Hyperliquid Revolutionizes DeFi with Composable Liquidity

The concept that liquidity breeds liquidity is being put to the test by Hyperliquid, a decentralized exchange that has become a go-to platform for traders of perpetual futures. Founded by Harvard alumni Jeff Yan and a pseudonymous developer known as iliensinc, Hyperliquid has made a name for itself by providing a unique solution to the issue of fragmented liquidity. Since its launch in 2023, Hyperliquid has been capitalizing on the depth and volume of its order book by allowing other applications to tap into its shared liquidity, rather than having to create their own. This approach, known as composability, is a key concept in decentralized finance (DeFi) and enables permissionless smart contracts to be combined like building blocks, giving rise to new financial products. Hyperliquid's Ethereum-compatible HyperEVM is connected to its high-performance HyperCore blockchain, enabling other applications to build on top of the platform's shared liquidity. This means that applications such as wallets or even other exchanges can utilize Hyperliquid as a backend, providing perps trading and other services to their users. As more developers integrate with Hyperliquid, the platform's liquidity deepens, and the variety of assets available expands. The network effects of this integration are significant, with hundreds of developers, including big names like MetaMask and Phantom wallet, now using Hyperliquid's system. The platform has been praised by its users, with Hyunsu Jung, CEO of Hyperion DeFi, describing it as 'the AWS for finance.' Jung notes that Hyperliquid provides a layer-one blockchain infrastructure, offering liquidity and execution services, while allowing builders to own their users and control the user interface. Similar to AWS, Hyperliquid provides the underlying infrastructure, while builders focus on delivering a great user experience. The use of 'builder codes' enables integrators to charge fees on the notional size of their users' trades without having to develop the backend or maintain liquidity. For apps like MetaMask, integrating with Hyperliquid's EVM module makes sense, as it allows users to access perps directly from their wallet. MetaMask has reported significant growth, with its users now able to trade perps with the tokens they already hold. The platform's approach to fees is also noteworthy, with MetaMask charging a flat 0.1% builder fee, disclosed upfront, with no hidden spread or execution costs. Other exchanges, such as VALR, have also seen the benefits of integrating with Hyperliquid. Despite having built their own infrastructure, including risk and liquidation engines, the exchange found it difficult to achieve the desired volume and liquidity. By plugging into Hyperliquid's order book, VALR has been able to offer its customers better liquidity and execution quality. Looking ahead, the opportunities for cross-venue arbitrage are significant, particularly when larger exchanges like Robinhood and Coinbase enter the perps market. According to Jung, this will create opportunities for more organic mechanisms for funding rates, as retail users enter and exit the market.