Out of sync: Ethereum bleeds, Hyperliquid stalls.

Written by: Zuo Ye

When the time comes, the world works together; when fortune departs, heroes are not free.

Binance launches Aster to attack Hyperliquid's OI and trading volume, $JELLYJELLY and $POPCAT continuously attack HLP, it's just a scabies disease;

Amid the booming HIP-3 growth mode, the rumored BLP lending protocol, and the active staking of 1 million $USDH to become aligned quote assets, Hyperliquid, however, reveals its own cracks— the HyperEVM ecosystem and $HYPE have yet to align.

Alignment is not complicated. Under normal conditions, the HyperEVM ecosystem consumes $HYPE, and $HYPE will also support the development of the HyperEVM ecosystem.

The current state is abnormal, and the focus of the Hyperliquid Foundation is still on the utilization of HyperCore's spot, contracts, and HIP-3 markets for $HYPE , while the development of the HyperEVM ecosystem remains a second-class citizen.

Earlier, a third party proposed the HIP-5 proposal, hoping to allocate some funds from the buyback fund of $HYPE to support ecological project tokens. However, it was met with overall denial and skepticism from the community, highlighting a harsh reality: the current price of $HYPE is entirely supported by the HyperCore market buyback, and there is no surplus to support the HyperEVM ecosystem.

The Stone from Other Hills: Success and Failure of Ethereum Scaling

L2 transitioning to Rollup does not satisfy ETH, and third-party sorters are nearly absurd.

The development of a blockchain involves three main entities: the main token (BTC/ETH/HYPE), the foundation (DAO, thought leaders, companies), and ecological project parties.

Among them, the interaction model between the main token and ecological project parties determines the future of the chain:

Main token ⇔ ecology, the most healthy is the two-way interaction, ecological development needs the main token, the main token empowers ecological projects, SOL is currently doing the best.

Ecosystem, the main token empowers the ecosystem in one direction, and after the main token TGE, it disperses all at once, typical examples include Monad or Story;

Main token, main token vampire ecological project, the ecology is in a competitive and cooperative state with the main token.

The evolution of the relationship between Ethereum, its DeFi projects, and L2 is the most direct and can reflect the current real status of HyperEVM, as well as the potential for breakthroughs in the future.

According to research by 1kx, the top 20 DeFi protocols account for about 70% of on-chain revenue, but their valuations are far inferior to those of the underlying public chains. The theory of fat protocols still holds some weight, as people are more inclined to trust Uniswap and stablecoins on Ethereum rather than standalone Hyperliquid and USDe.

Not to mention that Vitalik has long “disliked” DeFi but cannot live without it, ultimately awkwardly coming up with a low-risk DeFi theory. Many DeFi protocols have indeed tried to build their own portals, from dYdX V4 to MakerDAO's EndGame plan in 2023, with technology choices spanning AltVM systems like Cosmos and Solana.

Then came the public sell-off of $HYPE by Vitalik. Beyond the interaction between the main token and the ecosystem, people have long underestimated the “official” legitimacy of public chains, especially the role of spiritual leaders.

The Ethereum Foundation (EF) represented by Vitalik has long allowed DeFi to run its course, focusing instead on metaphysical philosophical concepts. The struggle between the clam and the sandpiper benefits the fisherman, and the rise of the Solana DeFi ecosystem is not unrelated to this. Ultimately, Hyperliquid strikes out in the form of an exchange + public chain, bringing public chain competition into a new phase.

The impact of Solana on Ethereum has led to criticism of Vitalik and the Ethereum Foundation, but outside of DeFi, the gains and losses of L2 Scaling are even more intriguing. The L2/Rollup route has not failed technically, but the siphoning of L1 revenue has pushed ETH into a downward cycle.

L1 Scaling

Image source: @zuoyeweb3

When Ethereum L1 faced the scaling demands after the DeFi explosion, Vitalik designated a Rollup-centric scaling route and bet heavily on the long-term application value of ZK, guiding the industry, capital, and talent towards a FOMO sentiment for ZK Rollup. From 2020 to 2024, this created countless wealth effects or tragedies.

However, one point is that DeFi is a real product aimed at the C-end, and the continuously launched L2 essentially consumes the infrastructure resources of Ethereum L1, which splits the value capture ability of ETH. The end of L2/Rollup will arrive in 2024, and in 2025, it will return to the L1 Scaling route.

After four years away, still primarily focused on L1.

Image description: Speeding up and reducing fees harms its own income.

Image source: @1kxnetwork

On a technical level, ZK and L2/Rollup do significantly reduce the burden on L1, and the increased speed and reduced costs indeed benefit participants, including ordinary users. However, outside the competitive relationship between public chains and DeFi (applications), on an economic level, it has added a complex triangular relationship of public chain, L2, and applications, ultimately resulting in a lose-lose situation for all.

Ethereum's revenue from L2 has declined due to the siphoning off of income, an excessive wealth effect from L2 has dispersed, and the continuous expansion of applications has diluted the focus on L2.

In the end, Hyperliquid concluded the dispute with a unified stance of “public chain as application, application as transaction,” and Vitalik also lowered his proud head to reorganize the EF (Ethereum Foundation) and重新拥抱用户体验.

In the process of transitioning from L2 to L1, the technical choices at a certain point in time, such as Scroll's emphasis on four types of ZK EVMs and Espresso's bet on L2's decentralized sequencer, have ultimately been falsified. Brevis has recently gained attention as Vitalik re-emphasizes the importance of ZK for privacy, which is no longer closely related to Rollup.

The fate of a project depends not only on one's own efforts but also on the course of history.

The dazzling flowers gradually dazzle the eyes, as Hyperliquid moves from one victory to another, but it also faces the dilemma of Ethereum again. How should the relationship between the main token and the ecosystem be handled?

Throwing a brick to attract jade: The alignment choices of HyperEVM

BSC is an affiliate of Binance, but the team hasn't figured out what HyperEVM really is about Hyperliquid.

In the article about the wave-making HyperEVM, the distinctive development path of Hyperliquid was introduced: first creating a controllable HyperCore, then an open HyperEVM, while linking the two with $MKR .

In recent developments, the Hyperliquid Foundation insists on empowering $HYPE as the center, adhering to HyperCore as the main body, and promoting the token economics of various HyperEVM ecosystems for joint development.

This also raises the core concern of this article: how should HyperEVM find its own path of distinctive development?

The BSC ecosystem is an accessory to Binance's main site and $HYPE , with PancakeSwap and ListaDAO swaying with Binance's intentions, so there is no competitive relationship between BNB and BNB Chain.

Even Ethereum, as strong as it is, cannot maintain a long-lasting balance between ETH and ecological freedom and prosperity. In comparison, the existing problems of Hyperliquid are detailed as follows:

There is no established collaborative relationship between HyperEVM and HyperCore, making HyperEVM's position awkward.

$BNB is the only concern of the Hyperliquid Foundation, and the HyperEVM ecological project team is somewhat at a loss.

Before answering the question, let's take a look at the current status of HyperEVM. It is very obvious that the HyperEVM ecosystem projects are not keeping up with the ideas of the Hyperliquid team.

Image Description: HyperEVM Stablecoin Market Share

Image source: @AIC_Hugo

The USDH team election has triggered FOMO among many stablecoin teams, but HyperEVM does not have a significant advantage over existing stablecoin project parties. BLP may also have potential conflicts of interest with existing lending protocols, and the most obvious event is the HIP-5 proposal, which has basically no support for the HYPE token empowerment ecosystem project.

$HYPE is the heartache of the Cosmos team, $ATOM is the illusion of the ecological project parties, no matter how much is done, it is still just consumables.

A classic question arises for the HyperEVM ecosystem project, what if Hyperliquid is developed?

Image description: Hyperliquid Flywheel

Image source: @zuoyeweb3

Looking at the Hyperliquid team's consistent strategy, they are very good at making moves during industry crises to build their own resilience. During industry downturns, not only are the costs of recruiting low, but they also reverse market their robustness, gradually fostering a tight community consensus around Hyperliquid.

The initial stage of anti-VC narrative emphasizes self-funding for market-making and entrepreneurship, although it will still ally with market makers and have VC purchase tokens. However, it has a remarkable appeal to the public, attracting early seed users.

The marketing strategy in the development stage is not about recruiting BD to attract KOL for commissions, but rather to program it (Builder Code/HIP-3 Growth Mode), allowing users to fully customize it;

Maximizing transparent data in the stable phase, this is also Hyperliquid's latest contribution to blockchain beyond decentralization (with few and centralized nodes, governed by company will), allowing transparent data to represent the future on-chain;

The long-term phase of HyperEVM's openness should not be built on human trust for developing the on-chain ecosystem, but rather on a permissionless drive for ecological development.

The problem lies in the long-term perspective. The interests of the Hyperliquid Foundation and $HYPE are completely aligned. However, to some extent, HyperEVM has its own cautious intentions to prioritize the development of its own tokens and ecosystem. This is understandable, as the on-chain ecosystem is essentially a game of exchanging liquidity for growth.

The governance mechanisms are unable to keep up with the real demands of technological innovation, from Satoshi Nakamoto's departure, to Vitalik's admiration and abandonment of DAOs, and then to the foundation model; public chain governance is still under constant experimentation.

In a sense, the Vault Curator is also a contradiction of technology and mechanisms, continuously absorbing the reality of governance systems moving towards the blockchain. Lawyers + executives + BD, the issues faced by large companies on-chain are more abstract than those in Silicon Valley and Zhongguancun.

The Hyperliquid team is at least closer to the technical characteristics of blockchain in terms of “everything as programmable”. On-chain inherently eliminates the need for trust, so there's no need to laboriously establish a trust model. However, this set still requires additional impetus on HyperCore, such as the management of HLP, which is likely to require manual operations during a crisis.

At least at this stage, HyperEVM has not truly achieved “permissionless” in terms of governance mechanisms and liquidity. This does not mean that Hyperliquid is still imposing technical restrictions, but rather that orthodoxy has not yet been fully opened to the entire community.

We will witness the co-evolution of HyperEVM and $HYPE in the impending bear market, or witness Hyperliquid degenerate into Perp DEX.

Conclusion

Our ETH, the issue with Hyperliquid.

Ethereum's bloodline is indeed thick, having experienced the transition from PoW to PoS and L2 Scaling to L1 Scaling, as well as the impact of Solana in the DeFi space and Hyperliquid in the DEX space, yet it still maintains an unbreakable market position.

Moreover, $HYPE has already exited the bull-bear cycle, but $ETH has not yet undergone the true test of a bear market. Sentiment is a very precious consensus, and there is not much time left for $HYPE and HyperEVM to align.