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

In March 2025, the JELLYJELLY contract triggered a market disturbance on a decentralized trading platform. Within just a few hours, the contract price skyrocketed by 429%, about to trigger a massive liquidation. If liquidation occurs, short positions will be dumped into the on-chain liquidity vault, causing floating losses in the tens of millions of dollars. As the on-chain positions were precarious, a centralized exchange unusually launched JELLYJELLY's perpetual contract trading "overnight."

Just before the crisis was about to break out, the validators of the decentralized platform urgently voted to intervene, forcibly delisting, closing positions, and freezing transactions, which raised doubts in the crypto community about "decentralized" exchanges.

This event has not only become a hot topic of discussion but has also exposed a core issue: what determines the price on decentralized trading platforms? Who ultimately bears the risk? Is the Algorithm truly neutral?

This article will take this event as a starting point to analyze the algorithmic differences in the core mechanisms of perpetual contracts among the three major platforms - index price, mark price, and funding rate, and to delve into the financial philosophies and risk transmission mechanisms behind them. We will see how different algorithms shape trading styles, serve different types of traders, and how they determine the fate of traders in a storm.

This is not only a technical analysis of contracts but also a philosophical contest of market order design.

1. Overview of Perpetual Contract Trading

Perpetual contract trading consists of three main elements:

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

2. Mark Price: The decisive price used to calculate unrealized profit and loss, liquidation, and other key events.

3. Funding Rate: The economic mechanism that connects the spot and futures worlds, guiding the futures price to revert to the spot.

Whoever controls the mark price holds the power of life and death over the contract. The core of a decentralized trading platform lies in: how to ensure that the mark price is not manipulated and can be verified.

II. Comparison of Algorithms of Three Major Platforms

A. Index Price/Oracle Price

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 combat extreme price fluctuations, making it more resistant to manipulation, but the update frequency is slower, every 3 seconds. This design aims to eliminate outliers and volatility, making the price smoother.

( B. Marking Price Mechanism

The marking price Algorithm of a certain centralized exchange is based on the two principles of "price smoothness" and "market depth reflection." Its formula combines the midpoint price of the buy/sell orders in the contract market, transaction price, and impact price. By simulating the impact of large market orders on the order book, it reflects the true liquidity cost and avoids being misled by the "pseudo price" of a shallow market.

Another centralized exchange adopts a more "aggressive" approach, using only the bid-ask midpoint as the source of the mark price. This Algorithm is extremely sensitive to small trades and can cause severe fluctuations, but the price returns to the spot more quickly.

The marked price structure of the decentralized platform integrates the above two methods. It is controlled by multiple nodes, taking into account the oracle price, the platform's own trading data, and the perpetual mid-price weighted median from multiple centralized exchanges. Validators are also required to perform consistency checks on the input sources, enhancing resistance to manipulation.

![The Contract Algorithm Battle between CEX and DEX: Hyperliquid, Binance, OKX])https://img-cdn.gateio.im/webp-social/moments-a015d8c69e96bbf6c5a303d32a9b4cd5.webp###

( C. Funding Rate Algorithm

The decentralized platform has introduced a premium index in the funding rate Algorithm and uses oracle prices to replace index prices to better reflect market conditions. To compensate for the slow price recovery, the platform has set up three distinctive mechanisms:

1. In extreme cases, the funding rate can reach up to 4% per hour.
2. The funding fee is based on the oracle price rather than the marked price.
3. Charge one-eighth of the 8-hour funding rate every hour.

The funding rate of a certain centralized exchange relies on a relatively long settlement period ) usually 8 hours ###, combined with order book depth and lending rates, to provide institutional investors with smooth and predictable funding costs.

The algorithm of another centralized exchange is relatively simple, based on the deviation calculation of the bid-ask prices, resulting in severe fluctuations in funding rates, suitable for high-frequency and short-term strategies.

3. The Financial Philosophy Behind the Algorithm

( A centralized exchange: The design of rational actors

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

) Another centralized exchange: The design of trading instinct.

The platform's strategy design is close to "fast, fierce, and precise", and its philosophy is "the market is a reflection of human nature". This is consistent with the logic of behavioral finance, accepting that the market is irrational, traders are emotional, and truly smart people are those who seek game space in the midst of intense volatility.

Decentralized platform: The design of on-chain structuralists

The platform aims to create a new financial paradigm: decentralized governance + programmable pricing mechanism. Its philosophy is: algorithms do not predict the market, but set order. It is more like a financial protocol running on the blockchain, where prices are determined by consensus among validator nodes, positions are cleared by a liquidity vault, and all transaction data is publicly recorded on-chain.

Conclusion

The price is the manifestation of the transaction, while the algorithm is the order of the transaction. The design of different platforms essentially answers the same question: how should we trust an invisible market?

Although algorithms expand their territory in the financial world, behind every logic written in code lies a projection of value judgments. Whether it is the pursuit of freedom, fairness, or transparency, what people ultimately chase is the illusion of order.

In the future financial world, let us always hold a sense of awe for the market and take responsibility for our values.

![The Battle of Contract Algorithms between CEX and DEX: Hyperliquid, Binance, OKX]###https://img-cdn.gateio.im/webp-social/moments-39b1db1095902fed27bf4fe8fba73462.webp###