Bybits top executive, Ben Zhou, provided his opinion on the recent $4 million liquidation episode on Hyperliquid, emphasizing the difficulties that both centralized exchanges (CEX) and decentralized exchanges (DEX) encounter with leveraged trading.
Zhou clarified that CEXs and DEXs frequently depend on their liquidation systems to take in the long positions possessed by whales during liquidations. In this instance, Hyperliquid’s HLP vault assumed control of the Ethereum position at approximately $1915 and decreased the leverage by half to soften the blow. Toncoin (TON) Value Forecast for March 26th
He indicated that the whale was capable of establishing a massive long position of 175,000 ETH (valued at around $340 million) at 50x leverage and exiting “rapidly and neatly” without triggering considerable market disturbance, effectively transferring the deficits to Hyperliquid.
Zhou implied that platforms could contemplate dynamic risk limits in addition to reducing leverage. This mechanism would automatically modify leverage based on the overall position size, diminishing leverage as the position expands.
“Perhaps the most efficient resolution, but it damages the business because users will pursue higher leverage,” Zhou remarked, alluding to Hyperliquid’s $4 million loss.
According to Zhou, a comparable whale position on a CEX might have its leverage lessened to around 1.5x. However, he recognized that users could bypass this restriction by initiating multiple accounts.
Zhou also suggested an alternative: “Why not attempt to elevate the liquidation price by extracting floating PnL, and once liquidation is activated, let HP take over the entire position at the liquidation price, so it has nothing to do with you. HP will undergo some deficits.”
Because creating numerous accounts isn’t costly, and not every exchange mandates “Know Your Customer” procedures, it’s simple to understand how circumstances may spiral out of control.
According to Zhou, even with Hyperliquid’s existing leverage restrictions (25x for ETH and 40x for BTC), the platform is susceptible to exploitation unless they put in place risk management strategies comparable to those employed by centralized exchanges, or lower leverage even more. These tactics should incorporate market monitoring instruments to spot on-chain abusers and market manipulators, as well as open position caps. Zhou is of the opinion that DEXs will be required to put in place more risk management procedures if they want to steer clear of these problems.
## What Became of Hyperliquid’s Vault?
On March 12, a whale used 50x leverage to open a massive long position on Hyperliquid worth $340 million. The whale then took out about 17.09 million USDC, and after closing at 15,000 ETH, sent the margin back to their address.
Hyperliquid stated in an official statement on their X account that the $4 million loss was not the result of a cyberattack or protocol weakness. Instead, the user took out funds while still having unrealized profits, which resulted in liquidation and a reduction in their margin. Hyperliquid consequently dropped over $4 million. Hyperliquid HLP took over the position at $1,915 and worked to unwind it as a result of the liquidation’s magnitude.
The platform’s liquidation mechanism was activated when the margin was taken out and the remaining 160,000 ETH long position remained. The whale nonetheless managed to make a net profit of about $1.8 million despite the liquidation. The vault’s absorption of a sizable chunk of the position was the cause of the loss of more than $4 million. As a result, the protocol has chosen to lower the maximum leverage for BTC and ETH to 40x and 25x, respectively, in order to “raise the maintenance margin requirements for larger positions.”
