A list of three Perp Dex mechanisms: Hyperliquid vs. Jupiter vs. GMX

The recent address 0xf3f496c9486be5924a93d67e98298733bb47057c is leveraged to long ETH on Hyperliquid, with a maximum floating profit of more than US$2 million. Due to the excessive position amount and the transparent nature of DeFi, the full crypto market is watching the trend of the giant whale. Volkswagen generally believes that his next move will usually be to increase positions and continue to increase profits, or close positions and settle profits. Unexpectedly, he made unexpected moves. He made profits by withdrawing margin, and the system will raise the long list liquidation price. In the end, the giant whale triggered liquidation and made a profit of 1.8 million US dollars.

What impact does such an operation have? Injure the liquidity of HLP.

HLP is actively market-making by Hyperliquid. Through market-making, all users can also provide liquidity for HLP.

Because the ETH giant whale made too high profits, if the position is closed normally at one time, it will lead to insufficient liquidity in the opponent's order. However, he actively sought liquidation of the position, and the amount was absorbed by HLP, which reduced the amount by about US$4 million in just one day on March 12.

This attack means that Perp Dex faces severe challenges and must evolve in the liquidity pool mechanism. Take this opportunity to let WOO X Research take you to see the current mainstream Perp Dex (Hyperliquid, Jupiter Perp, GMX) mechanism comparison, and finally discuss how to prevent similar attacks from happening!

 Reference: https://app.hyperliquid.xyz/vaults/0xdfc24b077bc1425ad1dea75bcb6f8158e10df303

Hyperliquid

Liquidity provision: Funded by the community liquidity pool HLP (Hyperliquid Pool), users can deposit USDC and other assets into HLP Vault, becoming the platform market-making liquidity. In addition, users are allowed to build their own "Vault" to participate in market making and profit-making

Market making model: adopts high-performance on-chain Order Book matching to provide a centralized exchange-level experience. HLP vault acts as market makers, placing orders on the order book provides depth and dealing with unmatched parts, reducing slippage. Price reference is made to external oracles to ensure that the price of pending orders is close to the global market.

Liquidation mechanism: Liquidation is triggered when the minimum margin (usually starting from 20%) is insufficient. Any user with sufficient capital can participate in the liquidation and take over positions that do not reach the maintenance margin. HLP Vault also plays the role of a liquidation vault. If the liquidation causes losses, the HLP will bear (this attack)

​Risk Management: Use multi-exchange price oracle to update every 3 seconds to prevent malicious pull-up of a single market from causing wrong prices. In response to the extreme situation caused by the giant whale position, the minimum margin for some positions has been raised to 20%, reducing the impact of large-scale forced flats on the pool. Anyone can participate in liquidation to improve decentralization while having a single Vault to take risks. The disadvantage is that as an emerging proprietary chain, it has not yet been tested for a long time and has had a huge risk of forced loss in the past.

Fund rate and position cost: Calculate long and short fund rates every hour, and are used to anchor the contract price to be close to spot. If the bulls dominate the bears, the bulls pay the capital fee to the bears (and vice versa) to prevent long-term price deviations. For situations where the platform's net holdings exceed the HLP's tolerance range, Hyperliquid reduces risks by increasing margin requirements and possible dynamic adjustments to the capital rate. The cost of holding positions is that in addition to capital expenses, there is no additional interest for holding positions overnight, but high leverage increases the pressure on capital expenses.

Jupiter

Liquidity provision: Liquidity provided by Jupiter Liquidity Pool, the pool includes index assets such as SOL, ETH, WBTC, USDC, USDT, etc. Users mint JLP by exchanging assets, and JLP bears leveraged trading risks as the counterparty.

Market making model: abandon traditional order books and use the innovative LP-to-Trader mechanism. Through oracle pricing, traders can trade directly with JLP liquidity pools and enjoy a trading experience that is close to zero slippage. Advanced functions such as limit orders can be set, but in essence, transactions are filled in by the pool according to the oracle price.

Liquidation mechanism: For automatic liquidation, when the position margin rate falls below the maintenance requirement (such as <6.25%), the smart contract will automatically close the position according to the oracle price. JLP liquidity pools act as counterparty to absorb the profit and loss of the position. If the trader loses the position, the remaining margin belongs to the pool. Users can add or reduce collateral during the position period to adjust the liquidation price, but excessive mortgage withdrawal will make the liquidation price approaching the current price and make it easier to explode.

Risk management: Use oracle to keep the contract price close to spot, avoiding internal manipulation of the price. Solana chain high TPS reduces the risk of liquidation lag, but if the underlying network is unstable, it will affect transactions and clearing. To prevent malicious manipulation, the platform can limit the total position of a single asset (such as limiting the maximum leverage position limit). At the same time, the loan fee rate increases with the asset utilization rate, which increases the cost of long-term unilateral holdings and curbs extreme bias. So far, traders have been in net losses overall, and JLP funds have grown relatively steadily.

Funding rate and position cost: No traditional funding rate, Jupiter Perp does not use long-short payment fees, because the counterparty is a liquidity pool rather than a long-short pairing. Instead, the borrowing fee (Borrow Fee) is accumulated in an hour based on the borrowed assets to the pool ratio and deducted from the margin. Therefore, the longer the holding time or the higher the asset utilization rate, the more accumulated interest, and the liquidation price will gradually approach the market price over time. This mechanism acts as a cost constraint for long-term unilateral positions to avoid the problem of long-term imbalance in capital fees.

GMX

Liquidity provision: Liquidity provided by GLP (GMX Liquidity Pool), including assets such as BTC, ETH, USDC, DAI. Users deposit assets to mint GLP, and GLP becomes the counterparty of all transactions and bears the transaction profit and loss.

Market making model: There is no traditional order book, and it automatically acts as a competitor through oracle quotations and pool assets. GMX uses Chainlink decentralized oracle to obtain market prices and execute transactions with "zero slippage". GLP asset pool is equivalent to a unified market maker, adjusting assets in the pool through the price impact fee mechanism to ensure the depth of liquidity.

Liquidation mechanism: Automatic liquidation, use the Chainlink index price to calculate the position value, and trigger liquidation when the margin ratio is below the maintenance level (such as about 1.25 times the initial margin). During liquidation, the contract automatically closes the position, and the user's margin is first used to repay the pool loss, and the remaining (if any) is returned or included in the insurance. GLP Asset Pool will directly bear the losses or obtain the margin income of the liquidation position.

Risk management: Use authoritative multi-source oracle machines to reduce the risk of brush volume manipulation and avoid a single transaction pair's abnormal fluctuations causing errors. A trader once used the GMX zero slip mechanism to link external markets to manipulate price arbitrage, and the team then set a maximum opening limit for easily operated assets such as AVAX (such as the upper limit of $2 million). Leverage risk is limited through such a position cap and dynamic rate mechanism (higher asset utilization, higher interest on position), and 70% of the transaction fee is rewarded to GLP to increase the motivation of LP tolerate losses.

Funding rate and holding cost: GMX V1 does not have long/shorts pay each other's funds; instead they are borrowing fees (0.01% per hour based on the proportion of borrowed assets). This fee is paid directly to the GLP pool, which means that no matter long or short, the holder will pay the interest on the holding and merge it into the position profit and loss. The higher the asset utilization rate, the higher the annualized rate of borrowing fees (can exceed 50% annualized), and economically punish long-term unilateral congested positions.

In this mode, the perpetual price is always close to spot (zero slippage), and there is no traditional imbalance in the capital fee, but the pool needs to bear the profit and loss when the price changes dramatically.

Hyperliquid vs. Jupiter vs. GMX Easy Comparison Table

Conclusion: The only way to go for decentralized contract exchanges

This attack takes advantage of Perp Dex decentralization's features: transparent, and rules are determined by code.

The overall attack idea is: to make profits through huge positions and attack liquidity within the exchange.

If we want to prevent it in the future, we must reduce the number of users' opening positions, which can start with the leverage multiple and margin. They also announced that they will reduce the maximum leverage multiple of BTC and ETH to 40 times and 25 times respectively, and increase the required margin transfer ratio by 20%. The overall purpose is to avoid users opening huge positions.

If we develop according to this idea, what else can Hyperliquid do? ADL automatically reduces positions.

When the risk reserve (HLP) cannot bear further losses caused by liquidating loss positions, an automatic position reduction (ADL) mechanism will be activated to limit further losses of the risk reserve. The core principle is that the loss position will hedge against profit positions or high leverage positions in the opposite direction (i.e., "reduced positions"), and the two positions offset each other and close positions at the same time. Due to the launch of the ADL mechanism, the profitable position may be forced to close, thereby limiting the position's future profit potential while avoiding affecting the HLP vault level.

The above measures are actually limited to a single account. If interested people want to take advantage of the rule loopholes, they can actually open multiple accounts to conduct similar attacks. Of course, the project party can use the tracking address correlation to ban related accounts and prevent witch attacks (this is also one of the reasons why centralized exchanges need KYC). But the move goes against DeFi’s core idea - allowing anyone to use decentralized finance without permission.

The best solution is the Perp Dex protocol itself. As the market matures, liquidity gradually increases, which makes attackers pay costs until they are not profitable, and the current dilemma is the only way for the development of the track.