HYPE’s token price may be difficult to maintain. Research firm Messari also issued an article on New Year's Day saying that Hyperliquid's outperformance may be over.

After Kam’s open letter was released, many industry insiders joined the discussion about Hyperliquid. Charles d'Haussy, CEO of the dYdX Foundation, a competitor on the same track, commented, "Closed source code + limited number of validators + most equity weights under 1 entity + bridged multi-signature setup lacks clarity and security. Token price The trend shouldn’t turn a blind eye to so many people.”

Others opined: “I don’t think the black market of testnet hype is a big problem because we have seen this on many other protocols.”

Officials admit that the problem exists, but there is still a long way to

go to solve it

However, most people still question this phenomenon of excessive centralization. Faced with these doubts, Hyperliquid also responded quickly that day. The response focused on the following six points: 1. All validators are qualified based on test network performance and cannot obtain seats through purchase; as the blockchain matures, the number of validators will increase. will be gradually expanded. 2. Will further promote the decentralization of the network. 3. Anyone can run an API server pointing to any node. The sample client code sends requests to a specific API server, but this is not a basic requirement of the network. 4. The HYPE black market on the testnet is unacceptable, and we will continue to work hard to improve the entry process of the testnet. 5. The node code is currently closed source; open source is very important, and the project will be open source after development enters a stable state; Hyperliquid's development speed is several orders of magnitude faster than most projects, and its scope is several orders of magnitude larger than most projects; code Will be open sourced when it is safe to do so. 6. Currently there is only one binary file. Even on a very mature network like Solana, the vast majority of validators run a single client.

In summary, Hyperliquid’s response did not deny the problems raised by Kam in the question, but basically admitted that these problems exist in the network, but will gradually solve them. Judging from the current validator data of Hyperliquid, the top five pledged nodes are all officially self-operated nodes. The amount of pledged tokens of these five nodes alone has reached 330 million, exceeding the sum of the pledged amounts of all other nodes. In addition, although the official has launched the foundation, it has not yet launched governance voting and other related channels. From these perspectives, Hyperliquid’s open governance does still have a long way to go.

Valuation game, defeat all DEX with Layer1 narrative valuation

Since the Hyperliquid airdrop, the data of the Hyperliquid ecosystem has experienced a sharp increase. As of January 8, the cumulative number of users has reached 300,000, and 100,000 new users have been added in more than a month. In addition, TVL data reached a peak of US$2.8 billion in December, an increase of 14 times in a single month. According to VanEck’s research report, its main competitor dYdX’s TVL did not exceed US$600 million within 15 months of its creation, and the market value of the token exceeded the total market value of all peers.

Hyperliquid's excellent market performance is closely related to its dual attributes of Layer 1 and DEX. As of now, Hyperliquid's attributes as a Layer 1 are incomplete. On the one hand, there is still a huge gap between decentralized open governance and mainstream Layer 1. On the other hand, the richness of the Hyperliquid ecosystem also needs to be improved urgently. The current main applications of the ecosystem are all operated by the official team.

As a DEX, Hyperliquid has relatively obvious advantages in user experience brought by its 100,000-level TPS performance and independent public chain foundation.

Therefore, if Hyperliquid is positioned as a DEX, it is obviously successful. And if it is positioned as a Layer1, there is a longer way to go.

Positioning may be an important factor in future market pricing

It is also worth mentioning that many people believe that Hyperliquid may be another gold mining holy land after Solana. However, when PANews analyzed Hyperliquid’s on-chain data, it was found that in the change curve of Hyperliquid traders’ net profit and loss, it can be seen that the overall profit curve of Hyperliquid traders has been negative for a long time, and as the popularity of trading increases, the overall amount of losses is still It continues to expand. As of January 7, 2025, traders' cumulative losses were US$51.3 million. Compared with the same period a year ago, this data has expanded nearly 25 times. The cumulative liquidation amount has also reached US$6.69 billion, and the number of open contracts has also increased, reaching US$3.78 billion. From this perspective, Hyperliquid is more like another new on-chain casino.

On January 6, Hyperliquid announced the launch of a new cross-chain bridge in conjunction with Router Protocol and began to support cross-chain deposits in more than 30 networks including Solana, Sui, Tron, Base and Ethereum. Compared with the current fund transfer that can only be done through Arbitrium, this cooperation can bring Hyperliquid more flexible channels for fund flow.

Generally speaking, Hyperliquid’s controversy is the same as the reason why many people are optimistic about it. As an exchange with DEX as its leading product, Layer 1 is currently more like the underlying supporting package of this exchange. Skeptics believe that as Layer 1, Hyperliquid lacks transparency and a decentralized governance framework. Supporters believe that Hyperliquid is the only DEX equipped with Layer 1. As for the development of Hyperliquid itself, the next situation it will face may always revolve around the conflict between these two roles.

If it mainly develops into Layer 1, then Hyperliquid's valuation still has a lot of room, and there are many problems to deal with. If it is only positioned as a high-performance DEX, then a valuation that far exceeds that of its peers will arouse suspicion of overvaluation in the market. Moreover, as the ecosystem continues to open up, HYPE will enter more market transactions and get rid of the doubts about stand-alone currency, and will also face more market uncertainties. These questions are a test of the art of balance for Hyperliquid officials, and for concerned investors, they are even more difficult problems that require careful investigation.