The Battle of Contract Algorithms between CEX and DEX: A Comparative Analysis of Hyperliquid, Binance, and OKX

In March 2025, the JELLYJELLY contract caused a market stir on a decentralized trading platform. Within just a few hours, the contract price surged by 429%, nearing a large-scale liquidation. If the liquidation occurs, short positions will be forced into the on-chain liquidity vault, resulting in massive floating losses. Meanwhile, a large centralized exchange unusually launched perpetual contract trading for JELLYJELLY "overnight."

On the eve of the crisis breaking out, validators of the decentralized platform urgently voted to intervene, forcing the delisting, closing, and freezing of trades, raising doubts about "decentralized" exchanges.

This event has not only become the focal point of heated discussions in the crypto community, but it has also exposed a core issue: what determines the price on decentralized trading platforms? Who ultimately bears the risk? Is the Algorithm really neutral?

This article will take the JELLYJELLY event as a starting point to analyze the algorithmic differences in the core mechanisms of perpetual contracts—index price, mark price, and funding rate—among three major platforms, and delve into the financial philosophy and risk transmission mechanisms behind them. We will explore how different algorithms shape trading styles, serve different types of traders, and determine the survival capacity of traders in times of turmoil.

This is not only a technical dissection of a contract but also a philosophical battle of market order design.

Overview of Perpetual Contract Trading

Perpetual contract trading consists of three core elements:

1. Index Price: Tracks changes in the spot market price and serves as the "theoretical anchor".

2. Marking Price: The decisive price used to calculate unrealized profits and losses, liquidation, and other key events.

3. Funding Rate: The economic mechanism connecting the spot and contract worlds, guiding contract prices to revert to the spot.

The mechanism that controls the marked price determines the power of life and death in contract trading. The core of a decentralized platform lies in how to ensure that the marked price is not manipulated and can be verified.

A decentralized platform has optimized the algorithm of large centralized exchanges, allowing prices to quickly return to market value in extreme market conditions and when trading is manipulated within the platform. The platform has taken multiple measures to avoid the outlier ( spike ).

Comparison of Algorithms Among Three Major Platforms

Index Price Mechanism

The index price of a certain decentralized platform is referred to as the oracle price, which is completely independent of its own market and constructed by validator nodes. It uses a weighted median method to counter extreme price fluctuations, with an update frequency of once every 3 seconds. This mechanism is more resistant to manipulation but has slower updates, helping to smooth out price fluctuations.

Mark Price Mechanism

The mark price algorithm of a large centralized exchange is based on two main principles: "price smoothness" and "market depth reflection". The formula is based on the median of three types of prices: the mid-price of the best bid/ask in the contract market, the transaction price, and the impact price. This design allows the mark price to change smoothly and resist spikes, making it suitable for large capital stable layouts and institutional arbitrage strategies.

Another centralized exchange adopts a more "aggressive" approach, using only the mid-price of the best bid and best ask in the order book as the source for the marking price. This Algorithm is extremely sensitive to small trades and can cause significant fluctuations, making it suitable for high-frequency traders, pinning game players, and short-term operations.

The marked price structure of decentralized platforms integrates the above two methods. It is controlled by multiple nodes and combines three price sources: the exponential moving average of the difference between the oracle price and the contract price; the median of the platform's own bid, ask, and last transaction price; and the perpetual price weighted median from multiple centralized exchanges. This mechanism creates a certain degree of "Algorithm democracy," enhancing resistance to manipulation.

Funding Rate Algorithm

The funding rate of a certain large centralized exchange relies on a longer settlement period (, usually 8 hours ), calculated in conjunction with order book depth and lending rates. This design provides institutional investors and medium to long-term traders with smoother and more predictable funding costs.

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

Decentralized platforms find a balance between the two: based on a relatively smooth Algorithm, coupled with high-frequency funding rate settlements and off-market pricing, supplemented by high funding fees in extreme cases, allowing on-market prices to quickly revert to market value under extreme conditions.

Trading Strategies and Financial Philosophy Adapted for Different Platforms

A large centralized exchange: Design of rational institutionalists

The overall design leans towards "institutionalization and moderation", with the core concept being "making the market predictable". This is highly compatible with the quantitative finance school and the efficient market hypothesis.

Mechanism embodiment:

• Smooth mechanism for marking price
• Fine modeling of funding rates
• Perfect risk buffer mechanism

Market behavior feedback: Attract institutional investors and medium to long-term traders seeking stable returns and controllable risks.

Another centralized exchange: the design of trading instinct.

The strategy design approaches "fast, fierce, and accurate", and the philosophy is "the market is a reflection of human nature." This aligns with the logic of behavioral finance.

Mechanism embodiment:

• High sensitivity of the mark price
• High volatility of funding rates
• Fast settlement mechanism

Market behavior feedback: attracting high-frequency traders, "pinning party" and short-term traders.

Decentralized platform: On-chain structuralist design

Attempting to create a new financial paradigm: decentralized governance + programmable pricing mechanism. Its philosophy is: the Algorithm does not predict the market, but establishes order.

Mechanism embodiment:

• Validator Consensus Price
• On-chain liquidity vault support
• High-frequency funding rate and extreme upper limit
• On-chain transparency

Market behavior feedback: Attract traders seeking to rebuild trust systems through verifiable code and distributed governance.

Conclusion

Different trading platforms attempt to establish trust in an invisible market through their own algorithm designs. Whether pursuing stability, embracing volatility, or relying on on-chain contracts, each solution reflects specific value judgments.

In the future financial world, algorithms will continue to expand their territory. However, it must be recognized that every logic written into code casts a shadow of value judgment behind it. Ultimately, what traders pursue is not just price, but an illusion of order.

Let us always maintain a sense of awe towards the market and recognize that individuals ultimately must take responsibility for their own values. In this market full of uncertainty, it is crucial to remain clear-headed and rational.