Hyperliquid order book depth shrinks 85%: Why are the small market makers that prop up half of HIP-4 finding it increasingly difficult?

Hyperliquid's median dollar depth within 5 basis points of the midprice has collapsed roughly 85% over the past 18 months, with the 5 bp depth index falling to about 13 from a baseline of 100 and the token-count index dropping to 28, according to full order-book data from 0d Labs covering 63–80 markets. Even after adjusting for price declines, Hyperliquid's 5 bp depth relative to Binance fell 57.5% at the median across matched altcoin markets, and buying $10,000 now costs a median 5.21 bp on Hyperliquid versus 2.95 bp on Binance. The erosion is concentrated at the touch: across the top 20 levels per side, median dollar depth sits at 61 and token depth at 127, meaning liquidity has migrated away from where traders actually fill. The article attributes the squeeze on small market makers to large firms' rebate advantages and L1 congestion quota mechanics rather than single-firm dominance, since the top account family's share of quoted volume fell to 14.6% from 25.2% year over year. Spreads began widening sharply around October 30, and the trend matters because thin near-touch depth threatens the long-tail liquidity that underpins Hyperliquid's moat and the HIP-4 prediction market; watch whether the recent spread divergence from Binance and OKX persists or reverses.