How Hyperliquid Came to ‘Threaten the Very Existence’ of CEXs Like Binance - Ep. 915
🎯 Summary
Podcast Summary: How Hyperliquid Came to ‘Threaten the Very Existence’ of CEXs Like Binance - Ep. 915
This episode of Unchained, hosted by Laura Shin, features Ryan Watkins and Sunny Singh from St. Croix Capital, both strong proponents (“bulls”) of the decentralized perpetuals exchange, Hyperliquid. The discussion centers on the escalating competition in the Decentralized Exchange (DEX) space, particularly the recent surge in volume for Aster, and what this signals for the future dominance of Centralized Exchanges (CEXs) like Binance.
1. Focus Area: The primary focus is the DeFi derivatives market, specifically the competition between next-generation Decentralized Perpetual Exchanges (Perp DEXs) utilizing on-chain order books (Hyperliquid, Aster, Lighter) and the established Centralized Exchanges (CEXs) (Binance). The core theme is the structural threat DEXs pose to the CEX revenue model.
2. Key Technical Insights:
- On-Chain Order Books as the New Meta: The shift is moving away from traditional AMMs toward on-chain order books for high-performance derivatives trading, which is seen as a superior, non-custodial product offering compared to CEXs.
- Volume vs. Open Interest (OI) as a Metric: Guests emphasize that raw volume can be misleading due to “farming activity” (inorganic flow driven by airdrop incentives). Open Interest (OI) is presented as a better indicator of genuine, sustained user commitment and risk-taking. Hyperliquid’s OI is noted to be significantly higher than its immediate competitors.
- Long-Tail Market Capture: Hyperliquid’s success is partially attributed to its ability to dominate trading volume for the hottest new token listings (TGEs) before CEXs, indicating a structural advantage in capturing emerging market interest.
3. Market/Investment Angle:
- CEX Revenue Threat: Perpetual futures trading is identified as the single largest source of profit for CEXs, making the migration of this volume on-chain an existential threat to their business models.
- Inorganic vs. Organic Flow: The recent volume spike for Aster is largely attributed to its token launch and aggressive points campaign, leading to high, but potentially temporary, inorganic volume focused on majors (BTC/ETH) for easy farming.
- Hyperliquid Valuation Justification: Despite high valuations, the guests argue that Hyperliquid’s fundamental metrics (like superior OI and execution on new markets) can justify its current standing, contrasting with newer projects whose high valuations may not be sustainable.
4. Notable Companies/People:
- Hyperliquid: The current leader in the on-chain perp DEX space, praised for its execution and ability to attract organic retail flow.
- Aster (backed by YZ Labs/former Binance Labs): The primary competitor currently challenging Hyperliquid’s volume rankings, heavily incentivized by a large upcoming token airdrop.
- Binance (CZ): Acknowledged as deeply concerned about the on-chain shift, evidenced by CZ promoting Aster and Bybit developing its own DEX solution.
- Arthur Hayes: Mentioned for his initial bullish call on HYPE (126x potential) followed by selling his position, highlighting market volatility and narrative shifts.
5. Regulatory/Policy Discussion:
- The discussion implicitly touches on regulatory arbitrage. The guests note that the appeal of on-chain trading is the non-custodial nature, which bypasses risks associated with opaque offshore exchanges (e.g., hacks, mismanagement). CEX founders are aware that the future of trading is likely on-chain, prompting them to build their own decentralized solutions.
6. Future Implications:
- The industry is heading toward a significant market share transfer from CEXs to DEXs, particularly in derivatives.
- The competition among DEXs will intensify as more capital flows into the on-chain derivatives vertical (the “Claw Wars” mentioned by Sunny).
- CEX founders are actively exploring ways to replicate their business on-chain, either through backing specific DEXs (like Binance with Aster) or building their own infrastructure (like Bybit).
7. Target Audience: This episode is highly valuable for crypto investors, DeFi professionals, exchange operators, and Web3 strategists who need to understand the competitive dynamics and technological shifts driving the derivatives market away from centralized custodians.
Comprehensive Summary:
The podcast episode dissects the intense competition among decentralized perpetual exchanges (Perp DEXs) and the existential threat they pose to centralized giants like Binance. Ryan Watkins and Sunny Singh argue that the macro trend is the irreversible migration of trading volume, especially high-revenue derivatives, onto decentralized rails.
The recent volume surge of Aster over Hyperliquid is framed not as a fundamental shift in leadership, but as a temporary effect of Aster’s highly anticipated token airdrop, which attracts “inorganic” farming activity. The guests use metrics like Open Interest (OI) to demonstrate that Hyperliquid still commands significantly more genuine, sustained user commitment. They contrast Hyperliquid’s early, under-the-radar growth with Aster’s current, incentive-driven volume spike.
A key strategic insight is that CEX founders recognize this trend; Binance’s promotion of Aster (backed by former Binance Labs) and Bybit’s development of its own DEX show they are attempting to secure a foothold in the on-chain future. The discussion also covered the anxiety surrounding Hyperliquid’s upcoming token unlocks, which the guests downplay by citing the team’s strong execution track record and the fundamental justification for the platform’s
🏢 Companies Mentioned
💬 Key Insights
"What makes Bitcoin special is that it doesn't matter if I'm in the United States or China; I can reliably hold Bitcoin and not worry that it's going to be seized from me or that someone is going to censor my transaction. It is like truly a global and neutral platform..."
"What I do wonder long-term is if the fact that the validator set is co-located will ultimately limit the TAM."
"What if we actually don't even globally distribute the validator set? What if we just all co-locate them in one place? And then we'd have super-low latency and potentially be competitive with centralized exchanges, and then we can build, for the first time, an on-chain order book."
"If you were to have an exchange where the validator set is sufficiently distributed, it's been running for a long time without any history of hacks, it has all these integrations with custodians and wallets and assets that have been issued on the platform over time, it starts to build a network effect that is really hard to break into over time."
"I don't think there's any scenario where Binance would give up a portion of their real estate to a third party and share 50% plus revenue with them."
"Hyperliquid doesn't need to go build out its own mobile application... You can leave that to all these third parties. You can have Phantom do it. You can have one in Japan and one in Korea and all this based in the world that are all working like a swarm to onboard users to Hyperliquid."