Comparison of CEX and DEX Perpetual Futures Mechanisms: Hyperliquid, Binance, and OKX

In March 2025, the JELLYJELLY contract triggered a market upheaval on the Hyperliquid platform. Within a few hours, the contract price skyrocketed by 429%, nearly triggering a large-scale liquidation. If liquidation occurs, short positions will be forced into the on-chain liquidity pool HLP, resulting in massive unrealized losses. Meanwhile, a major trading platform quickly launched trading for JELLYJELLY's Perptual Futures.

As the situation was about to spiral out of control, Hyperliquid validators urgently voted to intervene, forcing the delisting, liquidation, and freezing of trades, raising questions about the "decentralized" exchange.

This event not only became the focus of heated discussions in the crypto community, but also exposed a core issue: what determines the price on decentralized trading platforms? Who bears the risk? Is the algorithm really neutral?

This article will take the JELLYJELLY event as a starting point to analyze the algorithmic differences in the core mechanisms of perpetual futures among three major platforms—index price, mark price, and funding rate—and delve into the financial concepts and risk transmission mechanisms behind them. We will see how different algorithms shape trading styles, how they serve different types of operators, and how they determine whether traders can emerge unscathed from the storm.

This is not only a technical analysis of the contract mechanism, but also a comparison of concepts in market order design.

Perptual Futures Trading Overview

Perptual Futures trading primarily consists of three core elements:

Index Price: Tracks changes in the spot market prices and serves as a theoretical benchmark. Hyperliquid refers to it as the oracle price.

Mark Price: The decisive price used for calculating unrealized profits and losses, liquidations, and other key events.

Funding Rate: An economic mechanism that connects the spot and futures markets, guiding contract prices back to the spot.

It is worth noting that whoever controls the mark price holds the power of life and death over the contracts. Therefore, the core of Hyperliquid's decentralization lies in: how to ensure that the mark price is not manipulated and can be verified.

Hyperliquid has optimized its algorithm based on that of a major exchange, allowing prices to quickly revert to market values in extreme market conditions and when on-exchange trading is manipulated. To avoid outliers, Hyperliquid has put considerable effort into the algorithm design.

Comparison of the Mechanisms of Three Major Platforms

Index Price/Oracle Price

The index price of Hyperliquid is referred to as the oracle price, completely independent of its own market, constructed by validator nodes. It uses a weighted median method to combat extreme price volatility, making it more resistant to manipulation, but the update frequency is slower, updating every 3 seconds. This design aims to eliminate outliers and fluctuations, allowing for a smoother price. The slower update frequency is also a smoothing mechanism and is not necessarily a disadvantage.

( Mark Price Mechanism

The marking price algorithm of a large exchange is based on the two principles of "price smoothness" and "market depth reflection". Its formula is based on the median of three types of prices: the midpoint of the best bid/ask in the contract market, the transaction price, and the impact price. The impact price reflects the true liquidity cost by simulating the effect of large market orders on the order book. The median constructed with EMA processing ensures that the marking price on the platform changes smoothly and is resistant to spikes, making it suitable for large capital stable allocations and institutional arbitrage strategies.

Another exchange adopts a more aggressive approach, using only the mid-price of the bid/ask as the source for the mark price. This algorithm does not refer to the transaction price and does not consider the depth of the order book, making the price extremely sensitive to small trades, and it can cause severe fluctuations due to large orders penetrating the order book. Although the volatility is higher, the price returns to the spot faster, making it more suitable for high-frequency traders and short-term operations.

The marked price structure of Hyperliquid integrates the two methods mentioned above. It is controlled by multiple nodes and combines three price sources: the 150-second exponential moving average of the oracle price and the price difference in the contract; the median of the platform's best bid, best ask, and last transaction price; and the perpetual index weighted median from multiple exchanges. If any two of these fail, the system will use the median processed by the 30-second EMA as a substitute.

On-chain validators not only regularly update the oracles and marked prices but also need to perform consistency checks on the integrity of input sources, timestamps, and deviation tolerance ranges. This mechanism creates a certain degree of "algorithmic democracy" on Hyperliquid, where neither the platform nor the validators can forcibly modify the logic of marked prices, significantly enhancing resistance to manipulation.

![The Contract Algorithm Battle between CEX and DEX: Hyperliquid, Binance, OKX])https://img-cdn.gateio.im/webp-social/moments-a015d8c69e96bbf6c5a303d32a9b4cd5.webp###

( Funding Rate Algorithm

The funding rate is a key economic lever that connects the spot and futures markets in Perptual Futures, directly affecting the degree of deviation between contract prices and spot prices, and guiding the market to self-correct. The algorithm design of the funding rate on the three major platforms reflects different technical paths and trading philosophies.

Hyperliquid introduces a premium index based on the impact price and loan rate fundamental model from a major exchange, using oracle prices in the calculation to better reflect the actual market conditions. The premium index is sampled every 5 seconds and calculated as the hourly average to prevent short-term volatility, with a fixed loan rate of 0.01%.

To compensate for the slow price return drawback, Hyperliquid has adopted three distinctive settings:

1. Funding rate can reach up to 4% per hour in extreme cases.
2. The funding rate is calculated based on the oracle price rather than the mark price.
3. The funding rate is charged one-eighth per hour, accelerating the price return.

The funding rate of a large exchange relies on a longer settlement period ), usually 8 hours ###. It calculates the impact of large market orders on the buy and sell prices by combining order book depth while also considering borrowing rates. Its design aims to provide institutional investors and medium to long-term traders with a smoother and more predictable cost of capital.

The funding rate algorithm of another exchange is relatively simple, calculated based on the deviation of the best bid and ask prices, with a similarly long settlement period. The lack of comprehensive consideration of order book depth and borrowing costs leads to significant fluctuations in the funding rate, making it suitable for high-frequency and aggressive short-term strategies, but it also brings higher liquidation risks.

Hyperliquid seeks a balance between market structure and market orientation—based on a relatively smooth algorithm, combined with high-frequency funding rate settlements and off-market pricing, supplemented by high funding rates in extreme cases, allowing on-market prices to quickly return to market prices in extreme environments.

These algorithmic differences have a profound impact on actual trading and provide advantages for Hyperliquid's liquidity pool, promoting its positive cycle of development.

Trading Strategies and Financial Concepts Adapted to Different Platforms

( A large exchange: The design of the rational system

The overall design of the platform leans towards "institutionalization and moderation", with the core concept being "making the market predictable". This is highly consistent with the quantitative finance school and the efficient market hypothesis, assuming that the market is generally rational and can be tamed through statistical modeling.

Mechanism Reflection:

• The mark price smoothing mechanism ensures price stability and resistance to manipulation.
• Fine modeling of funding rates, providing smooth and predictable funding costs.
• Multi-layer risk buffering mechanisms, such as a large insurance fund and an automatic position reduction mechanism

This robust modeling mindset attracts institutional investors and medium to long-term traders who seek stable returns and controlled risks. They rely on the clarity and predictability of market rules to achieve steady capital growth through sophisticated quantitative models and arbitrage strategies.

) Another exchange: the design of trading instinct.

The platform's strategy design is close to "fast, fierce, and accurate". Its philosophy is that "the market is a reflection of human nature". This aligns with the logic of behavioral finance, accepting that the market is irrational and traders are emotional.

Mechanism reflects:

• The mark price is extremely sensitive to minor trades, which can cause severe fluctuations.
• The funding rate algorithm is simple, with extreme volatility.
• The liquidation logic is direct and fast.

This mechanism attracts high-frequency traders, short-term traders, and others. They are not afraid of volatility; instead, they need volatility as a source of profit. They are skilled at capturing instantaneous price deviations and using insufficient market depth for quick arbitrage or speculation.

Hyperliquid: On-chain Structuralism Designer

Hyperliquid aims to create a new financial paradigm: decentralized governance + programmable pricing mechanisms. Its philosophy is: algorithms do not predict the market, but rather establish order. It is more like a financial protocol running on the blockchain.

Mechanism embodiment:

• Validator consensus price: Index price and mark price are constructed by decentralized nodes
• HLP Vault底: As a market-making and settlement mechanism at the protocol layer.
• High-frequency funding rates and extreme caps: Accelerate market price return
• On-chain transparency: All transaction data and settlement processes are publicly recorded on the blockchain.

Hyperliquid practices a financial philosophy of structuralism – that even in a chaotic world, as long as the algorithmic rules are transparent and immutable, a relatively "neutral" market order can be established. It attracts traders who seek to rebuild trust systems through verifiable code and distributed governance.

However, recent events have revealed the tension of this concept in practice: although the logic of the mark price is intended to be immutable, when the system faces a survival crisis, higher-level governance can still intervene and override the protocol's actions, indicating that "code is law" must still confront the test of "human governance" in extreme cases.

![The Contract Algorithm Battle between CEX and DEX: Hyperliquid, Binance, OKX]###https://img-cdn.gateio.im/webp-social/moments-39b1db1095902fed27bf4fe8fba73462.webp###

Conclusion

Price is the appearance of trading, and algorithm is the order of trading. Whether it is institutional buffering, market behavior supremacy, or on-chain consensus, they all essentially attempt to answer the same question: how should we trust an invisible market?

Some systems choose to anchor on "stability", telling you that the rules will never change; some systems choose "volatility" as an anchor, believing that traders can always adapt to risks; while some systems attempt to write everything into on-chain contracts, no longer relying on people, but on transparent code, distributed nodes, and cold, hard formulas.

However, when the market is in extreme situations, algorithms will withdraw, and humans must take the stage. Recent crises tell us that even the most decentralized systems need a temporary "central bank" to take over positions; no matter how neutral the consensus is, it cannot completely eliminate disputes over "justice." In the end, prices are not determined by "algorithms," but by who we choose to believe to make the decisions.

Perhaps we cannot design a perfect system, but we can design a system that continuously self-corrects amidst imperfection. One large exchange uses a system to buffer uncertainty, another platform stimulates market vitality through gaming, while Hyperliquid attempts to establish a new consensus through governance and transparency. There is no right or wrong, no superior or inferior, only choices, after all, there is no perfect solution in this world.

In the financial world of the future, algorithms will continue to expand their territory. However, it must be recognized that every logic written into code casts a shadow of a value judgment.

You want freedom, yet seek fairness when liquidated; You want fairness, but you also want transparency during liquidation; You want transparency, yet you want to control everything when liquidation occurs.

What you are ultimately chasing is not the price, but the illusion of order.

One must always take responsibility for their own values.

Let us always have a heart of reverence for the market.