Hotcoin Research | Why Does Hyperliquid Stand Out? An Overview and Analysis of Leading Decentralized Derivative Protocols

Decentralized derivative protocols, a major innovation in decentralized finance (DeFi), are gradually transforming the traditional financial derivatives market. Leveraging blockchain technology and smart contracts, they eliminate the need for centralized intermediaries and offer a transparent, secure, and globally accessible trading environment. This report provides an in-depth analysis of eight representative decentralized derivative protocols — Hyperliquid, Jupiter, Drift, GMX, Vertex, Apex, SynFutures, and dYdX — covering their definitions, characteristics, operational mechanisms, project overviews, comparative analysis, and the future outlook of the sector. It aims to offer readers a comprehensive and objective understanding of this rapidly evolving space in crypto finance.

1. Understanding Decentralized Derivative Protocols

1.1 Definition

Decentralized derivative protocols are blockchain-based financial instruments that allow users to trade derivatives without relying on traditional centralized intermediaries. Derivatives are financial contracts whose value is derived from the price movements of underlying assets (e.g., BTC). These protocols use smart contracts to automate the execution, settlement, and clearing of trades, and operate on public blockchain networks to ensure rules are transparent and immutable.

Unlike centralized exchanges (e.g., Binance or Coinbase), decentralized derivative protocols do not depend on a single entity to manage user funds or match orders. Instead, they facilitate decentralized market operations via distributed networks and algorithms. Perpetual futures are currently the most popular product type, enabling users to speculate on the price movements of crypto assets with leverage, without an expiration date.

1.2 Characteristics

Key features of decentralized derivative protocols include:

• Decentralization: No centralized authority; all trades are executed directly on the blockchain, minimizing single points of failure and censorship risks.
• Transparency: All trade data and contract terms are publicly recorded on-chain, ensuring fairness and verifiability.
• Security: Smart contracts and cryptographic technologies safeguard user assets and data, reducing risks of hacks or internal fraud.
• Accessibility: Anyone with a crypto wallet can participate, without requiring KYC (identity verification) or permission from traditional financial institutions.
• Innovation: Supports diverse products such as perpetual contracts, options, and synthetic assets, offering flexible trading strategies.

These advantages attract not only retail traders but are increasingly drawing attention from institutional investors.

2. Operational Mechanisms of Decentralized Derivative Protocols

Decentralized derivative protocols rely on blockchain technology and various market mechanisms to facilitate liquidity provision, price discovery, and trade execution. Below are the primary operational models:

2.1 Automated Market Makers (AMM)

AMMs replace traditional order book matching with algorithms and liquidity pools. Users deposit assets into pools, and prices adjust automatically based on predefined mathematical formulas (e.g., the constant product formula). AMMs enable trading without the need for a counterparty, making them ideal for low-liquidity markets.

• Representative Projects: Jupiter, GMX
• Advantages: Simple and efficient; well-suited for small trades and volatile markets.
• Disadvantages: Susceptible to slippage; less accurate in price discovery compared to order book systems.

2.2 Order Book Model

The order book model mimics traditional financial exchanges, where buyers and sellers place limit orders and the system matches them. While effective in centralized systems, implementing this model on-chain presents challenges related to transaction speed and gas costs.

• Representative Project: Hyperliquid
• Advantages: Offers precise price discovery; ideal for professional and high-frequency traders.
• Disadvantages: High performance demands may lead to network congestion or higher fees.

2.3 Hybrid Models

Hybrid models aim to combine the benefits of AMMs and order books, striking a balance between liquidity and efficiency. For example, protocols might use AMMs for base liquidity while leveraging order books for advanced pricing.

• Representative Project: Vertex
• Advantages: Highly adaptable to varying market conditions.
• Disadvantages: More complex implementation; may lead to inconsistencies in user experience.

2.4 On-chain/Off-chain Hybrid

Some protocols execute order matching off-chain to improve speed while keeping settlement and fund custody on-chain for security and trust. This approach combines the efficiency of centralized systems with the security of decentralization.

• Representative Project: dYdX (V4)
• Advantages: Fast execution and low transaction fees.
• Disadvantages: Off-chain components may introduce partial centralization risks.

3. Current State of Decentralized Derivative Protocols

Source: https://dune.com/uwusanauwu/perps

Centralized trading platforms have traditionally dominated perpetual contract trading due to their high liquidity and consistent user experience. dYdX, as an early leader in decentralized perpetual trading, captured a notable market share through its innovative order book model and established itself as a pioneer.

As decentralized finance (DeFi) gains broader adoption, demand for decentralized trading solutions has surged. Emerging platforms such as GMX, leveraging AMM models and liquidity pools, provide simple and efficient trading experiences that have attracted substantial user activity and capital inflow. Jupiter has also risen as a key player within the Solana ecosystem. In 2023, market competition intensified. Hyperliquid emerged with high-performance and low-latency trading experiences, drawing in professional traders and gradually establishing itself as a market leader. Meanwhile, dYdX saw a decline in market share — partly due to rising competitors and challenges during its migration to the Cosmos ecosystem.

Source: https://defillama.com/perps/hyperliquid

As of March 20, the 24-hour trading volume for decentralized perpetual contracts reached $9.4 billion. Hyperliquid alone accounted for 63% of this volume among decentralized derivative protocols. When compared with centralized exchanges, its trading volume ranks 15th overall.

Source: https://defillama.com/perps

4. Overview of Representative Projects

Below is an overview of key decentralized derivative protocols, highlighting their core mechanisms and unique advantages.

4.1 Hyperliquid

• Overview: Hyperliquid operates entirely on-chain using its proprietary Layer 1 blockchain and an order book model. Liquidity and liquidation are supported via the HLP vault, where users can deposit funds and earn from trading fees, funding rates, and liquidation proceeds. The HLP vault also acts as a counterparty in some trades. With 200,000 TPS and 0.2s latency, Hyperliquid rivals centralized exchanges in performance. While it supports up to 50x leverage, a liquidation arbitrage event on March 12 led to ~$4M in HLP losses, prompting leverage limits for BTC and ETH to be lowered to 40x and 25x, respectively.
• Features:
• Gas-free trading for reduced user costs
• Custom blockchain ensures full transparency and high throughput.
• Currently the highest-volume decentralized perpetual exchange.
• Use Case: Best suited for professional traders seeking high performance and low fees.

4.2 Jupiter

• Overview: Jupiter is a DEX aggregator built on Solana, offering perpetual contract trading with up to 100x leverage. Liquidity is provided via the JLP pool, which acts as the counterparty by lending tokens to traders. 75% of trading fees are distributed to liquidity providers. Supported assets include SOL, ETH, WBTC, USDC, and USDT.
• Features:
• Utilizes Solana’s speed and low fees for a CEX-like experience.
• Offers diverse leverage options and trading pairs.
• Deep integration within the Solana ecosystem.
• Use Case: Ideal for Solana-native users and beginners.

4.3 GMX

• Overview: GMX is a multi-chain decentralized perpetual exchange operating on Arbitrum and Avalanche. It employs an AMM model, offering up to 100x leverage across 67 perpetual contracts. Liquidity comes from a community-owned multi-asset GLP pool. Users can stake assets to receive GLP tokens representing their share. Trading fees are split 30% to GMX stakers and 70% to GLP holders. GMX V2 introduces isolated GM pools and new incentives through funding rates, borrowing fees, trade fees, and price impact.
• Features:
• Users can earn through liquidity provision.
• Low trading fees (0.05%-0.07%) shared with LPs.
• High TVL reflects trust in its liquidity.
• Use Case: Suitable for traders looking to profit from liquidity mining.

4.4 dYdX

• Overview: Founded in 2018, dYdX originally operated on Ethereum Layer 2 (via StarkWare), but transitioned in 2023 to its own Cosmos-based chain. Its V4 version uses an off-chain order book matched by validators and on-chain settlement, blending speed and security. Order placement and cancellation are gas-free; fees are only charged when orders are filled.
• Features:
• V4 integrates decentralized off-chain matching with on-chain settlement.
• Supports up to 20x leverage across 199 assets.
• Low fees (0.02% maker, 0.05% taker) appeal to high-frequency traders.
• Use Case: Ideal for professionals seeking leverage and efficient execution.

4.5 Vertex

• Overview: Vertex is a multi-chain DEX combining a centralized limit order book (CLOB) and AMM hybrid model. Its order book prioritizes best price and time, whether quotes are from the AMM or external market makers.
• Features:
• Built on Layer 2 to reduce fees and mitigate MEV risks.
• Supports up to 20x leverage across 54 assets.
• Aims to deliver institutional-grade trading experience.
• Use Case: Targeted at professional users needing fast and precise order execution.

5. Opportunities and Challenges of Decentralized Derivative Protocols

Decentralized derivative protocols, a key pillar of the DeFi ecosystem, are evolving rapidly. While the market presents significant opportunities driven by technological innovation and global adoption, it also faces critical challenges such as regulatory uncertainty, security vulnerabilities, and liquidity constraints.

Opportunities

• Market Growth Potential: As the cryptocurrency sector matures and institutional participation increases, demand for derivative trading is rising. Transparent and secure decentralized protocols are well-positioned to attract a growing user base and challenge the dominance of centralized exchanges.
• Technological Advancements: Layer 2 scaling solutions (e.g., Arbitrum, Optimism) and high-performance blockchains (e.g., Solana, Sui) have greatly improved transaction throughput and reduced costs. Hyperliquid’s 20,000 TPS is a strong example of near-CEX performance. As cross-chain interoperability matures, asset mobility and market scalability are expected to grow significantly.
• Innovative Products and Services: Decentralized protocols can quickly roll out new products such as perpetual contracts, synthetic assets, and options. Future expansions into traditional financial derivatives could further broaden their market scope.
• Community Governance and Participation: Decentralized governance models, such as DAOs, empower users to actively participate in protocol decisions. For example, dYdX DAO allows token holders to influence protocol upgrades, fostering community loyalty and sustainable ecosystem growth.
• Global Accessibility: With no KYC requirements, users worldwide can access these protocols with just a crypto wallet. This enhances financial inclusion, particularly in regions underserved by traditional financial systems.

Challenges

• Regulatory Uncertainty: Varying regulations across jurisdictions pose legal and compliance risks to protocol operations and token issuance. Striking a balance between decentralization and compliance remains a complex task that may hinder growth.
• Technical Risks and Security Threats: Smart contract vulnerabilities and network congestion are among the key risks. For example, Hyperliquid recently suffered a ~$4 million loss due to a liquidation arbitrage event, highlighting the potential impact of protocol-level flaws. Congestion can also delay transactions and increase fees, negatively affecting the user experience.
• Liquidity Constraints: Compared to centralized platforms, decentralized protocols often support fewer assets and have lower liquidity, especially in long-tail markets. This may lead to slippage and poor price discovery.
• Increasing Competition: The sector is becoming increasingly competitive. While Hyperliquid currently leads in performance, rivals like Jupiter and Vertex are pushing forward with technological innovations. Protocols must continue to evolve or risk losing users to more agile competitors.

6. Conclusion

Decentralized derivative protocols are at the forefront of DeFi innovation, leveraging blockchain and smart contracts to reshape traditional derivatives trading. These protocols offer transparency, security, and global accessibility — key attributes for a next-generation financial system. Hyperliquid has emerged as a leader thanks to its high-performance Layer 1 blockchain, gas-free order book model, and near-instant trading experience, rivaling centralized exchanges. Meanwhile, mature platforms such as dYdX and GMX remain competitive through strong user bases and high TVL, while Jupiter and Vertex demonstrate potential through ecosystem integration and product innovation. However, challenges persist. These protocols still face limitations in asset coverage, scalability, and liquidity compared to centralized platforms. Looking ahead, improvements in Layer 2 solutions, high-throughput chains, and growing user demand will likely drive further development. By launching innovative products, enhancing user experience, and adapting to evolving regulations, decentralized derivative protocols are poised to challenge centralized exchanges and accelerate the evolution of the crypto financial ecosystem.

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