Hyperliquid is Struggling to Kill HyperEVM

Author: Zhou, ChainCatcher

Recently, discussions around whether HyperEVM is dead have intensified. Crypto KOL katexbt bluntly stated that it is a massive failure, with 13 out of 18 projects deemed a waste of time.

In our previous article, we discussed how trade.xyz has nearly monopolized the HIP-3 perpetual market on Hyperliquid. This article looks at another aspect of the platform: why its application layer is struggling to take off.

Trading Side Continues to Attract Capital, Application Layer Bleeds

Hyperliquid is an independent public chain that operates on a self-developed high-speed mechanism, focusing on on-chain trading.

In the context of an overall downturn in the crypto market in 2026, according to Defillama data, the total value locked (TVL) in the DeFi sector shrank from about $115 billion to around $70 billion, a decline of approximately 39%. Most public chains saw their TVL decrease with the market, but Hyperliquid is one of the few public chains that has remained relatively robust.

This chain actually has two engines that share the same set of validators but have completely different functions.

The first is called HyperCore, which is the trading engine. The high-performance order book exchange on-chain is it, where perpetual contracts and spot trading are completed. It is not open to the public, and others cannot build applications on it; all trading logic is hardcoded inside.

The second is called HyperEVM, which is the application engine. Launched in February 2025, it is compatible with Ethereum, allowing developers to build DeFi applications such as lending, staking, and decentralized exchanges on it. Applications on HyperEVM can call HyperCore's trading and liquidity remotely, but the actual matching is always controlled by HyperCore.

Image source: RootData

In simple terms, Hyperliquid locks the most profitable trading business in a closed engine and tosses the part open to developers to the adjacent HyperEVM.

The performance gap between the two engines is significant.

On the trading engine side, Hyperliquid captured more than half of the on-chain perpetual trading volume on most trading days in 2026. According to DeFiLlama, in the 30 days leading up to August 10, the Hyperliquid exchange itself generated about $46.17 million in fees, and combined with trade.xyz, the total trading-related fees amounted to approximately $56 million.

On the application engine side, however, it is much weaker. The total fees from all DeFi protocols on HyperEVM add up to less than $6 million, nearly a tenfold difference between the two.

The divergence in capital scale is also evident. According to the HRC report for Q2 2026, the total locked amount on the entire Hyperliquid chain was about $1.44 billion at the end of Q2, further dropping to around $1.2 billion by early August (including the trading side). The proportion of funds truly settled in the HyperEVM application layer is low and still shrinking.

According to public data, the average daily active sending addresses on HyperEVM are only about 8,000, while Base exceeds 250,000 and Arbitrum over 110,000 during the same period. A platform that has already dominated the perpetual trading track and appears to have no shortage of money or users has an application layer with only second-tier scale; this gap is hard to explain with "the industry is still early."

Looking deeper into HyperEVM, as of early August, after removing assets from cross-chain bridges, application funds were primarily consumed by two categories: liquidity staking at about $978 million and lending at about $671 million.

Ranking first is the HYPE liquidity staking protocol Kinetiq, with a scale of about $780 million.

However, the decentralized exchanges that should be thriving have completely degraded. On other public chains, DEXs are usually at the core of DeFi, with leading projects often reaching tens or hundreds of billions in scale. Yet on HyperEVM, 44 related protocols combined only amount to about $221 million, with the largest native trading platform only in the tens of millions.

According to HRC, in Q2, PRJX alone accounted for 92.3% of decentralized trading on HyperEVM, while HyperSwap accounted for 7.5%, with the remaining forty-plus having almost no volume.

The trading engine continues to siphon off funds and attention, leaving the application layer unable to retain projects or users.

Why HyperEVM is Struggling

This contrast is not simply an operational issue; it is embedded in the architecture and choices of this chain.

1. Matching is Exclusively Controlled by the Core, Making DEX Redundant

The biggest selling point of HyperEVM is that applications can directly call HyperCore's order book. This capability is powerful but simultaneously restricts the range of applications that can survive.

Trading matching and liquidity are monopolized by HyperCore, and the deployment environment is not open to the public. This means that third-party developers can only build on HyperEVM and then call HyperCore's liquidity in reverse.

As a result, the applications that genuinely have a reason to exist here are concentrated in a few categories that rely on order books: liquidity staking, lending, basis trading, and market making.

According to Token Terminal, the daily active addresses across the entire Hyperliquid chain have long maintained a high level of 60,000 to 70,000, with HyperEVM accounting for only about 10% to 20%. The vast majority of active users are concentrated on the HyperCore trading side.

The reason DEXs lose significance here is that matching has already been completed by HyperCore using an engine far more efficient than automated market makers. Deploying a decentralized exchange on HyperEVM is akin to reinventing the wheel.

2. Monopoly is Not Due to Insufficient Competition, but an Inevitable Result of Architecture

According to the HRC report, shared liquidity eliminates the space for small platforms to survive on independent order books. When traders see the same asset listed in two places on the same interface, they will immediately send their orders to the deeper order book, and repeated listings will almost instantly be routed to places with better liquidity.

This explains why decentralized trading on HyperEVM converges towards PRJX alone and also explains the same phenomenon on the trading layer. The listing layer of HIP-3 has converged to a single operator over five months, with tradeXYZ capturing nearly all transactions by July.

Permissionless access and eventual monopoly coexist naturally under shared liquidity. The high concentration of the application layer is a mathematical result of this architecture, not a lack of competition.

3. Fairness Ideals Have Shut Down the Distribution Machine

Another shortcoming of the HyperEVM ecosystem stems from Hyperliquid's persistent emphasis on fairness ideals.

The official acknowledgment is that HyperEVM has been in a state of slow progress for a long time because it adheres to the "no insiders" principle: no one is notified in advance, and no payments are made for integration or marketing.

The cost is that the development tools and support available at its launch are not as comprehensive as those on other chains.

There is nothing wrong with insisting on fairness. However, a protocol that already generates millions of dollars in fees daily and possesses substantial funds and users has the capability to support the application layer through funding, business cooperation, and marketing without compromising fairness. It chooses to do nothing.

At Hyperliquid's current scale, "no insiders" has transformed from an initial principle into an excuse for inaction. It has the resources to ignite the ecosystem; what it lacks is the will.

KOL @Ace_da_Book points out that this chain offers zero incentives to builders and has not created a kingmaker, yet it still attracts high-caliber teams that believe in fair competition. HyperEVM is suitable for teams that can collaborate with HyperCore's order book and work on tokenized RWA and quality assets, rather than projects focused on attention markets.

However, from another perspective, this is also a brutal selection. Without subsidies and narrative protection, projects face mature traders directly upon launch, and failure naturally comes quickly.

4. Cross-Engine Writes Do Not Guarantee Transactions, Development Experience Remains Awkward

The final layer of resistance comes from the development experience.

HyperEVM adopts a dual-block design, with high-frequency small blocks responsible for low-latency contract trading and approximately one-second large blocks responsible for settlement with HyperCore. The benefit is speed, but the cost is that contract operations and core matching occur in different phases and are not completed synchronously in the same transaction.

There are two channels between HyperEVM and HyperCore. One for reading goes through pre-compilation, allowing contracts to directly read order book prices, positions, and balances, which works smoothly. The writing channel goes through a system contract called CoreWriter, which has been enabled on the mainnet since mid-2025, allowing contracts to place orders and transfer to HyperCore through it.

The problem lies in the nature of this writing channel; it is not synchronous. After a contract calls CoreWriter, the EVM transaction is immediately completed, but the actual core action is queued for execution in the subsequent core block and may fail quietly due to insufficient margin or unfulfilled orders; at this point, the EVM transaction will not roll back.

For developers, this means they cannot assume a one-step process like on Ethereum. To stabilize a treasury or lending application, it must be broken into two steps: first sending the instruction, then going back to use the reading channel to confirm whether the core side succeeded, while also leaving a backdoor for any stuck states. These cross-engine pitfalls do not exist in ordinary EVM development.

Thus, for general developers looking to migrate, this presents a significant barrier. Those willing to come in are mostly teams already working around HyperCore liquidity rather than developers pursuing independent application scenarios.

Is the Quietness of HyperEVM Decline or Another Form of Success?

The HRC report mentions that this round of TVL decline is a structural adjustment. During the same period, the scale of stablecoins on-chain quadrupled, gas consumption and transaction counts are rising, indicating that usage is actually increasing; what is shrinking is merely the DeFi collateral stuck in leverage and LST cycles. The capital on Hyperliquid is increasingly for trading rather than farming.

This explanation barely holds up, but it precisely highlights the issue: an ecosystem that has been reduced to mere trading and leverage cycles is itself evidence of failure, not a different form of success.

Crypto KOL Cain O'Sullivan argues that the pessimists are using the wrong framework. In his view, HyperEVM never intended to be a general-purpose chain; it is the tokenization layer of HyperCore liquidity, the channel for value to enter and exit this ecosystem. Without this EVM compatibility, there would be no native USDC on HyperCore, and the team's abandonment of Core vaults in favor of the EVM version is also evidence of this.

However, even by his definition, the value of HyperEVM is entirely dependent on HyperCore; it is more akin to a programmable peripheral of the trading engine rather than an independent economic entity.

Defining HyperEVM as a tokenization layer may make sense, but it also indicates that the team never truly intended to create a general ecosystem. Those developers who came in with the narrative of generality have become the disappointed party.

The apparent prosperity in the HyperEVM ecosystem is merely a virtual fire fueled by leverage. The foundation exposed after the fire recedes is the small circle of real demand surrounding trading and order books.

Conclusion

Whether HyperEVM is dead or not may be the wrong question to ask. There are still real funds flowing on-chain, and high-value assets are in operation. However, it has indeed failed to grow the breadth and retention that a general application ecosystem should have.

Hyperliquid has staked almost all resources and attention on the trading engine, locking matching and liquidity in a closed high-performance system. This choice has allowed it to establish a clear advantage in the perpetual market while simultaneously determining that the adjacent application layer can only grow into a subordinate role. This is not the fate of the architecture but a deliberate trade-off.

More than a year has passed, and the cost has become clear: the trading side continues to attract capital, while the application layer cannot retain projects or users. Most that survive are financial applications revolving around the order book; truly independent general demand has hardly emerged.

Rather than continuing to debate whether it is dead or not, it is better to clarify a more fundamental question: what exactly are we asking Hyperliquid to be?

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