ETF is also publicly rebalanced! Hyperliquid founder Jeff: Trading in public venues can enhance trading efficiency.

Recently, a Whale named James Wynn on Hyperliquidd has become the focus of the community with every move he makes. This is because he frequently uses leverage of up to 40 times in a short period, opening positions worth billions of dollars. This also exemplifies the transparency of trading on-chain by Hyperliquid. Recently, Hyperliquid founder Jeff shared an article on Twitter titled "Why Transparent Trading Can Enhance the Execution Power of Whales," discussing how public trading can improve the efficiency of executing trades for Large Investors.

(Who is Hyperliquid on-chain Whale James Wynn? A $1.2 billion high-leverage gamble just for hype? )

Will on-chain transactions trigger stop-loss?

Jeff stated that during the growth process of Hyperliquid, skeptics questioned the platform's liquidity. Now these concerns have dissipated, and Hyperliquid has become one of the most liquid markets in the world. As Hyperliquid is used by some Whale traders, the focus of discussion has shifted to concerns about transparent trading. Many believe that the Large Investors on Hyperliquid will:

Being front-run when opening a position.

Because they were targeted due to their public liquidation and stop-loss prices.

He believes that these concerns are understandable, but the reality is quite the opposite: for most large investors, transparent trading can improve execution efficiency compared to private venues. The higher-level argument is that the market is an efficient mechanism for converting information into fair prices and liquidity. By trading publicly on Hyperliquid, large investors give market makers more opportunities to provide liquidity, thereby achieving better execution. A billion-dollar position may execute better on Hyperliquid than on centralized exchanges.

The ETF also chooses to publicly rebalance its position.

For example, take the largest traditional financial ETFs in the world, which need to be rebalanced daily. For instance, leveraged ETFs will increase their positions when prices are favorable and decrease them when they are not. These funds manage hundreds of billions of dollars in assets. Many of these funds choose to execute trades during the closing auctions on exchanges. This is, in many ways, more extreme than Large Investors trading publicly on Hyperliquid:

The positions of these funds are almost completely public, and this is also true on Hyperliquid.

These funds follow public strategies, which is not the case on Hyperliquid, where Large Investors can trade freely.

These funds trade daily in a predictable manner, usually involving large transactions, which is not the case on Hyperliquid where Large Investors can trade at any time.

The closing auction gives other participants ample opportunity to react to the ETF's flow, which is not the case on Hyperliquid, as trading is continuous and immediate.

ETF managers have chosen transparency similar to Hyperliquid. These funds can flexibly privatize their capital flows but actively choose to disclose their intentions and trades. Why?

Another example is the history of electronic markets. Markets are efficient machines that transform information into fair prices and liquidity. Electronic trading was a breakthrough innovation in financial markets in the early 2000s. Prior to this, trading was mainly conducted on the trading floor, resulting in wider spreads. With algorithmic matching engines transparently executing price and time priority principles, the spreads significantly narrowed, and user liquidity improved. Public order books allow market forces to integrate supply and demand information into fairer prices and deeper liquidity.

Why is Hyperliquid a more advanced order book system?

The order book is classified by information granularity. The L0 and L4 here are just used to express different levels, not standard terminology.

L0: No order book information (, for example, dark pool ).

L1: Best Buy and Sell Quote.

L2: The prices, total volume, and the number of orders available within the selectable levels of the order book.

L3: A single anonymous order, including time, price, and quantity, with some fields such as sender being private.

L4 (Hyperliquid): A single order, private and public information are completely equal.

With each additional layer of order book granularity, the information that participants can incorporate into the model is significantly improved. Traditional financial venues stop at L3, but Hyperliquid advances to L4. Part of the reason is the transparency and verifiable characteristics of blockchain. Jeff believes this is an advantage, not a flaw.

The trade-off between privacy and market efficiency covers the complete range from L0 to L4. Within this range, the L3 order book is a compromise and not necessarily the best option. The main argument against the L4 order book is that certain strategy operators prefer privacy. Perhaps the placement of orders might reveal certain advantages within the strategy. However, Jeff, who comes from the quantitative giant HRT, points out that quantitative firms can derive most of the traffic information from anonymous data. It is difficult to open large positions over a period of time without leaking information to savvy participants.

Jeff stated that he believes financial privacy should be a personal right. He looks forward to the blockchain industry reflecting thoughtfully over the next few years to achieve privacy in a mature way. It is important not to confuse privacy with execution efficiency. They are not hand-in-hand concepts, but rather independent and potentially conflicting important concepts.

Privacy and trading efficiency must be balanced.

Some may believe that certain privacy is absolutely beneficial. However, privacy does not come without a cost, as it comes with a trade-off in execution efficiency. Toxic flow is defined as a transaction in which one party immediately regrets the transaction after execution, where the timeframe for "immediate" defines the range of toxicity. Toxic flow may be mixed with non-toxic recipient flow, further deteriorating the execution efficiency for all participants. An example is high-frequency traders running toxic arbitrage acceptance strategies between two platforms at the fastest speed. Market makers incur losses when providing liquidity to these participants.

The main job of market makers is to provide liquidity for non-toxic flows while avoiding toxic flows as much as possible. In transparent venues, market makers can classify participants based on toxicity and selectively increase supply when non-toxic participants are executing. As a result, Large Investors can expand their positions more quickly in transparent venues than in anonymous ones.

If you want to make a large transaction, the best practice is to inform the whole world in advance.

Returning to the example of ETF rebalancing, transparent venues do not have more front-running than private venues. On the contrary, traders can benefit by directly announcing their operations to the market. In transparent venues, clearing and stop-losses are not easier to target than in private venues. Attempts to push up prices in transparent venues will encounter counterparties more confident in conducting mean-reversion trades.

If a trader wants to make a large transaction, one of the best practices is to inform the world in advance. While this seems counterintuitive, the more information there is, the better the execution efficiency. On Hyperliquid, these transparent labels apply to every order at the protocol level. This provides a unique opportunity for traders of all sizes to enhance liquidity and execution efficiency.

This article also publicly rebalances the ETF! Hyperliquid founder Jeff: Trading in public venues can enhance trading efficiency. First appeared in Chain News ABMedia.