$4M Loss After High-Leverage Trade on Hyperliquid

Bybit CEO Ben Zhou discussed the $4 million loss experienced by decentralized exchange (DEX) Hyperliquid due to a high-leverage trade by an Ether whale, noting that centralized exchanges (CEX) face similar challenges.

On March 12, a crypto investor lost $4 million while making $1.8 million profit on Hyperliquidity Pool (HLP). The high-leverage trade took place on the Hyperliquid DEX.

The investor used 50x leverage to convert $10 million into a $270 million long position in Ether. However, they couldn’t exit the position and withdrew collateral, causing Hyperliquid to absorb the losses without triggering a price drop.

Smart contract audit firm Three Sigma described the trade as a “ruthless game of liquidity mechanics” and confirmed there was no bug or exploit. Hyperliquid also stated there was no protocol vulnerability or hack.

Following the incident, Hyperliquid reduced the Bitcoin leverage limit to 40x and Ethereum leverage limit to 25x. These changes increase collateral requirements for large positions on the DEX. Hyperliquid stated, “This will provide a better buffer to support the liquidation of large positions.”

Bybit CEO Zhou: Leverage Reduction Effective but Challenging for Business

In a post on X, Bybit CEO Zhou stated that centralized exchanges face the same challenges. He mentioned that liquidation engines are triggered when whale positions are liquidated. Reducing leverage might be an effective solution, but it could be detrimental to business as users demand higher leverage:

“I see that HP has already reduced leverage; this is a viable and likely the most effective path, but it could hurt business since users want higher leverage.”

Zhou Proposes Dynamic Risk Limits and Monitoring Measures for DEXs

Zhou proposed a dynamic risk limit mechanism that reduces the overall leverage amount as positions grow. He acknowledged that whale positions could be reduced to a 1.5x leverage ratio on centralized platforms, but users may still bypass this by using multiple accounts.

Zhou also emphasized that decentralized exchanges are still susceptible to “manipulation,” urging DEXs to implement monitoring and surveillance measures to detect “market manipulators” just like centralized exchanges.

After the Ether whale liquidation and the losses at HLP Vault, the protocol experienced a significant asset outflow. According to Dune Analytics, Hyperliquid faced a $166 million net outflow on the same day the transaction took place, March 12.

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