Hyperliquid gained significant praise for hosting the most profitable airdrop launch in the history of cryptocurrency back in November, by avoiding venture capitalists and strongly promoting community engagement instead. However, it’s worth noting that other projects attempting to mimic this decentralized exchange’s (DEX’s) launch approach may not achieve similar results.
Jae Sick Choi, an analyst at Greythorn Asset Management, shared with CryptoMoon that the strategy to exclude venture capitalists and emphasize community engagement significantly boosted HYPE‘s price trend following the airdrop. This approach also played a crucial role in establishing the strong social media presence and cult-like following that the perpetual DEX currently enjoys.
One crucial aspect they focused on was generating temporary market demand artificially, achieved through excluding Venture Capitalists initially. This means that VCs are compelled to purchase tokens as soon as they’re released, just like everyone else, as stated by Choi.
“They literally came back to what crypto was originally, which is fair launches. If the product is decent and the launch is fair, it’s almost guaranteed to pump no matter what.”
Choi mentioned that one of the less recognized factors influencing HYPE’s price movements was the HYPE Assistance Fund, which is an arm of Hyperliquid specifically designed for purchasing HYPE tokens in the public market.
He explained that they’ve integrated the daily purchase by the Hyper Assistance Fund into the tokenomics, using the income the protocol generates for these purchases. He doesn’t foresee any problems with regulators during this current Trump administration regarding this matter.
This continuous demand is generated directly from actual earnings, which is wonderful. In a technical sense, this can still be considered artificial demand. However, interestingly, it sparks genuine demand within the market by setting off a “fear of missing out” (FOMO) loop.
Still, he said token buybacks are not a golden ticket to up-only price action forever.
“It can only last for so long. It’s like an Ouroboros effect.”
Hyperliquid chose to be “egalitarian”
According to Kain Warwick, the success of Synthetix’s Hyperliquid can be attributed to its emphasis on fairness by rewarding both early adopters and long-term supporters, regardless of their influence or resources. Additionally, a fortunate timing factor played a significant role in its success.
Warwick emphasized that Hyperliquid effectively generated focus and recognition even during the bear market. He added that introducing a new project now would be more challenging due to the increased level of competition, or as he put it, “the noise floor is significantly higher.”
Warwick has recently implemented a similar approach while securing funding for his latest venture, Infinex. Instead of traditional fundraising methods, he chose a “patronage” model, which garnered $68 million by offering Patron Non-Fungible Tokens (NFTs) to both the market and Venture Capitalists (VCs) at the same price point.
The goal behind this strategy is to foster a dedicated community that remains engaged with the project over the long term, rather than losing interest after VCs liquidate large amounts of tokens from the Fully Diluted Value (FDV) supply.
“The big takeaway is not doing these low-float, high-FDV, VC-led raises. By rewarding the early and ongoing users it’s an opportunity to get more actual people in.”
On the 29th of November, Hyperliquid introduced their own HYPE token into circulation. Approximately 27.5% of the total amount was distributed as an airdrop to more than 94,000 individuals.
At its initial release, HYPE had an overall value of one billion dollars. Yet, remarkably, the worth of this airdrop has grown exponentially since then, reaching over 7.5 billion at the time this information was published. Consequently, HYPE now holds the title as the largest airdrop in crypto history.
Following the airdrop on November 30th, Warwick stated that Hyperliquid might break the pattern of perp DEXs becoming less popular after they distribute their token, often due to users losing incentives to continue using the product at the same level once they’ve stopped farming it. In simpler terms, he suggested that Hyperliquid could prevent these types of platforms from fading into insignificance post-token distribution.
Among airdropped decentralized exchange (DEX) tokens, HYPE has shown superior performance compared to Uniswap (UNI) on Ethereum, dYdX (dYdX) for perpetual contracts, Jupiter (JUP) on Solana as an exchange aggregator, and Aevo (Aevo) for its perps platform.
Choi compared the launch mechanism of HYPE to that of Celestia, a controversial data access system, which has faced accusations of insider over-the-counter transactions and being overvalued from the start due to favoritism towards early investors.
“In hindsight, we know why TIA pumped is because, on the side, the Celestia Foundation was selling TIA via OTC deals.”
Immediately following the Token Generation Event (TGE), the market saw a steep 70% drop in prices, favoring early investors since the price had already reached $10. It became clear that they intended to take advantage of this situation by selling short on the other end, aiming to reap profits from the downward trend.
According to Choi, using Hyperliquid isn’t an option for that action. Instead, one must initially purchase the inventory, and only after it has been artificially inflated (pumped) can they proceed with short-selling.
It’ll be ‘really hard’ to copy Hyperliquid
Although numerous commentators, particularly those who received airdrops, have commended Hyperliquid for its liberal token distribution, Warwick advises other protocols to exercise caution when distributing substantial quantities of their own tokens to users.
It might not be the right strategy for everyone to attempt significant airdrops of more than 30%. Many others have tried this approach and it hasn’t been successful for them. In simpler terms, if your product lacks extensive attention, it could lead to unsustainable practices and eventually result in a decreasing price trend.
On another note, VanEck’s recent report suggests that Hyperliquid has been steadily increasing its control over the perpetual decentralized exchange market, rising from a 10% share to a commanding 70% within just one year.
In addition to discussing launch mechanics and the distribution of tokens, Choi highlighted that a significant factor contributing to Hyperliquid’s success was its user-friendly design, abundant liquidity, and superior performance in terms of speed compared to other platforms like GMX.
Regarding product performance, Hyperliquid prioritized speed and soon surpassed other decentralized perpetual swap exchanges such as GMX, Vertex Protocol, and dYdX in terms of processing power. As per VanEck, Hyperliquid can handle around 100,000 transactions per second, which is significantly higher than the several orders of magnitude fewer transactions processed by competitors like GMX and Vertex.
Moreover, VanEck pointed out that Hyperliqid’s product comes at a reduced cost, featuring a less expensive fee structure compared to similar offerings from competitors.
Choi mentioned, “I had the sensation of using Binance for trading, yet without the need for KYC or AML checks. Additionally, it offered a greater capacity for riskier trades and boasted superior functionality compared to most other Decentralized Perpetual Exchanges.
Hyperliquid stands out due to its order book-based structure, which significantly reduces issues like slippage and harmful flow that are common on other decentralized exchanges. This makes it less appealing for market manipulation as potential market makers must carefully consider their strategies before attempting any market manipulation.
Hyperliquid suffers North Korea security scare
Nevertheless, Hyperliquid faced criticism in late December as MetaMask security researcher Tay Monahan disclosed that hackers with ties to North Korea had been conducting tests on the platform since October.
“Yall, DPRK doesn’t trade. DPRK tests,” Monahan said on X.
In 2024, cybercriminals from North Korea, notably the Lazarus Group, managed to swipe approximately $1.3 billion in cryptocurrencies – more than double the amount they took in 2023.
In their findings, Monahan and colleagues expressed worries about centralization since Hyperliquid was operating with just about sixteen validators at the time of the report’s release. This implies that it may be simpler for an advanced attacker to target the system compared to a more decentralized network.
As I ponder over the issue of centralization, I find myself grappling with concerns about heightened security risks. However, in a lighter moment, Choi posited an intriguing perspective: there are often overlooked user experience advantages hidden within this centralized structure too.
“Sometimes the centralization makes it way better.”
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2025-01-08 12:49