Hello,
Coming into your inbox with a story about how liquidity is a moat while missiles fly over the Emirates, sums up life in 2025. Work can occasionally be an escape, much like escaping reality can be work, sometimes.
At the beginning of the year, I had hinted that we would be building liquid positions from our balance sheet. Over the course of the last few weeks, we have been steadily building a position in HyperLiquid.
This is in sync with our on-going exploration of velocity, margins, revenue & business models. Today’s story by Saurabh lays the case for why we are building a position on HyperLiquid.
In the interest of disclosures, we were not in touch with anyone at HyperLiquid over the course of writing this story. No marketing managers were harmed in the writing of the article. We continue to invest, build alongside & research the future of markets that are developing on-chain. Our thesis is that HyperLiquid will be a primary avenue to build apps in the coming months given its ability to attract risk-on capital.
If you are a founder building in that ecosystem, drop us a note at venture@decentralised.co.
On to the story now,
Joel.
Long before anyone uttered the word “blockchain”, merchants used a shared infrastructure called the Silk Road. Even though the route had existed for centuries, it was considered dangerous and inefficient. Local warlords extracted tolls, bandits attacked caravans, and merchants had to navigate dozens of different legal systems and currencies. Each trading post operated independently, hoarding information and charging whatever the market would bear.
Under Pax Mongolica or the period of stability, Genghis Khan improved the ease of doing business by unifying the fragmented Silk route. A merchant in Eastern Europe could now travel to China without worrying about his life. And he could do so under a single legal framework, using standardised weights and measures, protected by the same security forces. Mongols built a system called the Yam, a relay network of way-stations, fresh horses, and sealed passports (paiza). This allowed merchants to cover more distance and improved the movement of goods.
Yams were like nodes that could be easily replicated. It created network effects that made the whole system stronger with each new participant. The more merchants used the routes, the better the security, the more reliable the services, and the lower the costs for everyone. The Mongol trade network lasted centuries and enabled one of the greatest transfers of knowledge, technology, and culture the medieval world had ever seen.
This is how humans have always solved commerce at scale: by building shared infrastructure that gets stronger with each new participant. Major inventions later were like derivations of the Silk Route that helped us do business a little more efficiently. With steamships, telegraphs, and container vessels, we have been nudging the cost of moving goods a few basis points closer to zero. Today, even in digital finance, moving value depends on networks where the fundamentals remain the same.
A simple truth about financial markets is that money needs to move, and it needs to move efficiently. Joel already explored this in Money Moves. The blockchain world has spent years building technology stacks while largely ignoring this fundamental principle. Most DeFi protocols launch with great fanfare, attract some initial liquidity during their incentive periods, then watch users and volume migrate to the next shiny thing offering better rewards. It's been a predictable pattern in DeFi.
Traditional finance has not been universally accessible. But those with access could gain leverage that multiplied their profits. Behind the access-controlled glass doors of banks and prime brokerages, dollars are rehypothecated across different trades. The same collateral gets used for different positions. The result is an engine that hums close to 100 % utilisation. But only a small club of institutions is allowed to touch the controls.
DeFi flung those doors wide open: anyone with a browser could borrow, swap, or hedge. But openness came at the cost of stranded collateral. Isolated margin accounts, over-collateralised loans, and liquidity pools that can’t talk to one another. On the “permissionless markets vs. capital efficient markets” chart below, traditional markets squat bottom-right, DeFi hovers top-left, and the top-right remains conspicuously empty. Hyperliquid’s wager is to plant a flag in that white space. This matters because if financial institutions are to use blockchain infrastructure, they won’t use it because it gives permissionless access. They would want a system that is at the same level of efficiency as the one they already have. And without institutional-level adoption, crypto will not be able to unlock the next level of growth.
Our previous post on Hyperliquid focused on the exchange. This one is about the Hyperliquid ecosystem and how it is trying to change DeFi’s capital efficiency and liquidity.
Hyperliquid’s bet is that if you give money fewer reasons to leave, fewer oracles to consult, fewer gas-guzzling detours, it will stay, compound, and, crucially, bring its friends. The chain is not trying to be a universal computer or a metaverse theme park. It is trying to be Manhattan’s financial district, squeezed into a single matching engine.
The question is, can Hyperliquid turn that exchange into a gravity sink so dense that capital cannot escape? The answer lies in two intertwined ideas: how fast value circulates and how hard it is for that value to depart.
Money Movers
Before anything else, blockchains are about money. This sounds obvious, but it's worth examining what "moving money" actually means in practice. The Silk Road worked because it made trade easier, faster, and safer than the alternatives. But it wasn't unique. History is full of fortunes built by controlling integrated infrastructure networks.
Rothschild is a famous name in financial services. But they built their business on the back of a strong information network in 19th-century Europe. While other financiers waited days for news to travel by horse and ship, the Rothschilds used carrier pigeons, private couriers, and strategic telegraph investments to move market intelligence in hours. The family went on to finance railways across Europe, not for the transportation revenue, but because railroads were the arteries of 19th-century commerce. Control the rails, control the economy.
JP Morgan in America followed a similar playbook. He financed railroads and organised industries around them. He consolidated competing rail lines into integrated networks, standardised track gauges so trains could actually connect, and eliminated redundant routes. When Andrew Carnegie needed to ship steel from Pittsburgh, he shipped on Morgan's rails. When John D. Rockefeller needed to move oil from Pennsylvania to refineries, he cut deals with Morgan's railroad empire.
Morgan's real innovation was the vertical integration of infrastructure itself. He controlled the steel companies that built the rails, the banks that financed expansion, and the railroads that carried goods. It was about becoming the circulatory system of American capitalism. By the time he was done, you couldn't move money, materials, or information across America without paying Morgan somewhere along the chain.
Any chain that enables the movement of capital without any hiccups across its different parts has an inherent advantage.
Stablecoins have emerged as crypto’s killer app. As of June 22, Ethereum, Solana and Tron have moved $12.2 trillion worth of stablecoins in 2025. Chains have found their niche in terms of how stablecoins move there. Tron has become the dominant network for emerging market payments, while Ethereum handles larger institutional transfers, and Solana excels at high-frequency, smaller-value transactions.
Solana became the preferred venue for trading memecoins in 2024. It is captured in stablecoin velocity on Solana. With the stablecoin supply of just $1.8 billion, Solana settled $11.5 trillion worth of stablecoins. In other words, each stablecoin exchanged hands more than 6300 times. Activity on Base took off with the rise of AI agents. Stablecoin velocity in 2024 is too high because of the lower supply. But Base is the only chain that has settled more stablecoins in the selection. In 2025, stablecoins exchanged hands more than 1700 times on Base.
These numbers show that money behaves differently when fees approach zero. On Ethereum, when a trade costs $10, it’s unlikely that a small trader would punt $50 or $100 regularly. But we see this regularly on Solana with sub-penny fees. Exchanges, liquidity providers, and MEV extractors make money on fees and slippages. Validators make money via bribes from MEV extractors. Instead of making high margins on fewer transactions, you make tiny margins on massive volume. When friction disappears, velocity becomes everything.
The on-chian activity can be broken down into two components — high value (like on Ethereum due to its high liquidity) and low value with higher frequency, like Base and Solana. Is it possible to have both in a single chain? Hyperliquid's approach becomes interesting. Rather than optimising for one type of money movement, the ecosystem provides the infrastructure for all of them.
The Hyperliquid ecosystem has two parts.
The Hyperliquid DEX, powered by HyperCore, which is the native L1 order book system and
HyperEVM, a high-performing EVM-based blockchain built by the Hyperliquid team.
While these two are the building blocks, pre-compiles and builder codes are the distribution mechanisms.
Pre-compiles are specialised smart contracts that bridge HyperEVM with HyperCore, enabling smooth cross-environment data access and execution. These contracts provide developers with direct access to trading data such as perpetual positions, spot balances, vault equity, oracle prices, and staking delegations.
Builder codes on Hyperliquid are referral-like identifiers that developers can use when building applications or tools on the platform. When users interact with Hyperliquid through a developer's app (like a trading bot or interface), the developer's builder code gets credited. This allows them to earn a share of the trading fees generated by their users. It creates a direct monetisation pathway for developers who build valuable tools and applications in the Hyperliquid ecosystem.
Improved Capital Efficiency
Traditional DeFi lending protocols face significant inefficiencies when managing collateralised positions. On Ethereum-based platforms like Compound or Aave, liquidating a $100,000 USDC loan backed by $150,000 worth of ETH requires multiple expensive operations:
Oracle price calls consuming 80,000 gas ($10-30),
external DEX swaps costing 150,000 gas ($15-50), and
slippage losses of 0.5-2% due to AMM mechanics ($500-$2000)
MEV extraction by front-running liquidators adds another ~1% value loss, often resulting in total inefficiencies of $500-3,000 per liquidation.
Hyperliquid's pre-compiles eliminate these inefficiencies through direct order book integration. Lending smart contracts can read prices directly from HyperCore order books using read precompiles, and send liquidation orders directly through write system contracts, HyperEVM. The same $100,000 liquidation scenario requires only 2,100 gas for price data and 47,000 gas for execution. This is a dramatic reduction compared to traditional Ethereum-based protocols while eliminating slippage through access to $2B+ order book liquidity.
The result is that a $100k liquidation via a lending application requires ~$27 plus value leakage via MEV (~$1.5k) on Ethereum and less than $5 on Hyperliquid.
Protocolised Liquidations
Pre-compiles enable protocolised liquidations where lending protocols implement automated liquidation mechanisms similar to perpetual contract systems on HyperCore.
In traditional finance, when you can't pay your margin call, your broker just sells your stocks instantly at market price. It’s easy and without any value leakage because they have direct access to deep markets.
In most DeFi protocols, it's messier. When your loan goes bad, the protocol has to find someone willing to liquidate you, then hope they can sell your collateral across multiple different exchanges without losing too much to slippage. It's like having to sell your house through a chain of middlemen instead of directly to the market.
Hyperliquid works more like traditional finance. When your collateral drops too low, the smart contract just sells it directly into the same deep order book that handles billions in daily trading. Your position gets closed at fair market prices, without looking for anybody to take on your loan and leak value.
This architecture increases capital efficiency at the protocol level. Traditional DeFi protocols maintain separate liquidity reserves and typically offer 75% loan-to-value ratios due to execution risks. Hyperliquid-based lending protocols can eliminate the buffer and offer 90%+ LTV ratios because liquidations execute against guaranteed deep liquidity. This allows users to deploy capital 20-25% more efficiently while maintaining equivalent risk profiles. The result is a unified liquidity layer where every DeFi protocol gains institutional-grade execution capabilities with full transparency and composability.
Liquidity as a Moat
Liquidity is the soul of financial applications. If you have a fantastic product with no liquidity, you don’t have a product. And in conventional DeFi apps, liquidity is mostly zero-sum. DeFi is composable to a decent extent, but we haven’t really been able to unify liquidity. When one platform has liquidity, it is absent from every other platform.
The problem with chains like Ethereum is that when Aave has to liquidate a large position, it will have to break it into multiple chunks (less efficient in terms of gas) to source liquidity from different venues or take a slippage hit. As mentioned in the example earlier, for a $100k liquidation, Ethereum may often end up paying $1k to different intermediaries. This is why projects are forced to integrate with multiple external DEXs, adding complexity, gas costs, and execution risks while still not guaranteeing optimal pricing.
On the surface, this is just a liquidity issue. But it spills over and takes up scarce resources of the team. At the end of the day, poor execution is not good for the protocol. So, founders end up spending their scarce time on activities that are not necessarily core to their business. If you are a lending protocol, one of your core objectives is to grow the loan book. Of course, how you liquidate bad debt matters. But if there’s a better way to plug into a large liquidity pool, that means you don’t have to worry about finding the most optimal way to liquidate a risky position; you would spend your time on growing, not maintaining.
New protocols typically launch with minimal liquidity, creating a chicken-and-egg problem where traders avoid the platform due to poor execution, which in turn prevents liquidity providers from earning meaningful fees.
It often makes sense to look at how our traditional financial system solved these problems. Stock exchanges like London, New York, and Bombay ended up winning because everyone was trading there. There were no L2s that divided users and the liquidity they brought. Network effects in finance are particularly powerful because they compound: more participants mean better prices, which attract more participants, which create even better prices.
Hyperliquid is solving this problem by being more collaborative about liquidity. Think your app can bring liquidity, and you want to benefit from it?
Hyperliquid’s builder codes are permissionless fee-sharing mechanisms that enable DeFi developers to earn revenue from trades executed through their applications. They try to solve this problem by enabling all applications to tap into the same unified $2B+ liquidity pool without fragmentation. Hyperliquid is one of the most liquid exchanges in crypto, not just in DeFi. All the projects building on HyperEVM get to tap into this liquidity without breaking a sweat.
Rather than competing for liquidity, applications built with builder codes contribute to and benefit from a shared liquidity layer. When a user trades through any builder code application, they're accessing the same deep order books that power Hyperliquid's core exchange. Doesn’t matter whether it's a mobile wallet, a trading bot, or a sophisticated DeFi protocol.
This architecture means that a newly launched lending protocol doesn't need to bootstrap its own liquidity or integrate with multiple external DEXs. Lending smart contracts can read prices directly from HyperCore order books using precompiles and send liquidation orders directly through write system contracts, instantly accessing institutional-grade liquidity depth. The protocol benefits from the same liquidity that serves billions in daily trading volume, ensuring efficient liquidations regardless of the protocol's age or size.
Builder code network effects
In most DeFi ecosystems, new apps are like new restaurants opening on the same street. They all fight for the same customer base and split the existing pie. On Ethereum or Solana, when a new DEX launches, it has to convince users and liquidity providers to leave Uniswap or Raydium. It's zero-sum: one app's gain is another's loss.
Builder codes flip this completely. Every new app on Hyperliquid actually makes the whole ecosystem stronger, like adding another store to a shopping mall. When a new trading bot launches and brings 1,000 active users, those users add volume to the same liquidity pool of HyperCore that every other app uses. More volume means better prices for everyone. The lending protocols get better execution, the derivatives platforms get tighter spreads, and even competing trading bots benefit from the deeper liquidity.
It's positive-sum because everyone wins when the shared infrastructure gets stronger. Instead of fighting over pieces of a fixed pie, every new participant makes the pie bigger for everyone else.
Since liquidity is now available with just a few lines of code, it becomes more about how good the application is.
This dynamic reverses the traditional DeFi liquidity fragmentation. Instead of protocols launching with empty order books or minimal AMM liquidity, they immediately inherit the execution quality of the entire Hyperliquid ecosystem. A derivatives trading application launching today can offer the same tight spreads and deep liquidity as established protocols, removing the typical barriers to entry that favour incumbent platforms.
The unified liquidity model also enables sophisticated cross-protocol interactions that were previously impossible. A decentralised hedge fund can execute complex multi-asset strategies across different builder code applications while maintaining consistent execution quality, since all trades ultimately settle against the same order books.
This reminds me of how every factory was once a half power plant. Electricity had to be generated on premises since transporting it was not possible. Factories had to install steam engines, stoke boilers around the clock, and run a maze of leather belts up to a massive overhead driveshaft. A good chunk of the workforce spent its day feeding coal, tightening pulleys, and greasing bearings. This was work that kept the lights on but never improved the product rolling off the line.
Then came the public AC grid and small electric motors. A factory could now buy kilowatts the same way it bought water. Maintenance crews shrank; floor layouts became flexible; management’s attention shifted from “keep the boiler pressure up” to “how do we double output?”.
Builder codes do the same. They allow developers to go beyond the table stakes of sourcing and managing liquidity. They can make UX a priority and focus on building applications with great experiences.
HyperEVM Ecosystem
The HyperEVM ecosystem has rapidly evolved into a comprehensive DeFi infrastructure with over $1.5 billion in total value locked across 100+ projects. The HyperEVM is secured by the same HyperBFT consensus as HyperCore, allowing direct interaction with spot and perpetual order books through pre-compiles and system contracts HyperEVM | Hyperliquid Docs. This unique architecture enables protocols to build sophisticated financial applications that leverage native order book liquidity while maintaining full EVM compatibility.
Projects range from lending markets to liquid staking to synthetic assets. But they all benefit from the same unified liquidity layer. Applications across different sectors are being built on Hyperliquid
Lending & Money Markets:
HyperLend ($470M TVL) - Primary lending protocol that plugs directly into order book liquidity for instant, efficient liquidations.
HypurrFi ($319M TVL) - Leveraged lending marketplace and home of USDXL stablecoin, backed by US Treasuries.
Unit Protocol - The bridge layer that brings BTC, ETH, and SOL onto Hyperliquid as uBTC, uETH, etc.
Felix Protocol - Multi-collateral stablecoin (feUSD) that reduces dependence on external stablecoins.
Exchanges:
HyperSwap & KittenSwap - AMM-based DEXs handling $75M daily volume, still need to bootstrap their own liquidity, unlike the main exchange.
Liquid Staking:
StakedHYPE - Simple liquid staking, stHYPE automatically compounds rewards
Kinetiq - Smart validator selection system that automatically delegates to the highest-performing validators
LoopedHYPE - Automated leverage loops on staking yields, potentially 10%+ APY through 3x-15x leverage.
The ecosystem's rapid growth shows what happens when you remove liquidity bootstrapping friction. HyperEVM TVL has climbed steadily to $1.5 billion as protocols launch with instant access to deep liquidity.
What to make of all of this?
I think Hyperliquid has four distinct advantages.
First, of course, is the instant access to deep liquidity with reduced execution risk. Launching on Hyperliquid means immediate access to a robust liquidity pool that serves billions in trading volume daily. This eliminates the typical cold-start liquidity challenges that plague new protocols. Moreover, direct access to unified liquidity significantly reduces execution risks such as slippage and MEV extraction, ensuring smoother and safer trades right from the start.
Second is the permanent fee sharing. Builder codes provide a sustainable economic model by embedding permanent fee-sharing mechanisms into every transaction. This ensures protocols continuously earn revenue directly proportional to the real value they create, rather than relying on temporary incentives or unsustainable liquidity mining programs.
Third is focused development efforts. Developers are free to direct their energy and resources toward crafting superior products and refining user experiences. They no longer need to allocate significant time, funds, or attention to liquidity incentives, pool management, or negotiating partnerships to maintain liquidity.
BasedApp illustrates this point. Instead of spending months building trading infrastructure from scratch, they focused on what users actually want: "Hold crypto, trade, and spend crypto in the real world." Their mobile app launches with full access to Hyperliquid's liquidity for perpetual trading, combined with their proven Visa card infrastructure for real-world spending. As the founder Edison Lim puts it, they could focus on creating "an operating system for on-chain finance" rather than solving liquidity bootstrapping problems.
And lastly, cross-protocol synergies. Every new protocol enhances the shared liquidity ecosystem, contributing to a virtuous cycle where increased activity attracts even more participants and deepens the liquidity pool. This interconnected approach creates durable network effects, benefiting all participants and ensuring sustained growth for the entire ecosystem.
Most ecosystem building has followed a similar playbook: throw grants at developers and organise hackathons. These approaches have value, but they miss the fundamental problem. The real friction is the constant battle for liquidity, not the lack of funding or ideas. Every newborn protocol must bribe its own liquidity, then fight mercenary capital the moment the incentives drop. Builder codes turn that burden inside-out. Plug in, inherit a two-billion-dollar order book, and earn a slice of fees in proportion to the flow you create. Teams like Lootbase can pour their energy into the product without worrying about drip-feeding LP incentives.
For developers, this creates a fundamentally different value proposition. On other chains, you might get a $50,000 grant to build a DEX, but then spend six months convincing market makers for liquidity and burning your runway on incentives. On Hyperliquid, you get instant access to $2+ billion in order book liquidity from day one. Your success depends on building a great product, not on your ability to convince VCs to fund liquidity mining.
Hyperliquid doesn't offer the traditional spoon-feeding of grants and accelerator programs. You won't get hand-holding through the development process or guaranteed marketing support. What you get instead is the infrastructure to build applications that work from launch. If you can create genuine value for users, builder codes ensure you capture your fair share of the economic upside.
Hyperliquid will have competition from new chains like MegaETH and Monad that are coming to market with impressive technical specs. It will be watching whether these new chains can match Hyperliquid's approach to shared liquidity and capital efficiency. Technical performance is now table stakes; economic design is what creates lasting value.
Signing off,
Saurabh Deshpande
Disclaimer: No part of the article is either financial or legal advice.