Who Ate Hyperliquid's Cake: The Perp DEX Hunted by CEX

Original Article Title: The perverse incentives of building in crypto: Hyperliquid and CEXs
Original Article Author: VannaCharmer, Crypto Researcher
Original Article Translation: DysonTide Deep

Editor's Note: The article analyzes the challenges faced by DeFi, especially perp DEX, in its development, pointing out that CEXs, driven by economic incentives, suppress successful on-chain products like Hyperliquid through market manipulation, blackboxing, and public opinion warfare. The article dissects the economic ambush case faced by Hyperliquid and discusses its response strategies, such as decentralized validator nodes and risk parameter optimization. Finally, the author expresses approval of the Hyperliquid team's future vision of achieving full financial on-chainization, believing that founder Jeff's perseverance and ability will drive industry progress.

The following is the original article content (slightly reorganized for better readability and comprehension):

Entrepreneurship in the crypto field is fraught with difficulties. This is not only due to the numerous technical challenges but also because when you create a successful product, various interest groups are economically incentivized to become your adversaries. This article aims to expose the systemic flaws of the public development model and how CEXs disrupt DeFi through economic motivations, especially the development of perpetual contract decentralized exchanges (perp DEX).

Industry Background Insight

Over the years, CEXs, along with law firms, market makers, and AWS cloud services, have collectively formed the most powerful "money-printing machine" in the crypto world—raking in billions of dollars through high fees, off-book transactions (token listings), and other gray-area operations. They have too many vested interests to maintain: some directly exploit retail funds flow, and all CEXs have ambiguous cooperation with market makers. Why else would each of them have a "market maker program"? Just look at how FTX engages in self-trading through Alameda or how Coinbase suppresses Solana to promote its Layer2 network, Base. Economic interests dictate that CEXs cannot act in goodwill.

In fact, CEXs have engaged in even more nefarious off-chain blackboxing, but the public is unaware of it. The allure of the crypto world lies precisely in the fact that all games are played openly and transparently. However, public development is a double-edged sword: others may exploit product vulnerabilities for profit. As long as you are not completely destroyed, you will become stronger—think of Solana's multiple downtime events.

Do you think the process of full financial on-chainization will be smooth sailing?

Core Contradiction Analysis

Now, let's put ourselves in the shoes of a CEX. When you see a team like Hyperliquid:

· Iterating to develop excellent on-chain products based on user feedback

· Building the most outstanding on-chain trading venue

· Completing last year's most significant wealth creation event and having a large amount of organic KOL-driven promotion

Undeniably, Hyperliquid has built an extremely successful product, with its market share severely encroaching on the territory of top CEXs.

CEX Motivation Breakdown

Profit Incentive

As a CEX, you are completely excluded from Hyperliquid's profit ecosystem — not only are they eating away at your market share, but they also refuse to pay listing fees. Faced with this unconventional and continuously customer-poaching competitor, would you just sit back and do nothing? Clearly not. Thus, we see the current situation: the CEX has launched a clever sniper attack that benefits itself (while harming ordinary investors). Event recap:

· Wallet 0xde9 funded by Binance/OKEx established a massive short position equivalent to 40% of HL's circulating supply

This intentional liquidation transferred JELLY shorts to wallet 0xde9 of HLP while receiving dual funding support from Binance and OKEx

· JELLY token experiences a sudden on-chain surge

· CEX conveniently launches JELLY perpetual contracts

· After HL's short position is liquidated, the funds are transferred to HLP's insurance fund

· Hyperliquid's Validator Council (still in a centralized phase) urgently delists the JELLY contract, liquidates through an oracle manipulation to profit, and pledges full user reimbursement

· CEX simultaneously initiates a FUD propaganda war

This move can be seen as strategic: the CEX forces Hyperliquid founder Jeff to face the dilemma of "liquidation or delisting."

While protecting user choice is understandable, the consequence has been to provide CEX with regulatory leverage—government-friendly exchanges like Binance/Coinbase can easily use the "offshore CEX with no KYC/AML" label to launch legal attacks against HL.

What Should HL Do

With the launch of HyperEVM and the progression towards a decentralized validator set, Hyperliquid may still turn the tide. At the current stage, the team has chosen a centralized approach to deliver a high-performance product, a strategy that has proven successful. I firmly believe the team can gradually achieve decentralization—after all, in the current architecture, centralization vulnerabilities and economic attacks are indeed HL's only fatal weaknesses.

Areas for HL Improvement:

· Token Supply: Implement strict position limits relative to circulation and liquidity

· Dynamic Risk Parameters: Adjust collateral ratios based on market volatility, increase margin requirements for low-liquidity assets

· Delist obscure meme coins—these are the most easily manipulated low-liquidity, low-market-cap assets

The HL team must have learned lessons from this. Looking back at their past performance, they should be capable of handling and building a more robust system. The primary risks still lie in potential attacks from North Korean hackers and similar economic sniper attacks as seen recently.

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