11. Hyperliquid: Perps on a Purpose-Built Chain

What makes it different

• An honest on-chain CLOB. Unlike AMM-based DEXes, Hyperliquid runs a real order book on its own chain — limit orders, queues, maker rebates — at ~70% of decentralized-perps volume in early 2025.
• Funding settles on the oracle price (a validator-weighted median of CEX spot prices), paid hourly: F = premium + clamp(interest − premium), capped at 4%/hour. For an MM, funding is a carry stream you can harvest: persistent positive funding pays shorts — so your inventory target shouldn't be zero, it should lean toward the paid side. That idea becomes Proposal D.
• HLP — the protocol's own market maker. A community-funded vault that runs MM strategies and performs liquidations, sharing 100% of P&L with depositors (4-day lockup). It's the most interesting institutional experiment in the book: market making as a public utility.

The JELLY incident: a free masterclass in tail risk

March 26, 2025. An attacker opened a ~$4–5M short on JELLY, an illiquid memecoin, then deliberately self-liquidated — dumping the toxic short into HLP, which inherits liquidated positions. The attacker then pumped JELLY's price on-chain (helped by rival exchanges listing JELLY perps mid-attack), driving HLP's unrealized loss toward ~$13.5M and threatening the entire vault. Validators voted within minutes to delist JELLY and force-settle at $0.0095 — saving the vault by doing something very centralized on a "decentralized" venue. Lessons that generalize to every venue in this book:

• Never quote (or inherit) size in instruments whose float you don't understand. Illiquidity is not a smaller version of liquidity; it's a different risk regime.
• Know your venue's emergency powers — they may save you or settle against you.
• Liquidation flow is the most toxic flow that exists. If your strategy absorbs it (as HLP does), cap it ruthlessly.