The end of the wool-pulling era: Hyperliquid redefines Token value with buybacks.

The golden age of the wool-pulling party is over.

In two years, Hyperliquid’s market share skyrocketed from 0.3% to 66%, defeating dYdX with a simple and straightforward promise: 97% of trading fees are used to buy back tokens. It’s no longer about completing tasks on Galaxy to get airdrops, but rather holders directly share in the real earnings.

As Uniswap begins revenue sharing and Aave launches a buyback plan, the entire DeFi ecosystem is undergoing a historic shift from “money-splashing for growth” to “value accumulation.” The era of Token Economics 2.0 has arrived, and the rules of the game have been completely rewritten.

While we are still marveling at the former glory of dYdX, Hyperliquid has quietly completed a perfect “coup”.

In just two years, Hyperliquid’s market share skyrocketed from 0.3% to a peak of 66%, currently stabilizing at a dominant position of 64.8%. Meanwhile, the once-dominant dYdX saw its market share plummet from 73% to just 4.61%.

This is not just a simple market competition, but a landmark event in the evolution of token economics from 1.0 to 2.0.

The Rise of Hyperliquid: More Than Just a Technological Revolution

Let’s first take a look at the report card presented by Hyperliquid. The trading volume surged from $21 billion in 2023 to $570 billion in 2024, an increase of 25.3 times. The daily trading volume remained stable between $15 billion and $22 billion, peaking at $22 billion. The user base also saw a 9-fold increase, soaring from 31,000 users to 300,000 users.

Behind these numbers is a complete dual innovation system of technology and economics.

Technological Innovation: Implementation of On-Chain Binance

The technical advantages of Hyperliquid are indeed impressive. It utilizes an independent Hyper BFT consensus mechanism to achieve a lightning-fast processing capacity of 100,000 orders per second, while maintaining a fully on-chain order book model. Most importantly, it has achieved sub-second execution speeds, truly realizing a user experience close to that of centralized exchanges.

But what truly sets Hyperliquid apart is its revolutionary tokenomics design.

The Decline of dYdX: Why Technical Advantages Are Not Enough?

Looking back at history, dYdX was one of the few projects that had both excellent products and token economics. Unlike Uniswap, which distributes revenue to Uniswap Labs, dYdX allows token holders to start earning real profits after the v4 version—by staking dYdX tokens to earn rewards.

From an architectural perspective, dYdX has always been at the forefront of technology. The V3 version uses StarkWare’s StarkEx, while the V4 version becomes the only perpetual contract DEX with an independent application chain, fully controlling its own technology stack.

The Cost of an Independent Chain: Defeat and Despair

But success and failure both lie with Xiao He. The technological advantages of dYdX ultimately became its burden.

First is the misjudgment of the migration timing. The decision to migrate V4 to the Cosmos ecosystem was made at a very delicate moment. At that time, dYdX was already a leader, which may have created a “I can do it whenever I want” mentality, but did not anticipate that Hyperliquid was rising strongly.

The second is the fatal flaw of user friction. An independent tech stack brings autonomy, but it also brings significant user friction. Users need to adapt to the new network, and in a highly competitive market, even just changing a wallet can lead to user loss.

Finally, let’s compare the unlocking pressure with the expectations of token issuance. While Hyperliquid still has strong expectations for token issuance, dYdX is facing the pressure of token unlocking. In December 2023, tokens worth $500 million will be unlocked from dYdX, resulting in significant selling pressure.

GMX: The Wisdom of the Eternal Runner-Up

It is worth mentioning GMX, this “century-old second place”. Although it has never become the leader, GMX’s market position remains solid even in the face of Hyperliquid’s explosive growth.

• Daily trading volume: $244 million
• Accumulated trading volume: Nearly 300 billion US dollars
• TVL: $578 million

GMX’s stability proves that sound management also has its value in a rapidly changing industry.

Token Economics 1.0: Incentive-Driven Death Loop

The traditional 1.0 model is essentially an incentive-driven growth model. Project parties rely excessively on token incentives to attract users, essentially “buying volume” and trading volume with tokens, similar to the early subsidy battles of Didi. However, the problem is that every token issued is a “debt” for the project party.

In this model, tokens become purely a reward tool. Users view tokens as “5 yuan found on the ground”, having no holding value, only a desire to cash out. Once the incentives stop, users immediately churn, creating a vicious cycle that requires constant user incentives, users continuously leaving, diluting token value, and needing more incentives.

Reflection on the Era of Wool Pulling

This model has given rise to the “wool-pulling” culture. Task platforms like Galaxy and TaskOn have become places for project parties to buy traffic, with very low user loyalty; users go wherever the incentives are high, leading to dismal conversion rates, with conversion rates of only a fraction of a percent becoming the norm.

A real case can illustrate the problem well: a certain project gained 100,000 followers on Twitter overnight through collaboration with Linear, but in the end, very few users were actually converted. A large amount of marketing investment ultimately proved to be short-lived and failed to establish a real user base.

Token Economics 2.0: A New Paradigm for Value Accumulation

The core of the 2.0 model is to shift from incentive-driven to value capture-driven.

First of all, there must be a product-market fit ( PMF ) as a prerequisite, including sustainable cash flow, not relying solely on financing funds for buybacks, and the need for real user value creation.

In terms of value distribution, there are mainly two approaches: the passive type is when the project side repurchases to drive up value, while the active type involves distributing value to active participants (such as stakers). This shift ensures that the token value is linked to the project’s actual performance rather than relying on endless incentive inputs.

The Perfect Demonstration of Hyperliquid

The tokenomics of Hyperliquid is textbook-level: 97% of transaction fees are used to repurchase HYPE tokens, with a repurchase fund exceeding $1 billion, driving a monthly increase of 65%, and once reaching a historical high of $42.

The brilliance of this design lies in its ability to achieve direct value transmission. For passive holders, once they buy in, they can just relax, as the project team is responsible for driving up the value. More importantly, this buyback is based on actual income rather than inflation rewards, ensuring support from real cash flow.

In terms of supply and demand balance, large-scale repurchases lead to a shortage in circulation, and prices naturally rise under unchanged demand. In terms of sustainability, revenue comes from actual transaction fees, and DeFi inherently generates cash flow without relying on inflation to dilute the value of holders.

Three Value Distribution Models in the DeFi 2.0 Era

In the current DeFi ecosystem, we can observe three main value distribution models:

1. Revenue Sharing Model

Representative projects: Uniswap, SushiSwap

Uniswap began allocating a certain percentage of fees to the protocol through a proposal on its forum. After the proposal passed, the UNI token surged by 65% to over $12.

SushiSwap implements a 50% platform trading fee distribution, combining multiple revenue streams such as DEX trading fees, aggregator fees, and perpetual DEX fees, providing generous returns for participants locked in for 4 years.

2. Token Buyback Model

Representative projects: Hyperliquid, Aave, Jupiter, dYdX

Aave has repurchased $1 million weekly for over six months, investing more than $24 million, driving the token price up by 40%.

Jupiter will use 50% of its operating revenue to repurchase JUP tokens, locking them for three years, with an annual repurchase capacity of approximately $250 million

DYDX25% protocol fee is used for monthly buybacks

3. Real Earnings Model

Representative projects: Aave Umbrella, MakerDAO

Aave’s new system provides a 6% USDC yield on the underlying aToken, plus an additional 4% security yield, bringing the total yield directly above 10%.

MakerDAO supports a 5% DAI savings rate through real asset backing, providing sustainable real returns.

Staking Mechanism: The Art of Interest Binding

The reason why staking has become an important mechanism in the 2.0 era lies in interest binding:

1. Additional Commitment

• Staking usually has a lock-up period (Ethereum 7 days, Solana 3 days)
• Stronger project commitment than LP

2. Actively Participate in Incentives

• Stakers are more likely to engage in activities that are valuable to the ecosystem.
• The reward and punishment mechanism ensures a common goal

3. Circulation Lock

• Reduce market selling pressure
• Stable Token Price

Human morality is somewhat fluid. If success relies solely on moral constraints, the success rate may only be 20%; but if “doing bad things means no money”, the success rate can reach 80%.

The staking mechanism cleverly leverages this human characteristic to ensure network security and participation through economic incentives.

Two Strategies for Value Distribution

Strategy One: Token Rewards

Directly reward qualified token holders with tokens, such as Ethereum staking:

• Stake ETH to earn ETH rewards
• Accompanied by the slashing mechanism
• Encourage positive contributions to the ecosystem

Strategy 2: Service Fee Discount

Provide fee discounts or refunds for token holders:

• 1inch gas refund program
• Binance’s comprehensive holding benefits
• New project airdrop priority

Binance is a typical example of using two strategies: holding BNB not only allows you to enjoy reduced transaction fees but also enables participation in new coin mining and various airdrops.

From “savers” to a virtuous cycle

Current DeFi projects are increasingly resembling banks competing for depositors:

• Delivering oil, salt, and shopping vouchers
• Provide high yield rates to attract funds
• Retain users through real earnings

The core of the 2.0 model is to establish a healthy value closed loop:

1. The project provides real value

→ Users are willing to pay for use 2. Users Generate Income

→ The project has fund buybacks or dividends. 3. Token holders receive profits

→ More willing to hold long-term 4. Token Value Stabilizes and Increases

→Attract more users to participate

This model avoids the vicious cycle of the 1.0 era and forms a sustainable positive spiral.

The Project Team’s Thoughts

Before considering the TGE, the project team needs to honestly answer a few questions:

1. Is there already a PMF?

Is product-market fit already established? Or does it need to be sought? 2. Where is the value of the token?

It cannot just be an empty concept of “governance tokens”. 3. How to sustainably allocate value?

You cannot rely solely on financing funds for incentives.

Core Principle: Bind Token Holders to Project Success

• Project profits → Token holders profit
• Project development → Token value enhancement
• User growth → Everyone benefits

Traps to Avoid:

• Overly complex token mechanism
• Governance tokens lacking practical application scenarios
• Inability to sustain high yield promises

Insights for Investors

How to evaluate 2.0 projects

View Income Sources:

• Is there a sustainable cash flow?
• Is the revenue model clear?
• Is the growth healthy?

View Value Distribution:

• How do token holders benefit?
• Is the allocation mechanism sustainable?
• Is there a long-term locking mechanism?

See Competitive Moat:

• Is the technical advantage deep enough?
• Does the user experience have obvious advantages?
• Is the network effect forming?

We are witnessing an important paradigm shift in the history of cryptocurrency.

From the value storage of Bitcoin to the smart contract platform of Ethereum, and to the financial innovations of DeFi, each paradigm shift has redefined the way value is created in this industry.

Tokenomics 2.0 represents the mature transition of crypto projects from “technical experiments” to “business entities”. Projects are no longer just about issuing tokens to raise money, but need to operate like traditional businesses:

• Create Real Value
• Gain Sustainable Income
• Share profits with shareholders (token holders)

This transformation is extremely healthy for the entire industry:

1. Project parties must be more responsible: they must create real value to succeed
2. Investors are more rational: Fundamental analysis becomes more important
3. Users Benefit More: Access to Better Products and Services

While this means that the chances of “getting rich overnight” may decrease, the long-term development of the entire industry will be more robust and sustainable.

For project teams looking to succeed in this new era, Hyperliquid provides a perfect model: repurchase with 97% of the fees, support token value with real income, and use a simple and direct mechanism to benefit all participants.

This is not just a successful business model; it is also the necessary path for cryptocurrency to achieve mainstream adoption.

What do you think?