A perpetual future is a derivative that tracks an asset's price with no expiry date, using regular funding payments between buyers and sellers to keep it near the spot price. Hyperliquid runs these markets on its own blockchain, with an on-chain order book and a community-owned vault, HLP, as market maker and liquidator. Leverage can wipe out your margin within minutes. Nothing here is financial advice.
How a perpetual future works
A perpetual future, or "perp," is a contract that gives you the price exposure of an asset without owning it. You never receive any bitcoin, and there's no settlement date. You hold the position until you close it or you are forced out. BitMEX launched its XBTUSD perpetual swap on May 13, 2016, and the design spread from there.
Four terms carry most of the meaning:
- Long and short. A long profits if the price rises. A short profits if it falls.
- Notional. The full value of the position, such as $10,000 of BTC.
- Margin. The collateral you post, usually a stablecoin. On Hyperliquid, most perps are margined in USDC.
- Leverage. Notional divided by margin. Using $1,000 to control $10,000 is 10x.
Leverage multiplies gains and losses alike, measured against your margin. At 10x, a 5% price move is a 50% change in your margin.
How funding keeps the price in line
Funding is a regular payment between longs and shorts that pulls the perp's price toward the spot price. With no expiry date to force the two together, this is the main built-in link between them. When the perp trades above spot, longs pay shorts, which rewards people for taking the other side. When it trades below, shorts usually pay longs.
Hyperliquid's funding is paid hourly and directly between traders, with no fee taken by the exchange. It has an interest component fixed at 0.00125% per hour, about 11.6% a year, paid to shorts, plus a premium based on the gap between the book and the oracle price. The cap is 4% per hour.
A worked funding example
Suppose you go long 0.1 BTC at $100,000. That's $10,000 notional, with $1,000 of margin at 10x. Funding is charged on the notional, not your margin.
| Funding rate (per hour) | Cost per hour | Cost per day | Share of your $1,000 margin per day |
|---|---|---|---|
| 0.00125% (baseline) | $0.125 | $3 | 0.3% |
| 0.01% (illustrative, elevated) | $1 | $24 | 2.4% |
| 0.05% (illustrative, extreme) | $5 | $120 | 12% |
The baseline looks tiny, but it adds up to about $1,095 a year at simple interest, which is more than your whole margin. This is the part many guides skip: leverage multiplies your costs too, and a long position can lose money even if the price goes nowhere.
The taker fee adds to that. Hyperliquid's base rate is 0.045%, or $4.50 each way on this position.
How margin and liquidation work
Liquidation is the forced closing of your position once your collateral falls too low. It works in the same spirit as liquidations in DeFi lending, but happens far faster at high leverage.
On Hyperliquid, the trigger is the maintenance margin, set at half the initial margin at an asset's maximum leverage. For BTC positions up to $150 million, the maximum is 40x, which gives a 1.25% maintenance rate.
Using the formula in Hyperliquid's docs, here's where an isolated $10,000 BTC long opened at $100,000 gets liquidated, before fees and funding:
| Leverage | Margin posted | Approximate liquidation price | Fall that liquidates you |
|---|---|---|---|
| 3x | $3,333 | $67,511 | 32.5% |
| 5x | $2,000 | $81,013 | 19.0% |
| 10x | $1,000 | $91,139 | 8.9% |
| 20x | $500 | $96,203 | 3.8% |
| 40x | $250 | $98,734 | 1.3% |
A 1.3% move is ordinary for BTC. High leverage is a bet that the price will not wobble, as well as a bet on direction. Most of the risk here is simple: you can lose all your margin, quickly, even if you turn out to be right about the longer trend.
What happens when you are liquidated
Hyperliquid's process has three layers:
- Order book. The system sends market orders to close the position. If the sale restores your margin, you keep what's left.
- Backstop. If equity falls below two-thirds of maintenance margin, the HLP liquidator vault takes over the position, and your remaining margin isn't returned.
- Auto-deleveraging (ADL). If an account goes negative, profitable traders on the other side are force-closed at the previous mark price. Your winning trade can be closed without you asking.
Your choice of margin mode decides how much is at risk. Isolated margin limits the loss to that position's margin. Cross margin shares your whole account, and a backstop liquidation can take every cross position and leave you with zero.
How Hyperliquid works
Hyperliquid is a blockchain built for trading, rather than an app deployed on someone else's chain. Its state has two parts: HyperCore, holding margin and the matching engine, and HyperEVM, a general-purpose environment for smart contracts.
- Consensus. HyperBFT, a variant of HotStuff, orders transactions. Validators produce blocks in proportion to staked HYPE, as in other proof-of-stake chains.
- Speed. The docs cite about 200,000 orders per second, and a median latency of 0.2 seconds for a co-located client. Those are the project's own figures.
- Order book. Orders match by price, then time, like a centralized exchange, but all of it is on-chain and public.
- Prices. Validators publish an oracle price about every three seconds, from a weighted median of centralized exchange prices. Liquidations use a separate mark price that blends in the Hyperliquid book.
- Collateral. USDC is natively minted on the chain. A legacy bridge from Arbitrum holds under 10% of the supply.
As of October 2026, Hyperliquid held more than half of on-chain perp open interest, according to one tracker. The trade-off is a small validator set. At about the same time, Hyperliquid's public API listed 27 active validators, with about 47% of staked HYPE delegated to five run by the Hyper Foundation. The docs say automatic slashing isn't currently implemented, which means the penalties backing that stake are less mechanical than on some other chains.
HLP: the vault on the other side
HLP is a protocol vault that makes markets, performs liquidations and collects a share of trading fees. Anyone can deposit and share its profit and loss, with a four-day lockup after your last deposit. HLP isn't a savings account. As Hyperliquid itself said in 2025, "HLP is not a risk-free strategy."
What has gone wrong
Many of Hyperliquid's incidents involve thin markets and vault risk, and the pattern is worth understanding before you trade or deposit.
| Date | Event | Result |
|---|---|---|
| March 12, 2025 | A trader built a long of about 160,000 ETH, withdrew margin and was liquidated | HLP lost about $4 million. Maximum leverage was cut to 40x for BTC and 25x for ETH |
| March 26, 2025 | JELLY squeeze, described below | Validators delisted the market |
| July 29, 2025 | API traffic spike delayed orders for about 37 minutes | About $1.99 million refunded in USDC |
| October 10, 2025 | Market-wide crash, with $19 billion liquidated across crypto and about $10.3 billion on Hyperliquid | ADL closed winning positions. A Gauntlet paper put the cost in the hundreds of millions, and Hyperliquid's founder disputes the analysis |
| November 12, 2025 | POPCAT: about $3 million split across 19 wallets to open $26 million of longs, and a large buy order was then pulled | HLP took about $4.9 million in bad debt |
| April 9, 2026 | FARTCOIN: a self-liquidating long in a thin market | HLP realized a loss of about $1.5 million, according to reports |
The JELLY incident
JELLY is the case that shows what the validator set can do. On March 26, 2025, a trader opened a multi-million-dollar short in the thinly traded JELLYJELLY perp, while reportedly holding and buying the token on decentralized exchanges. As the price rose, the short was liquidated and HLP inherited it. HLP's unrealized loss reached about $12 million to $13.5 million, according to reports.
Hyperliquid's statement said that "the validator set convened and voted to delist JELLY perps." Positions were settled at $0.0095, the price at which the trader had first opened the short and far below where the token traded elsewhere that day. That turned HLP's loss into a profit of about $703,000. The Hyper Foundation said it would make affected users whole, except flagged addresses.
Depositors were protected, but only because a small group overrode a market price. BitMEX co-founder Arthur Hayes responded, "Let's stop pretending Hyperliquid is decentralized." Either way, the lesson for you is that settlement terms can change in a crisis.
Before you trade or deposit
- Find your liquidation price before you open. Decide what fall you can survive, then pick leverage from that.
- Add up funding. Multiply the hourly rate by your notional and by how long you plan to hold.
- Prefer isolated margin if you want a hard limit on one position's loss.
- Be wary of thin markets. Several of the incidents above involved small-cap tokens that were easy to push around.
- Don't treat HLP as yield. Its returns come from carrying these same risks.
- Check if you're allowed. Hyperliquid's terms reportedly restrict users in the US and Ontario, among others. The UK has banned firms from selling crypto derivatives to retail consumers since January 2021. Rules vary, so ask a qualified professional if you are unsure.
Trading without leverage, or not trading at all, is a legitimate choice. You can browse more about markets and DeFi on this site.
Key takeaways
- Perps give price exposure with no expiry date, and funding payments keep them near spot.
- Funding is charged on notional, so leverage multiplies your holding costs as well as your gains and losses.
- At 10x on BTC, a fall of about 9% liquidates you. At 40x, about 1.3% does.
- Hyperliquid runs an on-chain order book on its own chain, secured by HyperBFT and a small validator set.
- HLP makes markets and absorbs liquidations, so its depositors carry real losses, as POPCAT showed.
- The JELLY delisting showed validators can override a market, which protected depositors but raised hard questions about decentralization.
Sources
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