Our team recently conducted a deep technical research into Hyperliquid to understand why it keeps coming up in discussions around high-performance perpetual DEXs. We focused on system design — how trades are executed, where state lives, and how liquidity, custody, and settlement are structured.
Read the full research here: How Hyperliquid Works — A Technical Deep Dive
In this summary, we cover Hyperliquid’s architecture, the HyperCore order book, HyperEVM, and the mechanisms managing trading, liquidity, and smart contract interactions.
DEX Mechanics Background
Most DEXs work like this: the market price of one asset relative to another is determined by a predefined curve, and liquidity comes from users called liquidity providers. These providers supply funds but don’t set prices — pricing happens automatically.
Other key features of typical DEXs:
- Users retain full control of funds via smart contracts
- Trades can execute without waiting for a counterparty
- Independent pricing, self-custody, and no intermediaries
Hyperliquid takes a different approach. Its interface resembles a centralized exchange, but all execution is on-chain and fully deterministic.
Hyperliquid Overview
Hyperliquid provides a fully on-chain central limit order book (CLOB). Unlike other DEXs that rely on off-chain matching or AMM curves, order creation, matching, and execution happen directly on-chain.
It runs on a custom L1 blockchain with two execution environments:
- HyperCore — high-performance on-chain trading engine
- HyperEVM — EVM-compatible smart contract environment
Both operate under HyperBFT consensus.
Hyperliquid L1 Blockchain and HyperBFT Consensus
Hyperliquid uses HyperBFT, a variant of Delegated Proof-of-Stake (DPoS):
- Leader rotation across multiple rounds
- Validators vote proportionally to stake
- Byzantine Fault Tolerance tolerates up to ⅓ malicious validators
- Ensures consistent state across all network participants
Hyperliquid Blockchain Architecture
Hyperliquid splits blockchain state between HyperCore and HyperEVM, synchronized under HyperBFT.
Source: Hyperliquid Community Wiki
Let’s take a closer look at the diagram. The architecture has four layers:
- Frontend layer — the interface traders interact with
- Application logic layer — trading, margin, and funding rules
- Execution layer — HyperCore for the on-chain CLOB, HyperEVM for smart contracts
- Consensus layer — HyperBFT ensures state consistency
Even with two execution environments, HyperEVM can read and write HyperCore data, enabling smart contracts to interact directly with trading and account state.
HyperCore On-Chain Order Book
HyperCore is the core of Hyperliquid’s trading engine:
- Fully on-chain CLOB
- Handles order creation, cancellation, matching, and execution
- Deterministic price-time priority ensures consistent state across validators
Sub-second finality and throughput:
- Average finality: ~0.2s
- Throughput: up to 200,000 orders per second
Order placement types include:
- Market, Limit, Stop Market, Stop Limit
- TWAP (time-weighted average price), Scale orders
Options:
- Reduce Only, Good Til Cancel, Post Only, Immediate or Cancel
- Take Profit, Stop Loss
Margin Management and the Clearinghouse
The clearinghouse is Hyperliquid’s central accounting and risk engine. It ensures that all trades, margins, and liquidations are processed deterministically.
Let’s take a closer look at the diagram below to see how the clearinghouse operates.
Source: Hyperliquid Community Wiki
What the Clearinghouse Does in Hyperliquid
- Tracks balances and positions: user deposits, withdrawals, margin balances, and open positions
- Enforces leverage and margin requirements: validates margin sufficiency at order submission and before execution
- Executes liquidations automatically when maintenance thresholds are breached
- Calculates funding rates for perpetuals to align prices with spot markets
- Integrates oracle prices from Binance, OKX, Bybit, Kraken, KuCoin, Gate IO, MEXC, and Hyperliquid
- Supports multiple margin modes: isolated and cross margin
Understanding Funding Rate for Perpetuals
Above, we mentioned the concept of funding rate. Let’s break down what it is.
Funding rate keeps Hyperliquid perpetuals aligned with the underlying spot market. It balances incentives between long and short traders.
How it works:
- Perp price above spot → longs pay shorts
- Perp price below spot → shorts pay longs
Formula:
Funding Rate = Average Premium Index(P) + clamp(Interest Rate – P, -0.0005, 0.0005)
Where:
- Premium Index (P): difference between impact price and oracle price
- Interest Rate: fixed at 0.01%
- Clamp: limits sharp deviations to [-0.0005, 0.0005]
Payment frequency: hourly, keeping perp prices continuously aligned with spot.
HyperEVM Smart Contract Environment
HyperEVM is EVM-compatible and runs on the same blockchain:
- Supports Ethereum tools and EIP-1559
- Priority fees burned to zero address
- Small blocks: 2M gas/sec, Large blocks: 30M gas/min
How it interacts with HyperCore:
Source: Hyperliquid Community Wiki
- Read access: asset prices, open orders, trade history, balances, validator deposits, blockchain metadata
- Write access: manage orders, execute trades, interact with trading engine in real-time
- Smart contracts act as active market participants without compromising HyperCore determinism
Key Takeaways
- Hyperliquid is a fully on-chain, high-performance perpetual DEX
- HyperCore: on-chain CLOB, deterministic execution, sub-second finality
- HyperEVM: EVM-compatible environment with HyperCore access
- Clearinghouse: enforces margin, liquidation, and funding rates using integrated oracle prices
- Multiple order types and leverage options, all processed on-chain
- Hourly funding rate aligns perpetuals with spot
This combination of trading engine and smart contract environment provides transparent, programmable, and high-performance DeFi markets.
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