Misalignment: Ethereum bleeding, Hyperliquid stalls

The cracks in Hyperliquid's ecosystem

“I wish every day for the arrival of a @YBSBarker technical partner.

When fortune smiles, heaven and earth lend their strength; when fortune turns, even heroes are powerless.

Binance launched an Aster attack on Hyperliquid's OI and trading volume, and $JELLYJELLY and $POPCAT attacked HLP one after another, but these are just minor ailments;

In the booming HIP-3 Aside from the good news of its growth mode, the rumored BLP (Borrowing Protocol), and $USDH's voluntary staking of 1 million $HYPE tokens to become aligned quote assets, Hyperliquid has revealed its own cracks—the HyperEVM ecosystem and $HYPE are not yet aligned. Alignment is not complicated; under normal circumstances, the HyperEVM ecosystem consumes $HYPE, and $HYPE supports the development of the HyperEVM ecosystem. Currently, the situation is abnormal. The Hyperliquid Foundation's focus remains on the utilization of $HYPE in the HyperCore spot, futures, and HIP-3 markets, leaving the HyperEVM ecosystem as a secondary player. Earlier, a third-party proposal for HIP-5 aimed to... A portion of $HYPE's buyback fund was allocated to support ecosystem project tokens, but this was met with widespread community rejection and skepticism. This highlights a harsh reality: the current price of $HYPE is entirely supported by HyperCore market buybacks, leaving no room to support the HyperEVM ecosystem. Lessons from Elsewhere: Ethereum Scaling Success and Failure The shift from L2 to Rollup did not satisfy ETH, and third-party sorting mechanisms are almost absurd. The development of a blockchain involves three main entities: the main token (BTC/ETH/HYPE), the foundation (DAO, spiritual leader, company), and the ecosystem project teams. The interaction model between the main token and ecosystem projects determines the future of the chain: Main token ⇔ Ecosystem: Two-way interaction is the healthiest. Ecosystem development needs the main token, and the main token empowers ecosystem projects. SOL currently does this best. Main token -> Ecosystem: The main token unilaterally empowers the ecosystem. After the main token TGE, many projects collapsed, as seen with Monad or Story. Ecosystem -> Main token: The main token drains ecosystem projects. The ecosystem is in a state of competition and cooperation with the main token. The evolution of the relationship between Ethereum, its DeFi projects, and L2 is the most direct and reflects the current state of HyperEVM, as well as its potential for future breakthroughs. According to 1kx research, the top 20 DeFi protocols account for approximately 70% of on-chain revenue, but their valuations are far lower than those of underlying public chains. The theory of "fat protocols" still holds sway, and people trust Uniswap and stablecoins on Ethereum more than individual Hyperliquid and USDe. Not to mention Vitalik's long-standing "dislike" of DeFi yet his inability to leave it, ultimately leading to the awkward creation of a low-risk DeFi theory. Many DeFi protocols have attempted to build their own platforms, from dYdX V4 to MakerDAO's EndGame plan in 2023, with technology choices spanning AltVM systems like Cosmos and Solana. Then came Vitalik's public sale of $MKR. 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. Vitalik Buterin's Ethereum Foundation (EF) has long been laissez-faire in its approach to DeFi, focusing instead on philosophical concepts. This has led to a situation where both sides are competing, allowing others to benefit. The rise of the Solana DeFi ecosystem is not unrelated to this, and ultimately, Hyperliquid, with its exchange + public chain model, has ushered in a new phase of competition among public chains. Solana's impact on Ethereum has drawn criticism of Vitalik and EF, but beyond DeFi, the gains and losses of L2 scaling are even more intriguing. While the L2/Rollup approach is not technically a failure, the diversion of L1 revenue has pushed ETH into a downward cycle.

When Ethereum L1 encountered the scaling needs after the DeFi boom, Vitalik... The adoption of a Rollup-centric scaling strategy and a bet on ZK's long-term application value fueled FOMO (Fear of Missing Out) among the industry, investors, and talent, resulting in countless wealth creations and tragedies from 2020 to 2024. However, DeFi is a real-world product targeting end-users. The continuous rollout of L2 cryptocurrencies essentially depletes Ethereum's L1 infrastructure resources, effectively diminishing ETH's value capture capabilities. 2024 marks the end of the L2/Rollup era, with a return to L1 scaling in 2025. After a four-year hiatus, the focus has shifted back to L1.

On a technical level, ZK and L2/Rollup do indeed significantly share the burden of L1 While the increased speed and lower fees have indeed benefited participants, including ordinary users, in addition to the competitive and cooperative relationship between public chains and DeFi (applications), a complex triangular relationship between public chains, L2, and applications has been added from an economic perspective, ultimately creating a lose-lose-lose situation. Ethereum's revenue has decreased due to L2's diversion of funds, the wealth effect has been diluted by the excessive use of L2, and L2's efforts have been diverted as applications continue to expand. Ultimately, Hyperliquid ended the dispute with a unified stance of "public chain as application, application as transaction," and Vitalik also humbled his pride, reorganized EF (Ethereum Foundation), and re-embraced user experience. During the transition from L2 to L1, the technological choices made at certain points in time, such as Scroll's emphasis on four ZK EVMs and Espresso's bet on decentralized L2 ordering machines, were ultimately proven false. Brevis's recent prominence stems from Vitalik's renewed emphasis on the importance of ZK for privacy, and is no longer directly related to Rollup. The fate of a project depends on both its own efforts and the course of history. Amidst the dazzling array of choices, Hyperliquid, having achieved one victory after another, is now facing the same predicament as Ethereum: how should it manage the relationship between its main token and its ecosystem?

A starting point for discussion: HyperEVM's alignment choice

“BSC is an affiliate of Binance, and the team hasn't decided what HyperEVM is to Hyperliquid.

In the article "Creating Waves: HyperEVM", we introduced Hyperliquid's unique development path: first, we created the controllable HyperCore, then the open HyperEVM, connecting the two with $HYPE.

Judging from recent developments, the Hyperliquid Foundation insists on empowering $HYPE.

Centered on HyperCore, this paper adheres to a token economics framework that prioritizes HyperEVM while fostering the co-development of various HyperEVM ecosystems. This leads to the core concern of this article: How should HyperEVM forge its own unique development path? The BSC ecosystem is an appendage of Binance's main site and $BNB. Platforms like PancakeSwap and ListaDAO on it fluctuate with Binance's decisions, so there is no competition between BNB and BNB Chain. Even Ethereum, as powerful as it is, cannot maintain a long-term balance between ETH and the free and prosperous development of its ecosystem. In comparison, Hyperliquid's existing problems can be broken down as follows: It has not established a clear distinction between HyperEVM and HyperCore. The synergistic relationship between them, HyperEVM's awkward position

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