Hyperliquid Labs Co-founder Jeff Yan: The Arms Race of Traditional Finance is Zero-Sum, or Even Negative-Sum
Hyperliquid Labs co-founder Jeff Yan stated on October 7 at DAS Asia 2026 that the latency competition surrounding microwave towers and transatlantic cables in traditional finance is essentially a zero-sum, or even negative-sum, arms race that does not truly create more value.
Yan pointed out that such infrastructure investments only concentrate technological advantages among a few participants without improving overall market efficiency; Hyperliquid's priority fee mechanism aims to reduce the advantages brought by low-latency infrastructure, allowing traders' true Alpha to play a greater role rather than being seen as a "bribe."
The priority fee is divided into read priority and write priority, allowing the purchase of data stream priority and order queue priority through auctions or fee parameters, with fees paid in HYPE and destroyed; approximately 180,000 HYPE have been destroyed so far, internalizing the negative externalities originally directed towards physical infrastructure at the protocol level.
Yan used Ethereum's evolution of priority fees into protocol-level destruction as an example, illustrating that such fees can improve market clearing efficiency; he emphasized that true Alpha should not be suppressed by the technological advantages of microwave towers or transoceanic fiber optics, enabling traders to participate in fairer competition with lower infrastructure investments.
Hyperliquid's documentation indicates that read priority auctions can reduce latency by about 25 milliseconds, while write priority can shorten end-to-end latency by approximately 45 milliseconds per basis point; this design reduces reliance on extreme co-location and dedicated lines, shifting the focus of competition from hardware arms to strategy itself.
Priority fees reprice the zero-sum latency investments in traditional finance into protocol revenue and token destruction, redirecting funds from physical infrastructure to on-chain mechanisms; benefiting traders with lower entry barriers and the protocol itself, while pressuring traditional market makers and high-frequency participants reliant on proprietary low-latency facilities.
In an interview, Yan stated that there is no distinction between DeFi and traditional finance, only finance itself, and that priority fees are a way to make market clearing more efficient.
Source: Public Information
ABAB AI Insight
Yan builds Hyperliquid from a high-frequency trading background, rejecting paid market makers and emphasizing a transparent order book; the priority fee mechanism continues his judgment that "technological advantages should not overshadow true Alpha," transforming traditional latency arms into fees that can be captured by the protocol.
In terms of capital flow, priority fees are paid in HYPE and destroyed, internalizing investments that would have gone to microwave towers, fiber optics, and co-location facilities; the motivation is to reduce negative externalities, allowing more traders to compete at lower fixed costs while creating ongoing destruction pressure and revenue sources for the protocol.
Similar cases include Ethereum EIP-1559 converting priority fees into destruction, and traditional exchanges charging for co-location and dedicated lines; currently, there is a shift in perpetual contract platforms moving high-frequency execution rights from physical infrastructure to on-chain auction pricing.
Essentially, this is a restructuring of pricing power and the industry chain: transforming the zero-sum or even negative-sum speed arms race from private hardware competition to protocol-level tradable priorities, so that latency advantages are no longer solely determined by capital investment, but are redistributed through fee payments and destruction, changing the flow of value from infrastructure providers to the protocol itself.
ABAB News · Law of Cognition
- Once the zero-sum arms race is priced by the protocol, it transforms from negative externalities into captureable revenue.
- The boundary of hardware advantages is determined by who can pay for priority, not by who lays the cables first.
- Turning speed from infrastructure monopoly into auctionable rights is a reconstruction of market structure.