Why Hyperliquid is the Exception to the Death of Airdrops

This fall, I wrote about how airdrops have stopped working, going from community-strengthening rewards to farmable bribes that got dumped instantly. As I write, three December airdrops have affirmed that thesis: the token prices of both Magic Eden’s ME and Remilia’s CULT dropped roughly 30% over the ten days after they debuted. Movement Network’s MOVE token, meanwhile, spiked briefly before dumping back to its issuance price.

But we have seen one shining exception to the trend. On November 29, Hyperliquid, a decentralized exchange running on its own blockchain, decided to make me a liar. Their airdrop of 31% of their native token supply to users wasn’t just the largest ever, with a face value of $4.3 billion dollars. It also appears to have reached a community of real users who are committed to the ecosystem long-term: both the price of the HYPE token and the TVL locked in the DEX have skyrocketed since the airdrop.

There are lots of reasons for this, starting with a great product with innovative features, and tokenomic design truly aligned at every turn towards benefitting users, rather than insiders. That was possible because Hyperliquid didn’t take huge outside capital from venture capitalists looking for short-term liquid gains. That enabled one of the purest launches we’ve seen in crypto since Bitcoin itself, from a team that clearly understands the biggest wins come when we’re all in it together.

Here’s how they did it.

Product and Practicality

A token with an actual service tied to it is far more likely to perform well post-airdrop. This partly explains the decline in $Cult despite Milady’s prominence in crypto culture - the Remilio corporation’s token is explicitly classified as a memecoin. Hyperliquid, by contrast, is anything but a meme: it’s an L1 built from the ground up to create a great decentralized trading experience, and it excels at that. Both the perpetual derivative and spot trading experiences are really, really good – and I know, because I’ve been a regular user over the past year.

But Hyperliquid’s greatness goes well beyond that. At the top of the list is the HLP, or Hyperliquidity Provider, a vault that makes it very easy for anyone to act as a market maker to the DEX and earn yield. The product is built on the founders’ experience as very successful market makers, informed by their deeper principles. Yields are healthy, but what’s truly remarkable is that the protocol doesn’t take anything for itself. The market making strategy is nearly risk-free money, and the Hyperliquid team could have monopolized it. But they were galvanized to put their tech in the market for everyone, maximizing profit for users. Not to wax too philosophical, but that’s the only ethos for real-world DeFi that’s sustainable long-term.

A second key feature is Hyperliquid’s approach to token listings. Every 31 hours, the chain runs a dutch auction for a fresh ticker symbol to be added to the DEX. The auctions started at $10,000, and each new one starts at 2x the previous auction — but then ticks down over time if no takers arrive. That means that in theory a patient project can find an entry point that fits their budget. Hyperliquid’s current explosive growth might mean it’s a long wait for another cheap entry, though – one recent ticker auction ran up to $128,000.

This model is a direct shot at token listings and “Initial Exchange Offerings” on centralized exchanges. Those which often involve both high fees and, more troubling, a very non-crypto dance of personal relationships and status.

For a deeper dive into Hyperliquid, these and other features are nicely detailed by Blocmates here. Full disclosure – the team at Last is launching a product of our own on Hyperliquid.

You Can’t Put a Price on Good HYPE: How Hyperliquid Shares the Wealth

Because they didn’t raise huge sums from venture capital, Hyperliquid doesn’t have to take a cut of the economic activity on the chain and dapps – not from fees, and not from huge insider allocations that dilute other users. Our recent examples again highlight the problematic standard practice, with a reported $20 million presale in CULT and 22.5% of the MOVE sale set aside for early venture investors, creating clear sell pressure.

Not Hyperliquid, though. The absence of a huge allocation set aside for insiders is a practically Christ-like gesture from the team —except that, as we’ll see, it’s really about making even more money in the long term. (A lot of HYPE is currently in the hands of the small proof-of-stake validator set run by the Hyperliquid team, but both assets and validators will be decentralized to the community). Back in the day we used to call big insider allocations “premines,” and they were often seen as a sign of self-interested founders. They’ve become increasingly normalized, but they still amount to a concentration of power that undermines the democratic aspirations of many crypto projects, and an economic tax that puts long-term downward pressure on user upside. In this and other ways, the Hyperliquid team has signaled that they ultimately want to be a voice in the crowd, not dictators that sit on top of a pyramid dispensing loot to their friends.

Hyperliquid’s tokenomics are also designed to help users instead of founders or outside investors. The HYPE token is net deflationary, thanks to a variety of burn mechanisms that steadily reduce the supply of the token. The tokenomics are also non-extractive: For instance, an insurance fund accrues from fees in the protocol, intended for recovery in the event of failure. The insurance fund is denominated in USD, and that money is used to buy dips in the HYPE price, both supporting the price and keeping the protocol’s interests aligned with users.

The tokenomics of Hyperliquid’s airdrop itself were perhaps the biggest key to its success, and most reliant on freedom from outside backers. Native oracles at distribution priced Hype at tiny fractions of a penny, which eliminated the risk of a big taxable event. Even if you got millions of Hype, the face value was just a few hundred dollars. One simple reason there wasn’t a big dump after the airdrop, then, is that there were no massive tax bills to cover. That’s hard for many projects, whose backers want a high initial price peg for the market to coalesce around, creating exit liquidity for VCs and the like.

Hyperliquid could easily be the next giant trading venue like Binance, but they’re giving huge stakes to users instead of keeping it to themselves. That’s not because they’re a charity: it’s because they know they’ve got lightning in a bottle, and that there’s actually more money to be made together, than by becoming the Next Big Thing alone at the top of a mountain.

CEXs are scared of the HYPE

The Hyperliquid airdrop may be impossible to recreate simply by copy-pasting these strategies – but you could also do far worse. Crypto longtimers should be wildly inspired by this purity of approach in 2024, especially with regulatory shifts poised to open the barn doors wide for exploitative and extractive models. Good actors doing things right, and being celebrated for it, makes it that much easier to spot the liars and cheats who are about to flood your Telegram channels.

A final remarkable fact drives home just how different Hyperliquid is: the HYPE token still hasn’t made its way to centralized exchanges. That has helped the tokenomics stay sane and prioritizes real users, but it may reflect a true “holy shit” moment from the CEX’s. DEXs have now been competitive for years, but the FTX calamity was another huge push to get crypto traders serious about self-custody and on-chain transparency. Entities like Binance and Coinbase could increasingly find themselves irrelevant except as an interface for tradfi institutions and dabblers. The degens are going to leave – and that’s got me hype for DeFi, and maybe even airdrops, in a way I haven’t felt in ages.

Andrew Redden is a seasoned developer, a values-driven crypto veteran, and cofounder of Hypurr.Fi and Last Network with longtime collaborator Scott Burke. He discovered the Bitcoin white paper while laid up with a knee injury in 2009, and founded his first Bitcoin startup in 2013. His crypto accelerator BlockCrushr was selected for the prestigious Techstars incubator class of 2018. At Gitcoin, Redden helped build back-end infrastructure and develop the EIP 1337 standard for on-chain subscription services on the Ethereum network.