Closed-source, no KYC, permission-based: The Decentralization Controversy of Hyperliquid

On February 8th, an unusual internal conflict erupted in the crypto world: Kyle Samani, former head of Multicoin Capital, criticized Hyperliquid. Samani accused Hyperliquid of using closed-source code, a permissioned architecture, and lacking KYC/AML (Know Your Customer/Anti-Money Laundering) mechanisms, arguing that these factors fueled criminal activity. BitMEX co-founder Arthur Hayes responded with a $100,000 bet: from 00:00 on February 10, 2026 (UTC) to 00:00 on July 31, 2026 (UTC), HYPE's price increase would surpass that of any altcoin with a market capitalization exceeding $1 billion (in USD) on CoinGecko. Why is this conflict so noteworthy? The reason for this conflict lies in Kyle Samani's own crypto background. Kyle Samani is a prominent figure in the crypto investment field, having served as co-founder and managing partner of Multicoin Capital, an investment firm focused on digital assets and the blockchain ecosystem. Founded in 2017, Multicoin Capital manages billions of dollars in assets, covering both public token funds and private venture capital funds. The fund has made early investments in major public blockchain projects, including Solana, establishing a significant influence within the industry. Since helping Solana complete its seed round in May 2018, Multicoin Capital has consistently invested in Solana's native asset, SOL, and the broader Solana ecosystem. In December 2021, during an appearance on The Wolf Of All Streets podcast, Samani stated that Multicoin purchased SOL tokens in three private rounds at prices of $0.04, $0.20, and $0.23, implying a return of at least 39,000% on its Solana investment. The enormous returns and Solana's subsequent impressive performance undoubtedly made Multicoin Capital a household name in the industry. Due to his successful investment in Solana, Samani's most prominent label in crypto investment history is his embrace of high-performance, public-chain-level applications. Solana has long been seen as a representative of high throughput and low latency, making its user experience closer to Web2. This, to some extent, contradicts the vision of "pure decentralization." Therefore, against this investment backdrop, Samani's criticism of Hyperliquid is particularly noteworthy.

II. Questions Regarding Hyperliquid's "Decentralization"

Before reviewing the industry's questions about Hyperliquid's "decentralization," let's first review its core architecture:

• Dedicated Layer 1 Blockchain: Employs an autonomous consensus mechanism (such as HyperBFT) to support high-throughput and low-latency order book trading.

• Order Book Perpetual Contracts: Supports order types, depth, and execution speeds similar to centralized exchanges.

• No KYC Threshold: Users connect directly to the chain and can trade perpetual contracts without submitting identity information.

• Low Transaction Costs and High Liquidity: Zero gas fees or extremely low transaction fees attract high-frequency traders.

• This architecture allows Hyperliquid to excel in trading volume, liquidity, and user experience, but it has also raised some questions within the industry. ChorusOne employee Kam Benbrik previously expressed concerns about HyperLiquid: many problems stemmed from HyperLiquid's use of "closed-source code," which "limited" the operation of node operators; HyperLiquid also controlled 81% of the staked HYPE, and this control could potentially trigger a series of negative consequences. "If an entity controls one-third of the stake, they can stop the blockchain from running. If they control two-thirds of the stake, they can completely control the entire network." Regarding the closed-source code issue, HyperLiquid responded: "Currently, the Node code is closed-source. Open source is important. The project will be open-sourced after development is stable. HyperLiquid releases several orders of magnitude faster than most projects. Its scale is also several orders of magnitude larger than most projects. The code will only be open-sourced when it is secure." Now, Samani has again accused HyperLiquid of using closed-source code, a permissioned architecture, and lacking KYC/AML (Know Your Customer/Anti-Money Laundering) mechanisms, believing that these factors contribute to criminal activity. In his view, these designs mean that Hyperliquid does not possess the "trustless" attribute that DeFi should have.

  III. What Kind of DeFi Do We Want?

  The industry's focus is not only on whether Samani's claims are truly correct, or whether Hyperliquid is truly decentralized enough; but also on why Samani suddenly attacked Hyperliquid at this time; and on what kind of DeFi we actually want.

  1. How to view Samani's claims?

  Support Samani

  • @stevenyuntcap: Hyperliquid embodies the drawbacks of cryptocurrency in most aspects: rejecting venture capital; democratizing long positions through HLP; expanding the community through the largest token airdrop in history ($9 billion); and using all or part of the $960 million in revenue from HL to buy back the tokens.

    @pnadimi: Is Kyle wrong? We in the cryptocurrency legal community have certainly heard a lot of rumors about Hyperliquid's lack of effective financial crime controls. Does anyone really question whether it's closed-source and requires permission? The answer seems fairly clear. @crypto_condom: Kyle embodies most of the ills of cryptocurrency venture capital: investors completely withdrew from his fund for EL; promoted fraudulent coins and terrorism; closed-minded; perpetually hypocritical. @WestieCapital: "All the problems with cryptocurrencies" lie in the lack of successful products with product-market fit (PMF). To call our most successful application to date the problem of this space shows that you don't care whether cryptocurrencies succeed or not. @Sychype: People like Kyle are the problem with cryptocurrencies and other industries. If someone is "competing" with a business or doesn't own a stake, they want to see it fail. There can be more than one winner; you can back projects you haven't invested in. However, greed has overwhelmed the highly liquid nature of cryptocurrencies. 2. Why did Samani suddenly attack Hyperliquid at this time? On February 4th, Kyle Samani announced his resignation as Managing Director of Multicoin Capital and his gradual withdrawal from the company's day-to-day operations. Co-founder Tushar Jain stated that Samani's interests have expanded from cryptocurrencies to cutting-edge fields such as artificial intelligence, longevity technology, and robotics, and therefore he decided to dedicate more time to exploring these emerging technologies. Samani wrote, “This is a bittersweet moment for me, as my time at Multicoin has been one of the most meaningful and fulfilling periods of my life. After nearly a decade in the cryptocurrency space, I am more convinced than ever that cryptocurrency will fundamentally reshape the financial system.” For crypto investors, institutional affiliation means many constraints, and Samani's public statements can influence market trends. Leaving the investment institution means Samani can be more open to expressing his true thoughts. 3. What Kind of DeFi Do We Really Want? The more important question in this debate is: what kind of DeFi do we really want? Is it a truly decentralized financial system, or a usable application product comparable to traditional centralized exchanges? Actually, the two are not contradictory, nor is there a true right or wrong answer. In the world of DeFi, open-source code, permissionless nodes, and minimal governance power are fundamental prerequisites. However, in real-world application development, the principle of user priority must be taken into account. If you only promote concepts and downplay the user experience, you'll find it difficult to truly retain users. Hyperliquid prioritized addressing performance issues and closely resembled the trading experience of centralized exchanges, creating a product that users genuinely loved. From this perspective, Hyperliquid hasn't abandoned the spirit of DeFi; rather, it's a perfect attempt to bring DeFi into reality.