Author: Alexon
This article is the author’s personal opinion and does not represent the views of Wu Shuo
As a decentralized derivatives exchange, Hyperliquid has reached an astonishing FDV of nearly 15 billion US dollars without any CEXs online, which has become a very rare phenomenon this year. Alexon is the CIO of Ferryboat Research. This video reviews Alexon’s thoughts on Hyperpe: Why did he choose to give up despite paying attention to Hyperliquid early, including excessive obsession with decentralization and failure to dig deep into internal information. It interprets the core strategy of Hyperliquid and believes that its success is due to the efficient marketing model of airdrops and binding super-head resources, which accurately concentrates funds on the key links of maximizing the popularity of the project. The unique insights into Hyperliquid’s capital inflow, pricing power concentration and exit mechanism provide important references for the operation of on-chain projects. This is not only a review of a failure, but also a profound analysis of the success model of on-chain projects.
Opening
Welcome to episode 136 of Alex’s Encrypted Diary. Yesterday I reviewed a question that I think is of some value and worth recording.
The question is: Why did we notice Hyperliquid early, but didn’t participate, thus missing out on one of the most important opportunities this year? This could be considered an “airdrop”, anyway, it was a sum of money that seemed to be profitable, why didn’t we grab it? What was I thinking at the time? Why didn’t I take action despite discovering it early? There are many reasons involved in this process. Will I miss it again in a similar situation?
Therefore, today’s content will be divided into three parts:
1. The first part is a review, if I were to do it again, would I still miss it?
2. The second part is reflection, if there is a mistake, where is it;
3. The third part discusses why Hyperliquid has risen so high, and if I were the coordinator of Hyperliquid, how would I plan the exit strategy.
Statement of opinion
I also know that there are friends from Hyperliquid watching this video in our channel, so I want to state that my opinions are purely personal and without any malice. I hope you can develop well, but at the same time I think some of the designs are centralized. I also hope that these discussions can inspire everyone.
Once again, I have nothing but blessings for the Hyperliquid team, because I personally hope that DeFi can really rise. My views are purely personal and have no other intentions. Well, that’s enough. Crypto is a field with high volatility, high risk, and strong financial attributes. You may find a gold mine, or you may lose all your capital. So be prepared. So, let’s get started.
Part One: If I could go back in time, would I still miss it?
First, the first question: If I could go back in time, would I still miss Hyperliquid? To be honest, I have thought about this question. I think the answer is: there is a high probability that I will still miss it.
Looking back, I first published an article about Hyperliquid on August 6, which was probably written when I came into contact with the project at the end of July. If you look back at the content at that time, you will find that the reason why I missed it is very clear: I think its nodes and bridges are centralized. My starting point is to focus on high-performance public chains, and my personal preference is to exclude completely centralized solutions. In my opinion, even if Hyperliquid has now risen to a market value of 10 billion, this fact has not changed. This was my judgment at the time, and I am not criticizing it.
However, I also admit my mistake. My mistake was: Do we have to accept the existence of centralization? For example, at first, people could not accept the centralized design of Sequencer, but now with the popularity of Layer 2, it seems that centralization is gradually accepted by the market. However, from the perspective of our team, our position is not to accept this model. So, even if I do it again, I will still give up Hyperliquid for this reason. We had studied it very seriously at the time, but finally chose to pass it.
Part 2: Where did we go wrong?
Mistake 1: Selecting the wrong benchmark
This leads to the second question: Where did we go wrong? The market is always right, but we as individuals may be wrong. We cannot think that we are right just because we cannot make this money. We need to reflect on where the mistake happened.
I think there are two main problems. The first problem is that we chose the wrong benchmark. At that time, I focused on high-performance public chains, such as Monad, MegaETH, Sui, and Hyperliquid, etc., especially on-chain order book projects, which I paid close attention to.
Among these projects, Hyperliquid is the simplest and easiest solution to think of – achieving high performance through centralized nodes and bridges. This model itself is not complicated. But where I was wrong was that I didn’t realize a key problem until it was about to conduct TGE (token generation event), or a friend in the team raised this question. When he was researching the paper, he suddenly thought that Hyperliquid might be better than the existing centralized exchanges (CEX) to some extent.
I think this angle is something we haven’t thought about before. All my benchmarks are basically what I think are high-performance projects, and I compare them together. However, in fact, if you look at it from another perspective, Hyperliquid should be compared with centralized exchanges (CEX) such as OKX, Binance, Bitget or Coinbase. In this case, will it be slightly more decentralized? Or, will it be smoother in the interaction on the chain? Although it may not be completely on-chain, at this stage, the market may need such a product.
From this perspective, I think Hyperliquid is more decentralized than Binance or other exchanges. I don’t know if you understand what I mean, but this is the first core mistake I made. If there was a mistake in this process, I think my mistake was that I chose the wrong direction. Judging from the market results, I was looking at the problem from the wrong angle.
Mistake #2: Not actively investigating inside information
The second mistake was that I didn’t actively look for inside information. What does that mean? Actually, I thought about this matter at the time and mentioned it in the content. At that time, Hyperliquid’s TVL (total locked volume) was 700 million US dollars, of which 500 million was USDC. This made me wonder: Whose 500 million USDC is it? At the time, I thought this number was very strange, but since I couldn’t find public information, I didn’t dig deeper. If it were in the secondary market, I would definitely get to the bottom of it to find out who was behind the money, but on the issue of Hyperliquid, I made a serious mistake. When I found that there was no relevant information on the open market at all, I didn’t go deeper to find inside information. In fact, there were channels around me, but I didn’t get to the bottom of it to find out the source of the 500 million USDC. If I had asked and investigated clearly at the time, maybe we would have taken action earlier and might even have participated in it.
Looking back, I had no idea which faction, which power, what kind of people and style were behind it. The only thing I knew was that there was $500 million on the books. I firmly believed that this was not simply deposited by ordinary users. At that stage, having $500 million in cash directly on the books was obviously a strong support. But in terms of digging out internal information, my work was not up to par.
To summarize the second part, I think my two core mistakes were: choosing the wrong benchmark and not conducting in-depth investigation of internal information.
Part 3: Hyperliquid’s Strategies and Inspirations
Next is the third part: Why was Hyperliquid able to pull up the market after it went online? In other words, what can we learn from the whole process? If I were the trader, how would I exit?
Marketing strategy of binding super head + airdrop fission
First, let’s look at its rise. You can see that its airdrop distribution is very clean, and many tokens are directly unlocked and distributed to the community. As far as I know, its airdrop ratio is very large. Some friends who follow our channel often send me private messages to discuss Hyperliquid, such as a friend named “Chabusi”. At that time, almost no one in the Chinese community discussed Hyperliquid, but he persisted in posting a lot of Hyperliquid information, and as a result, he made hundreds of thousands of dollars through Hyperliquiquid.
I don’t know if that friend hasn’t sold it yet, he might have made more than 1 million US dollars. I am really happy for him. Whether it is speculation or investment, as long as what you focus on can bring returns, I am happy for you. To be honest, I have never received more than 1 million US dollars in airdrops. However, I want to emphasize that we need to understand why this happens. From the perspective of an operator or entrepreneur, Hyperliquid puts the marketing expenses directly into the airdrop, that is, they use all the fission expenses in the most effective place. This is a very successful strategy.
Hyperliquid is a case study that is worth learning from in the “high-profile” strategy. Many people analyze airdrops and say “this is to give back to the community”, but in fact it is not such a simple logic. In essence, airdrops are a means of acquiring traffic, just like distribution. Tokens are their products, and airdrops are a way to attract users to buy.
There are two common ways to play:
1. The first is to “go high”, that is, to look for super head resources. For example, in mainland China, if you want to sell goods, you can choose to cooperate with top anchors, such as Wei Ya, Li Jiaqi, Xiao Yangge, Luo Yonghao, or Dong Yuhui. They will quickly increase sales through their influence. Even if this method may not make money in the early stage, you can further optimize the marketing strategy through their popularity of bringing goods, such as using their sliced content to attract more mid-level anchors to join the promotion, thereby enhancing your bargaining power. This set of tactics is very common in large consumer goods companies such as cleaning.
2. The second strategy is to “surround the city from the countryside”. If a super anchor like Li Jiaqi is compared to an aircraft carrier, then another strategy is to find thousands of small boats to form a similar attack force. That is, through a large number of KOLs (opinion leaders) or KOCs (consumer leaders), these individual users with a small number of fans but high authenticity, to help promote products. Whether it is paying a small fee or sending a small gift for exchange, the real interaction of these amateur users can bring a higher conversion rate.
Nowadays, this strategy is very common in the exchange industry. I receive a lot of promotion invitations every day, some of which are sent by mail, and some directly ask if I am willing to accept the promotion. To be honest, although our channel does not accept advertisements for the time being, I must say that some promotions are so cheap that it would seem cheap to accept them.
In this industry, KOL and KOC are a very typical “Matthew effect” phenomenon. The top resources monopolize everything, and these small opinion leaders in the middle and lower levels have basically no living space. From the perspective of traffic growth, there are indeed problems with the Chinese KOL environment in the crypto field, and it has fallen into a negative cycle. Many KOLs can only survive by “washing the floor” for project parties or exchanges, and this ecology makes people feel awkward. In order to learn, I have also paid to join some so-called paid groups, but to be honest, a lot of the content makes me unable to read it – the words are too obvious, all soft ads.
However, let’s stop here and return to Hyperliquid’s marketing strategy. I just mentioned two strategies: one is the top-down super head strategy, and the other is the bottom-up amateur fission strategy. Hyperliquid has done well in both aspects. The first strategy is to bind large traffic resources. For example, I heard Ansem mention Hyperliquid in the first half of this year. Although they were not online at that time, they were able to quickly bind these resources, which shows that there is no simple reason behind it.
At present, Hyperliquid has shown strong financial strength. You will find that other projects bound by Ansem, such as Fantom, which was launched in the early stage, often have about 500 million US dollars in reserve funds. Hyperliquid can bind such a large scale of resources, which shows that it has very strong support behind it. This scale of financial foundation allows it to promote its own strategy with more confidence.
One point worth noting is that Hyperliquid has not invested any money in mid- and lower-tier resources. Their strategy is to radiate downward through the influence of the super-head, while allowing the bottom-level users to fission, and ultimately reversely promote the passive participation of the middle- and lower-tier resources. Their funds are mainly concentrated in two points: one is to directly airdrop to the bottom-level users and actual participants; the other is to bind with the super-head resources. This model is very smart, avoiding many intermediate costs, such as listing fees, promotion fees, and exchange agency fees, and all the saved funds are used to strengthen the project’s dissemination effect.
The logic of airdrops also needs to be deeply understood. Many people simply regard airdrops as “giving out money”, but this is not actually the case. Only when funds actually flow out can it be considered a real expenditure. If a project sets a price floor and repurchases when it falls below, the net outflow will be controlled to a very small range. When the market performs well, this strategy may not even require any additional expenditure, but instead enhance the project’s brand image and market popularity.
In this way, Hyperliquid focuses all resources on airdrops and super-head resource binding, avoiding other waste of expenses. At the same time, they also ensure that trading volume and pricing power are concentrated on their own platform. This approach not only makes their Layer 1 valuable, but also firmly grasps the market pricing power.
If I were a trader, how would I exit?
If I were to plan the exit mechanism, I would choose to gradually withdraw from the ecological projects. For example, by launching Memecoin or other ecological projects to increase the overall valuation, while withdrawing some liquidity under the high valuation state and maintaining the main currency at a high price level to maintain the sustainability of the ecology. This is a plan.
Another option is to use a distribution strategy to firmly grasp the pricing power and gradually expand to other exchanges after the project matures. At this time, the cost of tokens or funds given will be greatly reduced, because the market value and trading volume of the project are sufficient to support its negotiation advantage. Regardless of the trading situation of other exchanges, Hyperliquid’s own liquidity is always the highest, and the pricing power is still firmly in its own hands.
The subtlety of this approach is that it takes advantage of the centralized architecture. For example, Hyperliquid’s core transaction process can run on its own database, greatly reducing operating costs. At the same time, it also avoids the high gas fees that need to be paid in traditional on-chain transactions. This feature gives Hyperliquid great competitiveness, allowing it to maintain a strong market influence at a very low cost. (Maintaining high volume and high FDV is extremely advantageous from various arbitrage perspectives.)
Therefore, from the perspective of exit, I think the most ideal way is to gradually complete the exit on other exchanges instead of relying on its own platform. At the same time, throughout the process, by becoming a market maker, Hyperliquid itself can make enough profit without even having to exit in the true sense.
end
Finally, I recommend everyone to listen to WSH Podcast, they recently interviewed Hyperliquid CEO Jeff. This episode is very helpful to understand the strategy and thinking behind Hyperliquid. Although our team may still not be directly involved in Hyperliquid, we will continue to pay attention to this project because it has important significance in the development of the market and industry.