"Institutions spoiled by CEX" why are they rushing to try Hyperliquid's new margin system

When institutional users have long been spoiled by the efficient operations of centralized exchanges (CEX), Hyperliquid’s recently launched portfolio margin system is attempting to regain their trust through an on-chain solution. In mid-December last year, this leading perp DEX project announced the new feature and opened it for testing on the testnet. This is not just a feature iteration but a reshaping of the entire on-chain derivatives ecosystem, marking Hyperliquid’s strategic shift from competing for retail traffic to targeting the institutional market.

In the current landscape where Perp DEX has become the most fiercely competitive battleground, most projects are still fighting over trading fees and user interfaces, while Hyperliquid is focusing on institutional traders who are highly sensitive to capital efficiency. The core of this move is: how to persuade institutions accustomed to CEX efficiency to migrate on-chain.

Capital Efficiency Leap: Why Spoiled Institutions Find It Hard to Resist

The portfolio margin system fundamentally changes risk calculation logic. In traditional full-margin models, platforms simply sum the margin requirements of each position, ignoring potential risk hedging effects between positions. Hyperliquid’s new system differs—it manages spot and perpetual contract accounts uniformly, using “net risk exposure” as the basis for margin calculation.

What does this change imply? For portfolios holding both long and short positions in the same asset, the offsetting positions significantly reduce the required margin. In short, the platform begins to reward traders who understand risk hedging, freeing up funds that were previously “frozen” due to redundant collateral.

Data validated by CEX shows that after launching the portfolio margin system, capital efficiency can improve by over 30%. Industry cases even indicate that a well-known derivatives exchange saw trading volume double after implementing this feature. For institutions used to the high efficiency of CEX, this is an irresistible temptation.

Hyperliquid’s cautious approach is noteworthy. It has chosen to launch on the testnet’s Pre-Alpha stage to ensure system robustness. Currently, users can only use HYPE tokens as collateral and can only borrow USDC. This single-asset validation approach is both a risk management measure and a way to strengthen the economic utility of HYPE tokens, providing early liquidity support for its L1 ecosystem. As the system matures, Hyperliquid plans to gradually include more assets such as USDH and BTC as collateral.

Leverage Transformation: Building the Foundation for Complex Institutional Strategies

The portfolio margin system’s appeal to institutional users lies in three aspects.

First is a seamless upgrade to trading experience. Institutions no longer need to manually allocate funds across multiple sub-accounts like spot and perpetuals; all assets are managed within a unified account. This eliminates friction and time-consuming fund transfers, greatly reducing operational costs—especially significant for high-frequency trading strategies.

Second is the multiple monetization of idle assets. Assets used as collateral are no longer passive; they can generate yield within the system. These collateral assets can even support new trading strategies—such as perpetual short positions or cross-term arbitrage—realizing a “single asset, multiple utilities” capital stacking effect.

Third is the leap in leverage capability. Referencing similar systems in the US stock market, qualified investors could theoretically increase leverage by 3.35 times. This opens new possibilities for institutions seeking larger nominal exposure and higher turnover efficiency.

In short, Hyperliquid is supporting a comprehensive “institutional strategy matrix”—enabling complex trading methods like long-short hedging, futures-spot arbitrage, and options combinations to operate efficiently under this system. Currently, executing similar strategies on-chain remains costly, but the introduction of the portfolio margin system is expected to change that.

With large institutional influx, the trading depth of Hyperliquid’s on-chain order book will significantly increase, narrowing bid-ask spreads and creating a positive flywheel effect.

The Cost of Efficiency: Clearing Risks Lurking in the Shadows

However, higher efficiency often comes with greater risks. Especially in the DeFi world lacking a “final lender,” the portfolio margin system could amplify systemic risks.

Loss amplification and accelerated liquidations are primary concerns. As margin requirements decrease, losses are magnified proportionally. While hedging positions theoretically reduce margin requirements, market moves against the overall portfolio can cause user losses to spike unexpectedly. Even more dangerous, in cases of irrational market-wide drops, assets with low correlation may fall together, causing hedging strategies to fail instantly. At that point, the unified account’s liquidation mechanism will require traders to top up margin within a very short window, but in highly volatile crypto markets, many users may be forced to liquidate due to inability to deposit funds in time.

Deeper systemic risks stem from chain reactions in liquidations. Liquidating a unified account involves simultaneous sell-offs across multiple markets. When a highly leveraged account is liquidated, the system must close all spot and derivative positions at once. This large-scale, multi-asset automatic selling can impact multiple related markets in a short period, depressing asset prices and triggering more accounts to fall below maintenance margin, forming an algorithm-driven domino effect of forced liquidations.

Ecological risks are also significant. Hyperliquid’s portfolio margin will deeply integrate with HyperEVM’s lending protocols. The interconnectedness inherent in DeFi can transmit risks rapidly—sharp declines in collateral prices can trigger liquidations at the trading layer and propagate through the collateral chain into lending markets, potentially causing liquidity crises or credit freezes.

The portfolio margin system is a proven model refined over decades on Wall Street, and Hyperliquid is rewriting this with smart contract code. This is a bold gamble on entering the institutional market and will also serve as a rigorous test of the resilience of the entire DeFi ecosystem.