Perp DEX: The Next Generation Exchange "War"

Author: @sjbtc9

"Perp DEX is not a small DEX niche, but a reflection of the war of derivatives exchanges on the blockchain."

"At the trading level, any CEX can be summarized as a 'black box.'"

"This 'war' has just begun."

Yesterday, I posted about Perp DEX and discussed one thing:

Many people still regard Perp DEX as a small DeFi niche, but from the perspective of OI, it has begun to influence the positioning mindset of some mainstream funds.

But today, I won't continue to pile on this data, because data is just an entry point; one piece of data cannot fully define anything.

The more important question is:

Why is the retention of OI in Perp DEX becoming increasingly important? And what is happening in this market surrounding perpetual contracts (Perp)?

I believe the answer is not "because it is really going to replace someone." 👇🏻

1. Perp DEX is not a new niche; what’s new is that the measurement standards need to change.

Perp DEX is certainly not new; it can even be called an "old niche."

Projects like dYdX and GMX have already educated the market in previous cycles. On-chain, contracts can be made, leverage can be applied, and a certain scale of trading volume can be formed.

Perp DEX has already passed the functional validation phase and is now entering the behavioral retention phase.

The question in the first phase was: Can contracts be made on-chain? Are there people actually using it?

Now the question has become: Are funds willing to keep their positions here long-term?

These two questions are completely different. The ability to make contracts on-chain is a technical validation; the willingness of people to trade is a product validation; the willingness to hold positions long-term is behavioral migration.

Many people talk about Perp DEX and will first discuss the trading experience.

• For example, is the speed fast or not, is the slippage low or high, are the fees cheap or expensive, is the interface user-friendly or not.

These are certainly important. If it’s not user-friendly, users won’t come. If there’s no depth and the liquidation mechanism has issues, large funds won’t come or dare to come.

But these are more like entry tickets rather than the final moat.

In other words, previously you might only need to prove "this thing can run," "someone will use it," "it runs stably;"

Now you need to prove "funds are willing to place their risk exposure here."

This is also where Perp DEX differs from many DeFi products.

Swaps are often one-time actions, lending may be low-frequency fund management, but Perp is a continuous and relatively high-frequency behavior.

Therefore, if Perp DEX and similar trading platforms really emerge, what they accumulate is not ordinary users, but a group of high-frequency, high-risk preference, and high willingness to pay traders.

The number of such users may not be the largest, but their value is the highest among market participants.

2. On-chain leaders of Perp, the pioneers, and off-chain

1. Hyperliquid: The most commendable aspect is not the trading volume, but the positioning mindset and value capture.

The most typical case here is Hyperliquid, which deserves the main focus of this article, and it can be said that the changes in its OI have led to this series of viewpoints.

Yesterday, I briefly mentioned that Hyperliquid's OI/trading volume ratio reached 97%. Today, I checked the latest ratio, and it has even approached 99%.

Regardless of its participant structure, funds are the most intuitive "vote" and have begun to form a relatively strong positioning mindset.

Therefore, Hyperliquid's strength lies not only in "creating a user-friendly on-chain contract exchange," but in that it has begun to make a portion of funds form a new default choice, which is what can be called a moat.

Once the default choice of funds is formed, it will bring many chain reactions: more positions being retained, deeper market making, stronger income, more new markets, and stronger ecological stickiness.

What’s even more noteworthy is that it has made Perp DEX into a relatively complete on-chain exchange system: it has its own high-performance chain, an order book, a margin system, a liquidation system, market-making depth, as well as protocol revenue and token capture.

This is different from most DeFi protocols. Many DeFi protocols have the following issues:

• They have TVL but lack high-frequency behavior;
• They have users but unstable income;
• They have tokens but weak value capture.

I believe Hyperliquid has done exceptionally well in this regard; I even hesitate to label it as 'one of the best' due to a lack of confidence.

First, user trading behavior itself is a source of income, and income can form a more direct connection with the value capture of $HYPE.

• So its value chain is: user trading → generates fees → fees enter the protocol revenue system → Assistance Fund buys HYPE → HYPE is removed from supply.

Value capture has always been the ultimate question in the industry, and the prerequisite for value capture is at least the creation of protocol revenue. Some protocols have no revenue or unstable income, making it impossible to capture value, while others have revenue but do not link it to tokens.

Hyperliquid has already set this standard, and competitors, not to mention surpassing it, will find it hard not to be criticized by the community if they cannot reach the same level.

2. Aster and Lighter: One solves privacy, the other solves trust.

The matter of Perp DEX will not have only one answer like Hyperliquid, because the reasons for funds staying are not entirely the same.

Some care about depth, some care about speed, some care about privacy, some care about fees, and others care about whether matching and liquidation are transparent.

This is why projects like Aster and Lighter are worth mentioning.

According to data from Defillama, the OI and 30-day trading volume of Aster and Lighter are both in positions 2 and 4 in the niche, similar products but offering different answers.

2.1 Aster focuses on position privacy.

Why are many users unwilling to migrate from their original trading habits?

It’s not because they don’t know that trading can be done on-chain, but because on-chain trading has long been perceived as troublesome: fragmented multi-chain assets, poor gas experience, complex trading paths, and overly transparent positions.

Especially the transparency of positions is very critical in contract scenarios. When spot trading is visible, the problem is not that big; but when contract positions are visible, it may mean that your direction, cost, leverage, and potential liquidation range will all be exposed.

For ordinary users, this is a privacy issue; for both parties in the trade, this is a trading risk.

Therefore, Aster's focus is on privacy. It emphasizes that orders will be encrypted before reaching the chain and only decrypted upon execution, so the size of the user's position, entry point, and liquidation price will not be directly exposed on the order book.

So Aster tells a different story in the Perp DEX sector: on-chain trading needs not only to be transparent but also to protect the privacy of traders' strategies.

• It currently completely aligns with Hyperliquid; rather than saying the above angles, it’s more about the power struggle behind the old and new platforms (those who understand will understand).

2.2 Lighter takes a different line.

It can easily be summarized as zero fees, but I think zero fees is just the surface. The more important issue is that it points to whether matching and liquidation are trustworthy.

The biggest problem with CEX is not poor experience; on the contrary, the experience of CEX is very good, but its problem is the black box. Any CEX can be summarized as a "black box."

You don’t know if the matching is completely fair, you don’t know if the liquidation is transparent in extreme market conditions, and you don’t know if the platform will prioritize protecting itself...

These issues may not be important usually, but once in extreme market conditions or high volatility, they all become important.

Lighter’s technical difference lies in that the first two are self-developed L1s, while Lighter uses zero-knowledge proofs in ZK L2, generating a zero-knowledge proof for all operations, including order matching and liquidation, which can be verified on Ethereum.

So if Lighter can clearly explain the verifiable matching and liquidation, what it solves is not just low costs, but trust.

Thus, Lighter is not saying "I have the most assets," nor is it saying "I am most like Binance"; it is saying: the core operations of the exchange should also be provable.

The three protocols listed above can all be referred to as typical of the [new cycle Perp DEX], so I am reluctant to frame the competition between Hyperliquid, Aster, and Lighter as: who will be the next Perp DEX leader?

This expression is too narrow.

I think a more accurate statement is that they are each answering three different questions about Perp DEX: fund retention, privacy, and trust.

3. dYdX/GMX: The old entry is not without value, but the standards have changed.

The examples above are the most outstanding Perp DEXs of the current cycle, but I think it is also very necessary to elaborate on the "pioneers": dYdX and GMX.

Not to say they are ineffective, but to illustrate a more important issue: the entry is not permanent; user behavior standards will change.

dYdX represents the previous generation of order book Perp DEX, while GMX represents the LP pool model Perp DEX.

They both once solved real problems.

In the early days, there was not enough good order book depth on-chain, nor a sufficiently smooth on-chain contract experience, so GMX's LP pool model was very effective. Users could trade directly with the pool, and LPs bore the counterparty risk, earning from trading fees, swaps, leveraged trading, and liquidations.

This was a very elegant DeFi native solution at that time.

But the problem is that when products like Hyperliquid, Aster, and Lighter begin to bring experience, depth, speed, and professional trader needs closer to CEX, the GMX model will face a problem:

It is more suitable for DeFi native users but may not necessarily become the main operating platform for professional traders.

dYdX's problem is similar; it’s not that the direction is wrong, but the original label of "on-chain order book representative" is no longer sufficient in the new generation of competition, or more directly, "it is too 'old' and has been defeated by the cycle."

According to current data from DeFiLlama, GMX and dYdX still maintain a certain OI and trading volume, but their scale has clearly fallen behind Hyperliquid, Aster, and Lighter.

So the judgment here is not "old projects going to zero."

Rather, the competition standards for Perp DEX have changed.

Previously, the comparison was "can contracts be made on-chain"; now it may be "can it get closer to CEX experience and retain funds."

(The next phase may even compare "can it become the underlying infrastructure of the derivatives market.")

This is the value of using dYdX/GMX as a case; they are not negative examples but references for the industry transitioning from one stage to the next.

4. Coinbase: Not just on-chain.

Finally, I want to include an off-chain case because if the entire article only discusses Hyperliquid, Aster, Lighter, and other on-chain protocols, readers may easily think this is just on-chain self-indulgence.

But that’s not the case.

At the end of last month, Coinbase announced the official launch of cryptocurrency perpetual contracts in collaboration with the prediction market platform Kalshi. This is the first time a compliant exchange in the U.S. has opened such trading products to domestic investors.

A few days ago, Coinbase further opened other perpetual contract products, which is a very important signal.

It indicates that the Perps market is not only being watched on-chain but is also a core product form that compliant exchanges and prediction markets are competing for.

Furthermore, the perpetual contract, a relatively emerging derivative tool for financial markets, is beginning to be widely accepted. Coinbase is bringing high-frequency derivative trading that originally occurred in offshore exchanges and gray markets back into the U.S. compliant framework.

Overall, all the above cases focus on one thing and attempt to answer one question: who can undertake the next generation of high-frequency risk trading behavior?

Both sides are trying to answer this question with different solutions, with on-chain using decentralized infrastructure, on-chain margin, transparent liquidation, token incentives, and market creation mechanisms; off-chain using regulatory licenses, compliance frameworks, existing user bases, and traditional financial market structures.

3. Conclusion

The main chapters of this article have been placed in the second major section, hoping to help everyone sort out the competition and prospects of Perp DEX and even Perp through several classic examples.

(At this point, I suddenly realize that some friends may not know what Perp is, which is the English abbreviation for perpetual contracts.)

So the final point of this article is: Perp DEX is not a small DEX niche; it is a projection of the war of derivatives exchanges on-chain, and what is truly contested is the behavioral closed loop and stickiness of funds.

Finally, summarizing these cases again, we can see a different debate surrounding Perp:

Hyperliquid is saying: on-chain Perp can become an exchange system and a new entry point; Aster is saying: to capture CEX users, performance and privacy issues must be solved; Lighter is saying: the next phase will shift from experience competition to trust mechanism competition; dYdX/GMX is saying: the old model is not without value, but the industry standards have changed; Coinbase is saying: the war of Perps has already expanded outward.

......

And this "war" has just begun.