Consider: there's another former Watcher on Hermitcraft. Neither Grian or Pearl know about this. In fact, the former Watcher doesn't even know himself that he is one.
Hypno was born a Watcher. He was punished with total exile for breaking their laws in to them inexcusable ways. He was turned into a player and his memory was totally wiped. The Watchers dropped him on Hermitcraft as a sick joke at Xisuma's expense. They expected Xisuma to kill him when he found out. That was the plan all along.
Xisuma figured out that Hypno was a former Watcher pretty quickly. Something about him gave it away to the voidwalker. A little artifact in his code left behind on purpose. But instead of killing him he made sure nobody would ever find out. The Watchers, expecting that Hypno would soon perma die in another way, looked away.
Xisuma never told anyone, especially not Hypno. For all intents and purposes he is just a normal player. Not a single bit of his code is abnormal these days. He just can't remember a time before he woke up at worldspawn on Hermitcraft.
(Though in his dreams he sometimes remembers having more wings and eyes than humanly possible. And sometimes when he's been awake for too long he starts feeling like he's too corporeal, somehow.)