The CEO of Bybit, Ben Zhou, expressed his thoughts on a recent incident where decentralized exchange Hyperliquid experienced a $4 million loss due to a high-leverage trade by an Ether whale, highlighting that centralized exchanges also encounter similar difficulties.
On March 12, a crypto trader exited with $1.8 million, leaving the Hyperliquidity Pool (HLP) to absorb a loss of $4 million following a leveraged trade on the Hyperliquid decentralized platform.
The trader utilized approximately 50x leverage to transform a $10 million investment into a long position of $270 million in Ether (ETH). However, the trader found themselves unable to exit without adversely affecting their own position. Instead, they chose to withdraw collateral, transferring assets without causing a significant price drop, thereby forcing Hyperliquid to shoulder the losses.
Three Sigma, a smart contract auditing firm, described the trade as a “brutal game of liquidity mechanics” rather than a bug or exploit. Hyperliquid also clarified that this situation did not involve any hacking or protocol breaches.
Source: Hyperliquid
Hyperliquid Reduces Leverage for BTC and ETH
In light of the incident, Hyperliquid has decided to decrease its leverage on Bitcoin (BTC) to 40x and for Ethereum (ETH) to 25x. This adjustment aims to enhance maintenance margin requirements for larger trades within the DEX, with Hyperliquid stating that such measures would better protect against liquidations of sizeable positions.
In a post on social media, Zhou remarked on the trade, indicating that centralized exchanges are not exempt from these issues. He noted that their liquidation systems manage whale positions when they face liquidation. While lowering leverage might be a feasible response, Zhou acknowledged that it could negatively impact business, as users typically favor greater leverage.
“I observe that HP has already reduced their overall leverage; that’s one approach and likely the most effective one, yet it may lead to a detrimental impact on business as users seek higher leverage,”
Zhou proposed a more adaptive risk limit mechanism that would lower leverage as the positions increase. He mentioned that on centralized platforms, a whale might reduce their leverage to 1.5x with substantial open positions. Nevertheless, he noted that users could potentially circumvent these measures through multiple accounts to achieve similar ends.
The Bybit CEO further stated that even with the lowered leverage, it could still be “exploited” unless the decentralized exchange adopts risk management strategies, including monitoring to detect “market manipulators” comparable to those utilized by centralized exchanges.
Related: Crypto trader suffers a $215K loss due to sandwich attack during stablecoin swap
Hyperliquid Experiences $166M Net Outflow
In the wake of the liquidation event involving the ETH whale and the subsequent losses incurred by the HLP Vault, the protocol witnessed a significant outflow of its managed assets. According to data from Dune Analytics, Hyperliquid recorded a net outflow of $166 million on March 12, coinciding with the trade.
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