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Author:TPBN,Compiled by: Wu Shuo Blockchain
The content of this issue is the TPBN column’s interview with Jeff Yan, the founder of Hyperliquid.Jeff shares his experience as a trader turned entrepreneur, and the opportunity to rethink the decentralized ethos of the crypto industry after the collapse of FTX.Jeff talked about the birth process, technical concepts and development vision of Hyperliquid: it is committed to creating a completely decentralized, on-chain native financial system and becoming the “underlying network” for all financial infrastructure in the future.
He discussed in depth why he rejected traditional venture capital, how to draw on the spirit of Satoshi Nakamoto to maintain protocol neutrality, and Hyperliquid’s unique growth path at the brand and community levels.The interview also covered the mechanism and innovative significance of perpetual contracts (Perpetuals), team building principles, and the decentralized community-driven brand philosophy.The entire conversation not only revealed Hyperliquid’s technical thinking, but also demonstrated the balance between idealism and pragmatism among DeFi entrepreneurs.
The birth and vision of Hyperliquid
John: Welcome Jeff to the show and thank you for your time.Our audience is mostly tech-savvy, but may be less knowledgeable about cryptocurrencies.Can you briefly introduce yourself, your experience and your business?Then we can dive into some different directions.
Jeff: Of course, it might be appropriate to start with my story.In May 2022, we are a small team focused on cryptocurrency trading, mainly focusing on DeFi and SCI-Fi.At that time we realized that we wanted to do something in the DeFi field because DeFi products were still in a very nascent stage at that time.Basically, all the products were bad and we as traders felt we could do better.Later, the FTX crash became the impetus for us to decide to go all in and build Hyperliquid.At that time, we suddenly realized that although some people had written about the discussion about decentralization and self-hosting in the encryption field in the past, no one seemed to take it seriously.But suddenly these questions become very important.Everyone is beginning to realize that “if it’s not your key, it’s not your coin.”We strayed from the original spirit of Satoshi Nakamoto and Bitcoin.So, we think the world is ready for a decentralized, self-custodial way to trade cryptocurrencies.
Back to the present, Hyperliquid is now the primary on-chain price discovery venue and is a fully on-chain financial system.Our goal has always been to build a platform that can eventually host all financial activities, and although today it mainly serves as an exchange, it is actually more than just an exchange.Most notably, it is a trading platform that supports on-chain perpetual contracts, generates over a billion dollars in revenue annually, and is, in many ways, the first of its kind.
The construction of decentralized protocols and thoughts on venture capital
John: It’s interesting to hear you say that, most founders would say “we,” but it’s clear that you’re more of a guardian of the project, responsible for building it and getting it out there.Is this how you see yourself?Is this the way you think about this project?
Jeff: Yes, we did take a lot of inspiration from Satoshi.I think the founder of Bitcoin is very unique. Whether it’s him or them, I’m not sure who it is, but if it’s Satoshi Nakamoto, Bitcoin is indeed the first in many ways.What’s unique about it is that it’s not a traditional product, as you said, it’s not a top-down company, it’s a product.I think the DeFi and cryptocurrency industry also draws a lot of inspiration from Bitcoin, after all everything started with Bitcoin and there will never be another big project like Bitcoin.The approach of many crypto projects is still top-down. Centralized exchanges are a good example. Although they are good business models, their core operations are not in line with the native spirit of the crypto world.Therefore, Hyperliquid is based on this thinking and strives to build a truly neutral protocol that will eventually become the infrastructure for all financial system upgrades.
John: So you don’t have venture capital?Can you explain it specifically?Is it because you are highly capital efficient and do not need financing, or do you have some special philosophy on what the role of venture capital should be in the crypto industry?
Jeff: This really goes back to Satoshi Nakamoto.If Bitcoin had raised Series A funding in its early days, the Bitcoin of today might not be the Bitcoin of today.Even the best investors in the world, with the strongest investment desktops, cannot change this fact.So I think venture capital actually provides a very important service to the world. They allocate capital efficiently and help many projects to develop. Although they are not always perfect, overall, I think their contribution outweighs the negative impact.
But in this case, I think when you’re building a neutral protocol, there might be some important elements on it that involve money flows and transactions.Neutrality is more important than anything at this time.I think there is a path dependency problem in this case.If there are insiders leading from the beginning, no matter how resources such as supplies, ideas, talents and so on are dispersed, it is impossible to avoid the emergence of that “big bang” moment, which will leave a mark on the history of the agreement.So for any project that’s being built, this kind of early access to capital will have an impact.I think raising money and scaling quickly are viable strategies, but when you’re building a project that needs to be neutral over the long term, history is very important and we’d rather take our time and make sure we get everything right.
Venture capital, market competition and the original intention of Hyperliquid
John: I want to follow up on this, you can’t stop VCs from taking positions in the public markets, right?Let’s say a big-name investment house says, “We want 20% of the stake, we’ll buy the token through the open market and take a position,” it will behave like any other asset in our portfolio.Has this ever happened?Is this irrational?Are there any legal structural constraints that prevent them from doing this?
Jeff: You can make the same argument for Bitcoin.For example, many venture capital investors are large holders of Bitcoin.I know a few VCs who were very early involved in Bitcoin.So the question is not who owns it, but its origins.It’s more of a matter of principle.If you can’t claim on the one hand that the platform is neutral and anyone can build it, and on the other hand say, “These are the people who have the opportunity to be the first to build this platform,” then it’s not perfect.Although from a practical perspective, any project born after Bitcoin needs to be launched in a highly competitive market, and innovation must be funded, we still want to get as close as possible to Satoshi Nakamoto’s ideals, which is still worth pursuing.
Jordi: So, did you know what you were going to do at the beginning and execute the plan directly, or did you iterate along the way and get to where you are today?
Jeff: I don’t think we had a complete idea of what we were going to do initially.We just want to do something we can do well, and even doing one thing well is difficult.Initially we focused on finding a big opportunity, and we discovered that there was an area in cryptocurrency that might have a strong need for a completely permissionless platform, and perpetual contract trading was the obvious choice.At the time, such transactions probably accounted for more than 50% of the crypto market’s revenue.This is where we originally started.Importantly, from the outset we were unwilling to compromise on the principles of how we operate.
Which companies are particularly inspiring for Hyperliquid?
Jordi: You learned a lot from FTX, avoided those mistakes, and were inspired by Satoshi Nakamoto.So, are there any companies off the chain that are particularly inspiring to you?
Jeff: There are many.In fact, every big company, especially technology companies, is very inspiring to me.I grew up in the Bay Area, so it’s hard not to be influenced by that.I feel like Amazon is a big source of inspiration, especially because they work from first principles and are both driven and very pragmatic.I think it was Bezos, and probably others, who realized that they had built most of the Internet stack, and wouldn’t it be such a waste if those technologies were just used in retail operations?Why don’t they abstract it away and create a proper API that allows anyone to take advantage of this powerful infrastructure they’ve built?That’s the story of the birth of AWS and cloud computing, and I think it’s a really amazing story.
This also brings me to Hyperliquid, which was originally a blockchain optimized specifically for doing on-chain perpetual contract trading because no other infrastructure could do it at the time.Later, we gradually realized that many other areas in finance, and ultimately the entire financial system, could benefit from this high-performance decentralized ledger.So think of it as a way to provide infrastructure for liquidity.
John: What do you think about Bezos’ background at D.E. Shaw, where he was a trader.This may have affected the shape of Amazon to some extent, and how do you think it compares to a company like Google that is derived from academic research?What were you doing before this?Do you feel like you entered the entrepreneurial path with a trader’s mindset?
Jeff: Yeah, I think so.While I don’t fully understand what type of trading Bezos does, at least in the way automated trading does, it’s a lot like doing physics.You make a lot of approximations because you can’t be 100 percent accurate because the market is inherently random and the noise outweighs the signal, and that’s the beauty of the market.It’s like sifting signal among noise.This is completely different from supervised learning settings in AI, where there is almost unlimited data and the quality is very high.
I think the process of building Hyperliquid had a similar feel.In fact, we don’t rely on large amounts of data to drive decisions, but more on intuition.We just think very carefully about what the world should be like and try to make it the best it can be.Of course, if something obviously bad happens, we’ll adapt and adjust, but we won’t intentionally create data, especially if it doesn’t make sense.Therefore, methods like AB testing are almost never used by us.
Introduce the concept and advantages of perpetual contracts
John: You have mentioned perpetual contracts (perps) a few times. Can you provide a clear definition for our audience and explain what a perpetual contract is?Why is it so appealing?
Jeff: Well, if you want to know what people are trading today, what you can actually trade is a specific asset, like Amazon stock.If you want some kind of leverage that lets you make more money with less money, there are two ways to do it.The first is to trade futures, usually futures trade on some index, such as the S&P 500.The basic concept of futures is that two trading parties agree through an agreement, similar to a long and short contract.If the price of the S&P 500 moves $1, the long side makes $20 and the short side loses $20.Futures contracts are also typically settled against some underlying asset, for example, you’re trading the price of the S&P 500 over the next three months, or taking delivery of a cow at expiration.
John: I get it, if it’s a trade like corn futures, if I let the contract expire, I end up actually having to deliver all the corn.But most Wall Street traders have long known how to avoid this situation.You’ve also heard about strange situations where oil prices go negative and someone buys oil at a negative price and ends up having to accept all the oil.Of course, in a purely financial context, this is clearly not the intended outcome.So, do perpetual contracts unlock higher frequency trading, higher leverage, or a different kind of trader, more quantitative or algorithmically driven trading?Who are the customers for these products?Why are they interested in this product?
Jeff: Yes, the main reason why they are interested is because, as you said, there are actually many problems in futures trading. For example, there may be delivery problems. Sometimes you need to deliver, but most traders will avoid delivery by constantly rolling positions.
In the case of Robinhood, futures are nowhere near as popular as its options trading.For retail users, options are very attractive because they are similar to buying a lottery ticket. You can buy a ticket and feel very good because the maximum loss is limited.However, option pricing is very complex, especially for retail users, especially those who use applications that do not provide enough information, you may be “cut off leeks” because the structure of options is very complex.It looks simple, with only a strike price and expiration date, but is actually very difficult to price.
Perpetual contracts combine the two assets of futures and options.All you want to trade is the price of the underlying asset, you want the leverage effect, and you don’t want to worry about expiration. This is the meaning of a perpetual contract.
Taking Bitcoin as an example, almost every exchange will have a very liquid Bitcoin perpetual contract, which is the only liquid asset that will never expire.All price discovery happens on these perpetual contracts, and billions of dollars are traded in these Bitcoin contracts.It actually leads the price of Bitcoin’s underlying asset.This is very useful for professional traders as they can trade it and it is the most liquid Bitcoin trading tool.For retail users, it provides a clear and understandable price, which is not easy to be cheated, because there is only one market, and it is very liquid, and the bid-ask spread is very small.Therefore, it is a win-win situation for many participants.
Of course, there will always be some people who like options, or who prefer traditional futures contracts, but overall, perpetual contracts are undoubtedly more attractive.
Network expansion bottlenecks and decentralized security
John: So, what are the biggest bottlenecks in scaling a network like this?If the scale is very large, what I’m more concerned about is, is there some token economics structure that motivates people to build entire data centers?Are there any ASIC miners being built right now to run this network?I know that Bitcoin was originally mined with personal computers, and later developed into data centers. Finally, in pursuit of the cheapest energy, ASIC mining machines were developed because the algorithm is very stable.So, how does a network like Hyperliquid scale over time?What stage of expansion are you at now?
Jeff: Yes, Bitcoin is a bit unique in that it is probably the only mainstream network still using Proof of Work (PoW).The ASIC miners you mentioned, all these crazy things like using volcanoes to mine Bitcoin, are actually involved in the consensus mechanism.All other high-performance blockchains today (at least that I know of) use Proof-of-Stake (PoS), which is a more energy-efficient approach.Its security is based on the economic model, not computing power.So there’s not a lot of innovation in how the network stays secure on Hyperliquid.This problem is relatively simple. Basically, everyone will stake local tokens.For Hyperliquid, this token is called “Hype.”People stake it and say they endorse the network.Usually this is similar to the way you vote for members on your behalf. In fact, you use the verification node you choose as the object of your trust.This way, if a validator does something bad, the tokens staked to them are at risk.
From an economic perspective, the system will ensure network security through certain mathematical models.If a majority of the stakers in the network are honest, then the system can function properly.If you want to get enough collateral to do bad things (like double-spending — i.e. spending the same dollar twice), you need to control a lot of the pledge.Simply put, Hyperliquid’s security does not rely on creating crazy ASIC miners, but is based on economic models.
Brands and Communities: The Power of Decentralized Marketing
Jordi: How important is branding to Hyperliquid’s success?Because I feel that you do not focus on brand building like traditional companies, such as hiring advertising agencies, formulating strategic plans, etc.I’m sure many of your competitors have these practices, but you have one of the strongest brands in the world.It’s pretty amazing how much attention and excitement you can get just by typing “Hyperliquid” and posting anywhere in the world.But I’m curious how much of a role that branding plays in your success versus scale and other product decisions.
Jeff: Yeah, I think we’re very lucky and the community is very strong.I don’t know how to describe this community, it can be tight, intense, but also very inspiring.Our team is actually very introverted and very small, with only 11 people. We don’t even have someone dedicated to marketing.If we had, I think we probably wouldn’t have done well.
In fact, it’s not just the product itself, but the product and community, the entire ecosystem.It is made up of many different parts.Like, some people just post stuff through Twitter, which I think is really cool and I love that.Others are building products on top of the platform, which I think is also a form of viral marketing.They build products on top of the protocol that synergize with Hyperliquid itself, offer something new, or expand in some way.The financial backbone on Hyperliquid has been largely built by community members, and we hope this trend continues.Anything that can be built by the community will be built by the community.I think this decentralized marketing method is the embodiment of decentralization, not only at the technical level, but also at the social level, which is very important to us.This is the brand of Hyperliquid – – If you have to interpret it in a negative way, some people may think that we are relatively cold, or that we are too focused on technology and ignore marketing.But from this perspective, the end result is something more powerful, which is that people feel a sense of ownership in this network, which is a feeling that Web2 companies cannot achieve.
Competition and Focus: Hyperliquid’s Strategic Advantage
Jordi: This is why the companies that want to steal your market share are often large financial companies with strong capital, but it seems that they are having difficulty in truly competing.Is it because there is a huge community and everyone wants Hyperliquid to win?What do you think of this advantage?Beyond that, are there any other reasons why your reverse positioning makes it difficult to compete?
Jeff: To be honest, we don’t pay much attention to day-to-day competition.I feel like there is too much to do at the moment.You’re right, a lot of companies do want to do the same thing as Hyperliquid, or want to take market share, but we don’t think about that too much.There is so much to do.If I succeed, it means doing something that has never been done in the world.I think a lot of times getting a little anxious about competitors trying to chip away at Hyperliquid’s established advantages can also lead to us losing sight of the bigger picture.After all, we are still a long way from our real goal.
Hyperliquid’s Vision: The Future of Finance and the Rise of DeFi
Jordi: What is the potential of Hyperliquid?What are your ambitions?
Jeff: I see it as, if all goes well, eventually covering the entire financial spectrum.You can say it is the coordination of finance, that is, the coordination of human behavior, not just finance itself.
Jordi: You’re basically saying that if you don’t cover 100% of the total global financial markets (TAM), you’re still going to have a huge impact on it?
Jeff: Yeah, how big can it be, you ask?I think that’s right, but I don’t think it’s going to directly change anything like it’s going to replace finance.I’m thinking more like the impact of the internet on finance, or like the rise of electronic trading in the early 2000s.This is over 20 years old and it’s time to update the tech stack.I think DeFi is that technological update.
Quick question and answer session
Hyperliquid’s future and market expansion
Jordi: I have a quick Q&A session.I asked some friends in the crypto space to see what questions they would like to ask you.I’m going to ask a few quick questions and hope you can keep your answers short because some of the questions are more specific.
First, when will we see the first centralized exchange shut down their perpetual contracts trading and just run a frontend on top of Hyperliquid?When will they surrender?
Jeff: Within a year.
How do you view the US market?
Jordi: What are your thoughts on the U.S. market structure?Under what circumstances would you consider bringing Hyperliquid to the U.S.?
Jeff: That’s a good question.We think the United States is a very important market, obviously it is the global financial center and the U.S. dollar is the reserve currency for capital.We very much hope, certainly, that regulation in the U.S. can evolve and truly embrace DeFi.I think there are already steps being taken in this direction.I can’t comment specifically, but I feel like I’m somewhat underinformed on this issue because things are changing so quickly.To be honest, I think there are a lot of really smart people working on this.I’ve heard about initiatives like creating exemptions for decentralized frontends, which I think are cool.
Why do some centralized exchanges say Hyperliquid doesn’t want to be listed?
Jordi: Why do some centralized exchanges say Hyperliquid does not want to be listed?
Jeff: Did they say that?I have no idea.I don’t care much about this issue.We don’t want anything, I think we are more about building.There are already a few exchanges listing Hype, which I think is cool.While some other exchanges may feel it doesn’t fit their priorities, I also think it’s cool.We don’t really deal with these institutions that much.
Are there any plans to support native multi-asset margin?
Jordi: Are there any plans to support native multi-asset margin?
Jeff: I think it’s definitely going to happen, but I don’t exactly know how.The concept of native multi-asset margining is not clearly defined yet, but I think it will happen.If we are to accommodate all finance, it should certainly be possible to trade with different types of collateral.
When will perpetual contracts for commodities and US stocks be launched?
Jordi: When will perpetual contracts for commodities and US stocks be launched?
Jeff: There are already some perpetual contracts, such as gold perpetual contracts.As for when perpetual contracts for other commodities and stocks will be launched, I expect it will probably be next year, because HIP 3 will unlock a lot of features and basically allow anyone to deploy their own perpetual contracts.
What is the most commonly misunderstood thing about Hyperliquid?
Jordi: What do you think is the most commonly misunderstood thing about Hyperliquid today?
Jeff: There are a lot of misunderstandings.The most common misunderstanding is that many people think that Hyperliquid is just a perpetual contract exchange, or that it is a centralized thing.In fact, it is not, it is a blockchain network, and the verification nodes have no authority.There are currently 24 verification nodes, and anyone can join. The top 24 nodes ranked by pledge amount will form the verification set.Each verification node executes all transactions, including all orders.In other words, the bottom layer of Hyperliquid is actually decentralized, which is often overlooked.People tend to focus more on its products, which is probably a good thing because it means the technology is abstracted away from the user.
Does Jeff miss the Bay Area?
Jordi: Do you miss the Bay Area?What do you miss?
Jeff: I miss Chick-fil-A (laughing).I actually miss the mountains more.Although not a mountain range within the Bay Area, Singapore is very flat.It’s a great place to live, a great environment, and great to work in, but I do miss the natural beauty like Yosemite.
John: When I was in Singapore, a lot of people said that Singapore lacked a strong local culture, maybe because there wasn’t an underground culture here like punk culture.Do you feel like you’ve found a good community in Singapore?Do you like the culture here?Do you like where this country is headed?
Jeff: To be honest, I’m too busy right now to learn more about culture.Singapore is a great place, safe, modern, has good food and great air conditioning.Overall, it’s quite suitable for life.To be honest, right now at this point in my career, I don’t pay much attention to culture.If I were in New York right now, I probably wouldn’t care too much about this.
What are the standards for team building and talent recruitment?
Jeff: Honestly, we’re not really good at recruiting.I would say, we’re always recruiting, always looking for talent.I know a lot of people who listen to this podcast are very smart.If anyone is interested in systems engineering and high-performance computing and building infrastructure for the future of finance, I truly think this is the best place to work and would love to join our team.
Our team is very small, only 11 people, and the requirements are very high.I think our standards are probably one of the highest in the industry.I think we are one of the most efficient engineering teams.
But we are working hard to expand, and we do have a lot to do.We maintain very high standards in many aspects, including competence and integrity, which we value very much.If there is a listener who meets these criteria, you are more than welcome to join.
Are you recruiting for positions that support remote working?
Jeff: For new members, we currently only support face-to-face work.Initially we were working remotely, but we found that this approach didn’t quite fit with our work style.
What do you think of the 996 work culture?
Jeff: I think the most important thing is the quality of the work.I think everyone’s work intensity is different, and everyone will feel tired at different points in time, which is also the most important thing.Personally, I work more hours than 996, but that’s because I feel like I have no upper limit, and personally I feel like there’s no limit, but everyone’s situation is different.
