Host: @zoey171670
Edited and formatted by: Jason
Recording and editing: Jason
Authors: Teacher Shanhe, Lao Xu (Jack), Jason
Every year, the crypto market has a dominant narrative or star project. If last year it was pump.fun, the on-chain memecoin, then this year it's undoubtedly HyperLiquid. In an interview, CZ mentioned he had the opportunity to invest in HyperLiquid, but missed it because his alarm didn't go off and he overslept. This project later became the undisputed leader in the Perp DEX sector, valued at tens of billions of dollars, and dubbed the company with the highest per capita income on Earth. CZ joked, "This is the most expensive project I've ever missed by oversleeping." Now, Perp DEX's trading volume accounts for half of the total DEX volume. Meanwhile, another sector—Prediction Markets—has gained fame for accurately predicting the US election, even making it onto South Park. Are these two top-tier narratives merely short-term hype or do they possess value investing potential? In this episode, we'll discuss these stories with three friends.
@LittleSheep: Why will PerpDEX experience explosive growth in 2025? What are its main drivers? What are your thoughts, teachers? What makes HypeLiquid so amazing?
@Teacher Shanhe: The reason is very simple, but everyone is overthinking it.
First, on-chain transactions are finally "fast enough to be usable." Previously, discussing perpetual transactions on-chain was like torture. High latency and large slippage deterred ordinary users. But things have changed in the last two years: since the FTX collapse, Solana, various L2 exchanges, and Hyperliquid's HyperBFT, on-chain matching speeds have, for the first time, truly achieved a CEX experience. Speed increased → High-frequency trading on-chain → Increased trading depth → Larger investors entered the market. This is a crucial turning point.
Secondly, centralized exchanges (CEXs) are no longer "setting the trend." The wealth-generating effect of CEXs has almost disappeared in the past two years. 100x coins aren't on CEXs, they're on-chain. Users are very pragmatic: they go where they feel good.
Third, on-chain trading has seen "new possibilities." Previously, DEXs only offered a few trading pairs; now you can trade stocks, pre-IPO equity, commodities, and even interest rates and funding rates on-chain…
This is a first for many people. In short: DEX used to be a toy, now it's "a place to make money".
@LaoXu: I believe the main drivers of PerpDex's growth come from three main lines.
1. Liquidity has improved significantly (lower slippage, attracting more market makers).
2. Improved infrastructure performance. High-performance chains such as Layer 2 and Solana reduce latency and fees, accelerating execution;
3. On-chain order books and UI/UX closer to the CEX experience (such as Hyperliquid's on-chain order book) attract more trading volume. The influx of venture capital has also accelerated productization and market education.
@LittleSheep: What are the differentiating advantages and main risks of leading Perp DEX platforms at this stage? Why is Hyperliquid able to succeed? What is its biggest weakness right now?
@LaoXu: The differences and risks are as follows
Hyperliquid: On-chain order book, up to 50x leverage, fast speed (Solana), market share ~30%. Advantages include extremely fast execution and venture capital resources; risks include drastic fluctuations in funding rates and potential liquidation cascades.
Aster: Primarily focuses on Layer 2 scaling and cross-chain functionality. Its advantages include low transaction fees and support for multi-asset perpetual transactions. The risk is that liquidity is still accumulating.
Apex (Advanced): A familiar CEX tool integrated with Bybit. Its advantages include low user migration costs, but its risks lie in the trust issues caused by insufficient decentralization.
SunPerp: Native to Solana with AI-powered risk control, adapted for the Asian market, and potentially subject to regulatory pressure in the Asia-Pacific region.
dYdX: Based on the mature ecosystem of Cosmos SDK, its advantages are stability and community, while the risks are a slower pace of innovation and intense competition.
@Teacher Shanhe: Hyperliquid's biggest characteristic is that "it is not a traditional blockchain project." Let me point out a few key points.
1. It's a system driven by "transaction demand." It wasn't about launching the chain first and then finding applications; rather, it was because the volume of perpetual transactions increased so much that performance became insufficient, so they rebuilt the chain. This is completely the opposite of the growth logic of all other public chains.
2. It's extremely "anti-crypto VC." There's no VC, no subsidies, no market maker rebates, no "early access testing," and no "ecosystem fund recklessly handing out money." This results in Hyperliquid's user profile being exceptionally clean: all smart money, all real-money investors. Projects like this are rare, hence its very stable growth.
3. It has made buybacks a rigid logic. 99% of the protocol's revenue is used to buy back HYPE, which is extremely rare in the industry. Therefore, Hyperliquid's growth is not based on airdrops to attract users or subsidies to achieve scale, but on: real trading volume, real users, and real revenue. This is a very rare path in the crypto world. Regarding its biggest weakness, it's simple: the user structure is too "high-end." The advantage of smart money is stability, but the disadvantage is: the platform is clean but not lively enough, ecosystem projects issuing tokens are easily "suppressed" by smart money, there isn't enough "dumb money" flowing in, and the liquidity structure is too specialized.
@Jason
So, Hyper started the buyback program, right? The CEO is definitely a strategic genius; he understands differentiation very well. While all other VC coins were constantly dumping their holdings, he went against the grain, actively bringing the stock market's buyback operation methods to the crypto market. His main selling point was, "When everyone else is a scammer, we sell sincerity." This made Hyper stand out from other crypto projects.
@Shanhe: Hahaha, yes, that's right.
@LittleSheep: Based on the data, what is the market size and vitality of PerpDEX?
@LaoXu: The cumulative trading volume from 2023 to 2025 was approximately $1.5 trillion, with a single-day peak of $96.97 billion in September 2025. Furthermore, Perp DEX's share of DEXs increased from 50% in 2024 to 56% in 2025. These figures demonstrate that this sector has become one of the core scenarios for decentralized trading, and its growth is heavily reliant on high-frequency trading and leverage strategies.
@LaoXu raises a question: There's a decentralization paradox surrounding Perp DEX. Hyperliquid's success largely relies on its prized CLOB (On-Chain Order Book) and market maker resources. Essentially, it's replicating the liquidity model of CEXs, just moving it on-chain. So the question is: if Perp DEX's competitiveness ultimately depends on who can attract more professional market makers, what is the fundamental difference between it and CEXs? Is it simply replacing 'centralized liquidity providers' with 'centralized market makers'? Is this decentralization true decentralization, or just an 'illusion of decentralization'? What are Jason's thoughts on this?
Jason: What exactly is the key factor attracting liquidity? Is it really decentralization? We can just treat HyperLiquid as a CEX, so what? So, Xu, do you think the key factor attracting liquidity for Hyper is technology or resources? Of course, it's the CLOB model that directly determines liquidity. Resources? What project doesn't have some resources? Resources are a bonus, not the decisive factor. The decisive factor for Hyper's success is the innovative changes it brought about on the technological side. Let me make a blunt statement: the weight of liquidity is definitely greater than so-called decentralization. If I were the founder of Hyper, in the trade-off between liquidity and decentralization, I would definitely choose the latter. Ah, I think I understand why it's called Hyper "Liquid".
A product's success should be judged by whether it's driven by actual market demand and whether it has found its own Product-Primary-Function (PMF). This applies to both Web3 and Web2; product logic and PMF are eternal market principles. Decentralization, on the other hand, is often just decentralization for the sake of decentralization. We need to find our first principles of "decentralization," breaking them down and explaining them. My abstract description of "decentralization" is "security, privacy, and fairness." This is the purpose of decentralization, not decentralization itself. Centralized liquidity does not equate to insecurity.
I think no one has grasped the key requirement. What is the key requirement? I want to propose my "Dark Demand Theory," which states that the demands we recognize are all surface demands. Demands can be divided into surface demands and dark demands. The founder of Hyper must have deeply realized that the real, deep demand of capital institutions for crypto trading is "to deal with black and gray assets." This dark demand is something that cannot be made public under the surface, yet it is a very large and real demand.
The most crucial element for revitalizing a DEX is liquidity. With liquidity, end-user participation naturally follows. So where does liquidity come from? Market makers provide liquidity. Here's a key point: "Project development is not driven by the will of retail investors, but by the will of institutions." The needs of market makers always take precedence over those of end-users. Therefore, the key requirement for Perp DEX is to address the needs of market makers. What are the pain points of market makers? They are the aforementioned "dark" need: privacy. A DEX only needs to satisfy the privacy needs of market makers. Performance is a basic requirement, while centralization or decentralization is a naive fantasy of end-users; their needs are irrelevant.
We didn't understand whose needs a DEX should be targeting. It's clearly aimed at institutional investors. But what do they need? They don't care about decentralization at all; that's nonsense. What they want is privacy and censorship resistance. Decentralization is nobody's concern, not even end-users. Why would they care? End-users are in the crypto market because they believe in decentralization; it's the speculative nature of the project. We can think of the project and the users as a pair of scumbags, each getting what they want. I want to get rich quick, you want to fleece people. Nobody believes in love, and this "love" is decentralization.
@Jason
The question is: In the realm of perp (criminal) DEX, I feel we don't need to discuss HyperLiquid's CLOB patterns, its superior EVM architecture performance, or its HyperLiquidity provider—discussing these is meaningless. The main point of discussing prep DEX is whether it's worthwhile to invest in it long-term.
@Jason
I believe Prep Dex can be considered a value investing sector. Why? Because most people think only Bitcoin is value investing, and other projects are laughed at for it. But I think one reason is that, compared to other projects, Hyper Liquid is more like a Web2 project; it's more product-oriented than the narrative-driven approach of traditional Web3 projects. I'm generally against token incentives. Token incentives are essentially a Ponzi scheme, inherently unsustainable and lacking real liquidity. Once the project loses its speculative appeal, user activity will plummet. Token incentives can only be icing on the cake, not the foundation of a project's development. The foundation must be product strength, focusing on building real liquidity and product value.
On the other hand, the trading market is the fundamental foundation of the entire crypto space, the cornerstone of the industry. As crypto user growth progresses, exchanges, being the cornerstone of the industry, will naturally benefit. Therefore, I would definitely invest in some native tokens of CEXs, right? And the logic behind betting on DEXs is the same as betting on CEXs.
@LittleSheep: Does Perp DEX have any long-term value? Or, will DEX eventually replace CEX as the main source of liquidity in the market? In other words, is its potential ceiling high?
@Teacher Shanhe: I think this can be explained in one sentence: As long as there are people who need to trade, there will always be demand for perpetual contracts.
Perpetual contracts didn't grow on "narratives"; they're supported by real needs such as hedging, arbitrage, high-frequency trading, market making, and event trading. We're no longer in an era where "storytelling" is enough.
Moreover, the entire crypto market essentially boils down to two things: token issuance and trading. As long as you believe crypto will continue to grow, trading will always be the core scenario. Therefore, betting on CEXs or DEXs is essentially betting on the fundamentals of the entire industry.
@Jason
Well, to sum it up first, Perp DEX has long-term value. DEX will not replace CEX, and it has upper limit potential.
To discuss whether Perp DEX has long-term value, we must start from the perspective of market demand. Why is it that since 2023, the on-chain market has been eroding the market share of the centralized market?
From BTC inscription in 2023 to the on-chain Solana tokens, and then to the rise of Pump, Fun, and GMGN, and the on-chain Memecoin on BSC, the liquidity of C-end users in the market is visibly concentrating on-chain. How can we understand this phenomenon?
I believe this paradigm shift in the market, superficially appearing as a "crisis of trust" in centralized exchanges (CEXs)—with various negative incidents erupting across CEXs over the past two years—is actually rooted in the fact that CEXs have lost their wealth-creating effect and emotional value. The so-called crisis of trust is merely a accusation leveled against CEXs by the market. Current decentralized exchanges (DEXs) are essentially the early CEXs; the DNA of the crypto market is "emotion" and "100x returns"—this is the fundamental nature of crypto. Users accumulated over many years by CEXs initially came for 100x returns and emotional appeal. So, when CEXs no longer satisfy them, they will seek new places that can. On-chain memecoins essentially serve as a form of user education, making the understanding of "blockchain" and "decentralization" clearer among non-native crypto users, thereby strengthening market acceptance of DEXs and indirectly impacting on-chain derivatives.
The current stage of DEXs is essentially following the same path that CEXs took in the past. Following this logic, I believe DEXs will also undergo a round of regulation, just like CEXs did, before gradually becoming compliant.
Secondly, the future potential of DEXs, and whether they will receive regulatory compliance support, ultimately depends on their core value. Why would the US government and institutions want to enforce compliance or promote it? Without their support, DEXs are unlikely to have significant growth prospects.
So, does it have a point that addresses the strong needs of government agencies? Secondly, it needs to meet the needs of users. As long as it has a core value proposition that addresses a strong need, it will receive the green light for planning and, with the support of governments and agencies, become mainstream in the market.
I believe that such core values exist.
Jason: Now I will elaborate on my understanding of the core needs of the three groups: government, capital, and users.
First, what are the government's needs?
The SEC and CFTC's stated needs are stability, transparency, and regulatory oversight of the financial system. Their deeper need is "revenue generation." You know what I mean? Regulation is the only way to generate revenue and impose fines. That's one point.
Secondly, DEX can resolve the "black box" risks associated with CEX, making "systemic risks transparent."
As with the previous collapse of FTX, which exposed the "moral hazard" and "black box operations" of centralized finance, the on-chain transparency of DEXs is a tool that regulators have been dreaming of, shifting regulation from "post-event auditing" to "real-time monitoring." Regulators will eventually realize that a transparent DEX is easier to regulate than an opaque CEX.
Secondly, what are the needs of capital?
The core needs of Wall Street capital are nothing more than trading efficiency, capital security, and cost control. DEXs precisely address these needs. The collapse of FTX made institutions realize that even the highest returns cannot outweigh the risk of assets going to zero. DEXs allow institutions to trade without relinquishing control of their assets, something CEXs cannot provide. This is the bright demand; there are also the darker demands we don't know about, as mentioned above. And those darker demands will never disappear.
Finally, the core needs of ordinary users are asset control, censorship resistance, and low barriers to entry. Anyone can trade any asset without geographical or identity restrictions. The main point is that users have complete control over their private keys and are responsible for the security of their assets.
DEXs possess the core value to become mainstream. This value lies not in "decentralization" itself, but in the fact that "while maintaining transparency and non-custodial operations, DEXs also offer the efficiency of CEXs." Regulatory approval will inevitably be granted eventually, because DEXs can provide a more transparent and controllable financial infrastructure than existing CEXs.
Regardless, we can see the lower limit of DEX. Whether DEX can completely replace CEX is not important. In short, the market demand for on-chain transactions will not disappear, and our expectations for the future of crypto are there. In a market without existing competition, as the number of users in the crypto market continues to increase, DEX and CEX will rise with it.
In conclusion, I believe DEXs have extremely high potential, but whether they will replace CEXs is uncertain. I think the final outcome will be a "dual-core coexistence" rather than a simple "replacement." After all, CEXs are irreplaceable in terms of compliance, with features like fiat currency deposits and withdrawals, KYC/AML, etc. We currently perceive a conflict between them because we are not in a liquidity-rich environment; we are in a liquidity-saturated competition environment, with DEXs and CEXs exhibiting involution. But what if we were in a QE environment? They would then show convergence.
Therefore, my final conjecture has two points.
First, the market structure has become a dual-core structure: CEXs dominate compliance and institutional liquidity; DEXs dominate innovation and long-tail liquidity.
Second, DEXs will move towards a "hybrid model," which involves conducting KYC/AML at the front end and using on-chain technology at the back end to achieve transparent settlement.
I believe that DEX will definitely undergo a round of regulation, just like CEX was regulated before. On the contrary, I think it's better to wait for the regulators to crack down on the industry before making a move. Don't try to time things too early, or you'll get buried.
@LittleSheep: Thank you to the three teachers for sharing their views on PerpDEX. Now let's shift our focus to prediction markets. It experienced explosive growth in 2025, with weekly trading volume exceeding $2 billion (up 300% year-over-year), and expanding across various events including elections, sports, and crypto. Polymarket, Kalshi, and Limitless are the main players, each pursuing different compliance and technological paths. I would like to ask, what are the main differences, advantages, and disadvantages among the leading prediction market platforms?
@LaoXu: The key difference lies in the two paths of "encryption/decentralization" vs. "compliance/fiat currency".
Polymarket (more crypto-focused): Weekly trading volume of approximately $1.062 billion, with many active markets and global accessibility, but high compliance risks.
Kalshi (fiat/compliant): Weekly transaction volume of approximately $950 million, CFTC approved, targeting compliant retail in the United States, attracting fiat inflows, but global accessibility is limited.
Limitless (Hybrid/Token Incentive): The fastest short-term growth, with a trading volume of $127 million in October accompanied by TGE. Its advantage is that incentives drive retention, while the risks are speculation and compliance issues caused by tokens.
@Jason
From a purely product and business perspective, a product that resonates with human nature is undoubtedly an excellent product, as gambling is inherently human. Compared to the high barriers to entry in the Perp Dex market, prediction markets are closer to pure, simple gambling, with very low education and adaptation costs, making them highly addictive and prone to viral spread. Therefore, considering the advantages and disadvantages from a product perspective, I believe prediction markets may be a more promising product category.
@LittleSheep: What do you all think are the main systemic risks of these two types of platforms?
@LaoXu: I divide risks into three categories: technology, market, and regulation.
Technology: Oracle failure, smart contract vulnerabilities, and the chain reaction caused by on-chain liquidation (Perp is particularly vulnerable).
Market: Liquidity plummeted, funding rates reversed dramatically, and whales manipulated market prices based on minority predictions.
Regulation: Uncertainty surrounding the EU's MiCA and the US's definitions of derivatives/gambling/securities—both crypto versions of prediction markets and Perp DEX—may fall under stricter regulatory frameworks. I believe that in the short term, regulatory uncertainty is a shared and critical systemic risk for both, directly impacting compliance pathways and user acquisition.
@LittleSheep: Yes, the explosive growth of Perp DEX will inevitably attract the attention of global regulators. The lack of KYC and high leverage are key regulatory targets. What are your specific concerns about regulation, and what possible countermeasures do you have?
@LaoXu: My concerns include: whether derivatives will be classified as securities/restricted derivatives, whether prediction markets will be considered gambling or require licensing, and cross-border compliance issues. Regarding the regulation of PerpDEX, my strategy is to adopt a switchable compliance model (e.g., KYC/compliance process for US users, decentralized liquidity for non-US users), and prepare modular compliance modules (compliance nodes/custody channels) to quickly respond to regulatory changes.
@Jason
Alternatively, it could be front-end KYC, back-end on-chain. Regulators certainly won't kill PERP DEX; its main value is revenue generation. The US government must recognize that the core need for derivatives is actually the cleanup of non-performing assets. A crucial point is that its "non-performing asset cleanup" function must not be affected. Regulators won't undermine its privacy and relative decentralization; otherwise, it would be equivalent to strangling its core value. The US's goal isn't to kill it, but to also get a share of the gray-market profits—that's the core objective of regulation.
@LittleSheep: Are there any solutions that the project's product team decision-makers might adopt?
Lao Xu:
1. Prioritize addressing single points of failure in risk control/oracles: Invest engineering resources in contract design and liquidation mechanisms to quantify the maximum tolerable chain liquidation scenarios.
2. Market Makers and Liquidity Moat: Establish long-term incentive and LP protection mechanisms to reduce the "illusory" effect brought about by short-term token stimulus.
3. Compliance First, Less is More: Obtain key regulatory approvals or establish compliance channels in the target market first, and then release the product to a wider user base.
In fact, there are opportunities for the two types of products to be combined or complement each other.
I also see three viable complementary directions.
1. Market making/liquidity sharing: Perp DEX market makers can provide liquidity in popular prediction markets and vice versa, using liquidity pools or AMM mechanisms.
2. Information
Combined with derivatives: The probability output of the predicted market can be used as a signal for quantitative strategies to drive event-driven perpetual strategies on Perp (e.g., hedging against sharp fluctuations based on the predicted market probability).
3. Compliance/Cross-chain Bridging: Connects the Kalshi-style compliance portal with decentralized liquidity, providing institutions with a compliant deposit channel while preserving on-chain settlement efficiency.
@LittleSheep, take one step forward and look two steps further ahead. Will the perp dex and prediction market trigger a chain reaction of ecosystem expansion? Where are the potential opportunities?
@Teacher Shanhe: Where does Hyperliquid's ultimate potential lie? I think it's not fighting against other Perp DEXs, it's challenging the entire financial derivatives market.
It trades crypto now. Next up are stocks, pre-IPO, computing power, and commodities. Further down the line is the even larger derivatives market. Essentially, these trades don't require "real-world custody" at all; they just need a high-speed, verifiable, low-cost trading system. That's what Hyperliquid is doing.
@Jason
The prediction market is essentially an attention economy. In the future, it needs to broaden its scope to include more than just politics, geopolitics, and capital markets. Could it include celebrities and entertainment? For example, if a rumor breaks, people bet on whether it will be confirmed. This is just one example. In this algorithmic era, attention is the most important value; whoever captures attention wins. Politics, geopolitics, and capital markets don't always hold users' attention. People's focus changes under different economic and historical contexts. However, as long as prediction markets are grounded in the element of "betting" and broaden their coverage, their long-term viability will be greatly enhanced, making it a game that can thrive in the long run.
I believe prediction markets will develop their own unique gameplay, potentially leading to a corresponding ecosystem of tools and tools, much like a "prediction market gmgn." However, I think the potential is limited because prediction markets have significant limitations in their gameplay. How else can you expect to use this? Limited ecosystem expansion is its weakness. Unlike trading, which, while complex, offers a wide range of gameplay options and ecosystem expansion, prediction markets themselves have potential. Therefore, while the prediction market sector has inherent potential, the potential for developing a comprehensive ecosystem is limited. This is inherent to its nature, but perhaps it's something I can't even imagine.
@LaoXu: The core of the ecosystem expansion of Perp DEX (Perpetual Contract DEX) lies in how to transform the liquidity of high-frequency trading into composable yield assets.
I think the ecosystem that might extend from this is also tools, such as DeFi quantitative trading tools: low-latency, high-throughput strategy execution tools for high-frequency on-chain trading. Perp DEX's funding rates fluctuate wildly, requiring professional tools to automate the execution of arbitrage strategies.
Secondly, Infra, cross-margin/cross-chain, introduces cross-margin functionality (allowing the use of spot as collateral for perpetual contracts), and EVM “sidecar” smart contract extensions.
The issuance and trading of RWA derivatives may also be linked, which is a key step in introducing traditional financial liquidity into DeFi. It allows real-world assets to be tokenized and traded on Perp DEX.
@LittleSheep: If I were to invest in or build a new project, what do you think I should prioritize?
@LaoXu: My priority suggestion is:
1. Compliance Roadmap: First, clarify the target jurisdictions and compliance boundaries (especially for forecasting markets and derivatives).
2. Liquidity strategy: Implement effective market maker incentives and deep pool design to prevent price collapses due to low liquidity in the early stages.
3. Risk control and oracles: Investments are made in oracle redundancy and on-chain liquidation buffers (e.g., phased liquidation, insurance pools).
4. Differentiated user experience: Provides a near-CEX order book or low-latency experience while retaining the self-hosted value proposition.
5. Token economics (if applicable): Design incentives to prevent short-term speculation from dominating the product's fate (see Limitless's token explosion case).
In summary, based on the data, I believe Perp DEX has become a core trading scenario in DeFi, characterized by its large scale, rapid growth, and high risk. The prediction market is experiencing rapid growth, possesses high information value, and exhibits significant divergence in compliance pathways. I tend to pay closer attention to projects with clear compliance paths, risk control, and deep liquidity strategies; I maintain a cautious attitude towards projects that rely solely on airdrops/token stimulation for short-term growth but lack liquidity/risk control guarantees.
@LittleSheep: Thank you, teachers. In the next episode, we'll focus on what we should pay attention to during the golden opportunity of 2026, assuming the script is as we speculate and there really is a full-scale QE in 2027. If 2021 was the DeFi summer and NFT and GameFi were the main themes, what might be the mainstream narrative of the 2027 knock-off season?
Thank you everyone, see you next time!
