The Contract Algorithm Battle between CEX and DEX: The Competition of Hyperliquid, Binance, and OKX

In March 2025, the JELLYJELLY contract caused a market stir on a certain trading platform. The contract price surged by 429% in a short period, nearing a large-scale liquidation trigger. If liquidation occurs, short positions will be pushed into the on-chain liquidity vault, resulting in massive floating losses. Meanwhile, another trading platform quickly launched perpetual contract trading for JELLYJELLY.

At the brink of a crisis, validators of the trading platform urgently voted to intervene, forcibly delisting, closing positions, and freezing trades. This event raised questions in the crypto community about "decentralized" exchanges and exposed a core issue: on decentralized trading platforms, who determines the price? Who ultimately bears the risk? Is the Algorithm really neutral?

This article will use the JELLYJELLY event as a starting point to analyze the algorithmic differences in the core mechanisms of perpetual contracts across three major platforms—index price, mark price, and funding rate. We will delve into the financial philosophies and risk transmission mechanisms behind them. We will see how different algorithms shape trading styles, serve different types of operators, and determine traders' fates during market storms.

This is not only an analysis of contract technology, but also a philosophical battle of market order design.

Overview of Perpetual Contract Trading

Perpetual contract trading consists mainly of three parts:

1. Index Price: Tracks the price changes in the spot market and serves as a "theoretical anchor".
2. Mark Price: The decisive price used to calculate unrealized profits and losses, liquidation, and other key events.
3. Funding Rate: An economic mechanism that connects the spot and contract markets, guiding the contract price to revert to the spot.

It is especially important to note that the party controlling the mark price actually holds the power of life and death over the contract. Therefore, the core of a decentralized trading platform lies in ensuring that the mark price is not manipulated and can be verified.

Algorithm Comparison Analysis

Index Price/Oracle Price

The index price of a certain decentralized platform is called the Oracle price, constructed independently by validator nodes. It uses a weighted median method to resist extreme price fluctuations, making it more resistant to manipulation, but the update frequency is slower (once every 3 seconds). This design aims to eliminate outliers and volatility, resulting in a smoother price.

Mark Price Mechanism

The marking price algorithm of a certain centralized platform is based on the two principles of "price smoothness" and "market depth reflection." It combines the bid/ask midpoint of the contract market, transaction prices, and impact prices, reflecting the true liquidity cost by simulating the impact of large market orders on the order book.

Another centralized platform adopts a more aggressive approach, using only the mid-price of the bid-ask spread as the source of the mark price. This Algorithm is extremely sensitive to small trades and can easily cause severe fluctuations due to large orders consuming the order book.

The mark price structure of a certain decentralized platform combines the above two methods and introduces multiple price sources: the exponential moving average of the difference between the Oracle price and the contract price, the median of the platform's own best bid/ask and last transaction price, as well as the weighted median of perpetual mid prices from multiple exchanges.

Funding Rate Algorithm

The funding rate is a key economic lever connecting the spot and contract markets. Different platforms reflect various technical paths and trading philosophies in their funding rate algorithm design.

A certain decentralized platform has introduced a premium index into its calculations and uses the Oracle price instead of the index price to better reflect actual market conditions. To compensate for the slow price regression speed, the platform has also adopted three unique settings: a very high funding rate cap, funding fee calculations based on the Oracle price rather than the marked price, and a more frequent funding fee collection frequency.

The funding rate of a certain centralized platform relies on a longer settlement period, simulating the impact on the bid and ask prices of large market orders in conjunction with the depth of the order book, while also considering a fixed borrowing interest rate. This design aims to provide institutional investors and medium to long-term traders with smoother and more predictable funding costs.

The funding rate algorithm of another centralized platform is relatively simple, calculated based on the deviation of the bid-ask price on the order book, with a similarly long settlement period. This design leads to significant fluctuations in the funding rate, making it suitable for high-frequency and aggressive short-term strategies.

Algorithm Determines Fate: Trading Strategies and Financial Philosophy on Different Platforms

The pricing algorithms, clearing logic, and funding mechanisms of various platforms reflect different financial philosophies and values.

The design of a certain centralized platform leans towards "institutionalization and moderation", with the core concept being "making the market predictable". This is highly in line with the quantitative finance school and the efficient market hypothesis, assuming that the market is generally rational and can be tamed through statistical modeling.

The strategy design of another centralized platform approaches "fast, fierce, and precise". Its philosophy is "the market is a reflection of human nature". This aligns with the logic of behavioral finance, accepting that the market is irrational and traders are emotional.

A certain decentralized platform aims to create a brand new financial paradigm: decentralized governance + programmable pricing mechanism. Its philosophy is: algorithms do not predict the market, but rather establish order. This platform is more like a financial protocol running on the blockchain, where prices are agreed upon through consensus by validator nodes, position liquidation is backed by a liquidity treasury, and all transaction data is publicly recorded on-chain.

Conclusion

Price is the appearance of a transaction, and the Algorithm is the order of a transaction. Different systems attempt to establish market trust in different ways: some choose to anchor with "stability", some choose to anchor with "volatility", and others attempt to write everything into on-chain contracts.

However, when the market is in extreme situations, the Algorithm may need to retreat, and human factors are still essential. Ultimately, prices are not determined by the Algorithm, but by whom we choose to believe to decide.

In the future financial world, algorithms will continue to expand their influence. But we must recognize that every logic coded contains value judgments. Whether it is the pursuit of freedom, fairness, or transparency, people must take responsibility for their own values.

Let us always maintain a sense of awe towards the market.