Paradex In-Depth Report: With TGE imminent, what makes it capable of challenging Hyperliquid?

Author: ScalingX

1. The Current State of Perp DEX: Hidden Worries After the Boom

In February 2026, after experiencing explosive growth, the decentralized perpetual contract exchange (Perp DEX) sector entered a new phase where product development and internal competition coexisted.

According to data from defillama, Perp DEX reached a peak daily trading volume of $7.8 billion. Hyperliquid leads by a significant margin, with an annual trading volume ($2.6 trillion) surpassing Coinbase ($1.4 trillion). Meanwhile, Lighter and Paradex rapidly expanded their market share with zero-fee trading; Aster, backed by Bnb Chain, benefits from both its ecosystem and exchange backing; EdgeX rose rapidly thanks to aggressive incentives; while established leaders dYdX and GMX have struggled to gain traction in this new round of growth.

1.1 Market Landscape: From a Single Dominant Player to a Multi-Party Competition

• Hyperliquid dominates the market: As of February 16, 2026, Hyperliquid had processed a total notional trading volume of $3.5 billion (out of a total market of $19 billion, representing 18%), and open interest of approximately $5 billion (out of a total market of $13 billion, representing 38%).

• Hyperliquid's performance has declined from its peak of approximately 85% at the end of 2023 to the current 20-40%. Competition is fierce.

Niche differentiation among emerging forces:

• Lighter: Circle USDC Interest Sharing (Subsidy Model) Restructuring Cost Structure

• Aster: Seizing Retail Traffic Through Social Media Spread and Aggressive Incentives

• EdgeX: Focusing on vertical blockchain derivatives and upholding the tech geek community.

• Paradex: Zero-fee transactions via ZK privacy + RPI mechanism

1.2 Three Major Structural Pain Points Beneath the Surface of Prosperity

Despite impressive trading volume figures, the market performance in 2026 revealed three deep-seated contradictions as the Perp DEX sector evolved:

1. Issues of fee exploitation and cost shifting:

Leading protocols capture huge revenues through high fees: Hyperliquid's cumulative fee revenue in the first half of February reached $38.99 million (approximately $2.44 million per day). These costs are ultimately borne by traders, especially retail users who face a taker fee of 0.02%-0.05%, which, combined with staking, makes the actual costs extremely high.

2. Transparency trap and strategic hunting risks:

Hyperliquid's fully transparent architecture makes large investors' positions, liquidation thresholds, and trading strategies completely public. This "transparent battlefield" environment hinders large-scale entry of institutional funds.

3. Liquidity deterioration caused by flow toxicity:

Whether driven by real-world incentives or TGE expectations, the rampant volume manipulation by users has brought significant changes to the entire Perp DEX sector. The prevalence of "high trading volume with low settlement" phenomena appears to be incentivized volume manipulation rather than genuine demand. The increasing proportion of high-frequency arbitrage and volume manipulation for points generation makes it difficult for market makers to effectively distinguish between high-frequency algorithmic traffic and retail investor traffic, leading to adverse selection problems.

2. Introduction to Paradex

In this multipolar competition, Paradex represents a paradigm shift from "scale wars" to "institutional design"—it does not participate in low-dimensional competition based on subsidies or transparency, but instead restructures the market through cryptography and product mechanisms.

Paradex is the first application chain (AppChain) built on Starknet, focusing on providing an institutional-grade decentralized derivatives trading experience. The project is incubated by Paradigm. Paradigm possesses extensive market-making resources and trading infrastructure, and its core positioning is to provide retail and institutional users with an experience comparable to centralized exchanges, while maintaining the transparency and self-custody advantages of decentralized protocols.

Key milestones and data:

• Trading volume growth: During Season 2 (2025-2026), the average daily trading volume increased from $68 million to approximately $2.1 billion.

• User growth: from 4,100 users to 73,710 (17x)

• TVL performance: peaked at $218 million (January 2026), currently at $176 million (19.3% outflow due to technical rollback and the end of Season 2).

• Product portfolio: Supports 100+ perpetual contract markets, expanding to spot, options, and RWA perpetual contracts.

3. Paradex's Breakthrough Strategy

In response to the challenges facing the Perp DEX industry, Paradex did not engage in traditional subsidies or scale competition. Instead, it focused on institutional innovation at the micro-structural level of the market. Its core strategy was to restructure the value distribution of order flows through mechanism design, providing a sustainable profit environment for market makers while protecting the interests of retail users. This approach is directly reflected in the RPI (Retail Price Improvement) mechanism, which isolates traffic types at the underlying level and optimizes the economic efficiency of the entire system.

3.1 Zero Fees: RPI Mechanism and Traffic Isolation

Paradex's zero-fee model isn't simply a subsidy; it's a sustainable business model achieved through its RPI (Retail Price Improvement) mechanism. This mechanism identifies and isolates toxic traffic through three layers of rigid rules:

1. Interface source isolation:

• Retail side: Orders submitted through the Web UI are classified as retail orders, enjoy 0% transaction fees, and can only be matched with the liquidity of the RPI order pool.

• Professional side: Orders submitted via API (usually algorithmic or high-frequency trading) are automatically marked as highly toxic and cannot access the RPI pool, and must pay the standard rate (maker 0.003%/taker 0.02%).

2. Forced speed delay:

• All order submissions are subject to a mandatory 500 millisecond delay, and order cancellations are subject to a 300 millisecond delay. This effectively prevents high-frequency strategies (typically <100ms).

3. Dynamic rate limiting:

• The system monitors order rate, with a threshold of 3 orders per second. Orders exceeding this limit are automatically downgraded to the "Pro" profile, incurring higher costs.

Business logic: By isolating retail orders, market makers are willing to offer tighter quotes (due to lower adverse selection risk), thereby improving retail prices. Simultaneously, the revenue from professional users cross-subsidizes the retail zero-fee rate.

Results: Retail users gain truly zero-cost trading, while the protocol generates revenue from professional users. According to the DC community, Paradex's funding fee rebate mechanism also contributes to the revenue, but details are not publicly available.

3.2 Privacy: ZK Architecture and Field-Level Hiding

Paradex's core differentiator is its privacy protection, achieving institution-grade confidentiality through end-to-end ZooKeeper encryption. Its technical architecture consists of three layers:

• Cloud layer: Order data is stored in Paradex Cloud and is only visible to authenticated users.

• L2 chain layer: Custom RPC configuration masks sensitive fields, which hide private data by default.

• Layer L1: Differences in encrypted state are verified via ZK, ensuring data is verifiable but not publicly disclosed.

The eight categories of fields that are specifically hidden are:

The Privacy Council, comprised of the Paradex Foundation, Paradex, and Karnot (a technology partner), holds the emergency decryption key. This key is used solely for user asset recovery in the event of protocol unavailability (e.g., mainnet failure), balancing privacy and security. The Council has no access to user data in its daily operations.

Advantages: Compared to transparent on-chain protocols (such as Hyperliquid and dYdX), Paradex's privacy model has attracted institutional users, such as hedge funds and high-frequency trading firms, who need to protect their strategy and position information. According to community discussions, traditional financial companies have already tested its privacy features.

4. The ecosystem on Paradex

The Paradex ecosystem currently comprises two core digital assets: XP points (an experience-based system) and MoneyBadgers NFTs. Additionally, the protocol plans to launch a native synthetic US dollar, XUSD, but it has not yet been officially released.

4.1 XP Points: The core credentials for obtaining $DIME airdrops

Current status and valuation:

• Season 2 has ended: It concluded on January 31, 2026, distributing approximately 450 million XP.

• Season 3 is underway: launched on February 1st, focusing on spot, RWA perpetual, and options trading.

• First Distribution: The first XP distribution for Season 3 will take place on February 18, 2026, rewarding those who participated in the event from February 1st to 17th.

XP Valuation Estimate (Based on $DIME FDV Forecast): According to a Whales Market analysis report, $DIME's fully diluted valuation (FDV) is projected to be between $260 million and $520 million. Combining this with the approximately 450 million XP distributed in Season 2 (representing the majority of the airdrop pool), the potential value per XP can be estimated as follows: Note: This is a theoretical calculation; the actual airdrop value depends on the final TGE price and the specific allocation plan.

View and Operation Portal

• Official Dashboard: app.paradex.trade/xp (Wallet connection required for login)

• How to view: After logging in, you can view your current points balance, historical points earned, and ranking on the "XP" page.

4.2 MoneyBadgers NFT: Ecosystem Identity and Rights Certificate

Market Performance and Price: The MoneyBadgers NFT was unboxed on February 5, 2026, with a total supply of 10,000 units.

Current Situation Analysis: The NFT market is in its early stages with limited liquidity. Although there have been transaction records (13 transactions/24 hours), a stable floor price has not yet been established, indicating that the market is still in the process of price discovery.

How to obtain and view

• Acquisition Requirements: Users who accumulate 25,000 XP during Season 2 will receive a BadgerBox.

• Access to the box: "Inventory" page in the Paradex App

• View your holdings: After logging in, you can view your owned MoneyBadgers NFTs in "Inventory".

4.3 Potential Asset: XUSD (Native Synthetic US Dollar)

Paradex has planned to launch a native synthetic US dollar, XUSD, positioned as a "non-freezing, interest-bearing digital dollar." However, as of February 16, 2026, the product has not yet been officially launched, and there is no public trading or pricing information.

5. Reasons for optimism

1. Addressing real pain points: Directly targeting institutional users' most sensitive privacy needs and market makers' profitability dilemmas, offering greater sustainability compared to external subsidies.

2. Forward-looking technical architecture: ZK privacy + application chain performance represent the direction of next-generation DeFi infrastructure.

3. Economic model innovation: The RPI mechanism achieves cross-subsidization through flow classification, reducing external dependence.

4. Unique Ecosystem Positioning: Starknet's first application chain, supported by the Paradigm liquidity network.

6. Short-selling risks

1. Technical complexity risks: ZK encryption and application chain architecture increase operational complexity, and the rollback event in January exposed stability challenges.

2. The liquidity cold start problem: It requires attracting both market makers (providing liquidity) and traders (generating trading volume) simultaneously, facing a chicken-and-egg dilemma, and is currently still in the early stages.

3. A challenging competitive environment: Seeking a differentiated growth path amidst competition from Hyperliquid (first-mover advantage) and Aster, Lighter, and others.

4. Implementation Risks: There is uncertainty regarding the delivery capability of the RWA product roadmap and the speed of institutional adoption.

summary

As the first application blockchain project in the Starknet ecosystem, Paradex has established a unique competitive position in the decentralized derivatives market thanks to its technological innovation (ZK privacy, sub-millisecond latency), institutional resources (Paradigm incubation, top market maker support), and community operation (XP system, MoneyBadgers culture).

Despite recent technical challenges and TVL losses, the team's rapid response and commitment to user compensation are commendable. With the approaching $DIME TGE and the launch of new Season 3 products, Paradex is poised to regain its growth momentum.

Key nodes to watch:

1. $DIME TGE: Expected in late February or early March 2026 (specific date to be announced by the official channels).

2. Season 3 first distribution: February 18 (distribution every Wednesday will become the norm)

3. Can TVL stop its decline and rebound?

4. New product launch progress (spot trading, options, RWA perpetual)

5. Community airdrop distribution status (After TGE, XP holders can receive 25% of the total $DIME airdrop).

Short-term participants should pay close attention to airdrop opportunities and product launch catalysts before and after TGE.

For long-term investors, Paradex represents the technological direction of the next generation of decentralized exchanges. Paradex's value lies not in immediately replacing giants, but in validating the feasibility of a new paradigm—solving the transparency trap through ZK privacy, mitigating adverse selection through the RPI mechanism, and exploring a sustainable third path for Perp DEX.