Hyperliquid Faces Criticism Over Its Governance and Security, Promises to Share Staked Tokens with Other Validators

Hyperliquid, a platform for trading perpetual futures, has come under fire for its governance and security practices. Specifically, concerns have been raised about the selection process for network validators and the level of decentralization within the system. Validators are responsible for verifying and securing transactions on the platform.

The issue came to light on January 7 when Kam Benbrik, an employee of the node operator Chorus One, took to social media to highlight problems with Hyperliquid. Among his criticisms was the allegation that new validators were being permitted to “buy their seats.” According to Benbrik, validators should be chosen based on their technical abilities, rather than their capacity to pay for a position.

In response to these claims, Hyperliquid issued a statement on January 8, refuting the allegations. The platform stated that all validators were selected based on their performance during a testing phase, known as a testnet, and that there was no mechanism for purchasing a validator position.

Moreover, the platform noted that it would be adding more validators over time as the blockchain scaled up, which is a common practice among most blockchain systems. This explanation appeared to alleviate some market concerns, with the price of HYPE, Hyperliquid’s native token, briefly rebounding from $20.81 on January 7 to nearly $24 before settling at $23.

Earlier criticisms of Hyperliquid’s decentralization surfaced in December, when reports emerged that hackers from North Korea were probing Hyperliquid’s defenses. At the time, Hyperliquid had only four validators, raising concerns that if hackers managed to compromise three of them, they could take over the network.

Since then, Hyperliquid has increased the number of validators to 16; however, critics maintain that the system remains overly centralized. Five validators controlled by the Hyper Foundation hold over 81% of the staked tokens, implying that a single entity could halt the system by controlling one-third of the stake and take over the entire platform by controlling two-thirds.

To mitigate this potential vulnerability, Hyperliquid has announced a program to share some of its staked tokens with other validators in an effort to enhance decentralization.

Another point of contention relates to the closed-source nature of the code used by Hyperliquid’s validators. As a result, people are unable to view or examine how the system functions. According to some validators, this has led to them being penalized unfairly because they did not fully understand the system.

Hyperliquid has acknowledged that its code is not yet publicly available but stated that it will be released once it is more secure and stable. Opening up the code would allow users to inspect and verify the system, which is a common practice in building trust in a platform.