Whale Liquidation Sparks Losses and Market Speculation
Hyperliquid’s HYPE token suffered an 8.5% drop, falling from $14.04 to $12.84, following a whale liquidation event that resulted in a $4 million loss for its Hyperliquidity Provider (HLP) vault. While the price has since recovered slightly, the event has raised concerns about the stability of Hyperliquid’s liquidation engine.
The HLP vault plays a crucial role in the Hyperliquid decentralized perpetual futures exchange, operating as a community-owned liquidity pool. Users deposit USDC to participate in market-making and liquidation strategies, earning profits or losses proportional to their stakes.
Was There Market Manipulation?
Some community members speculated that a trader may have manipulated the vault, triggering an auto-liquidation event. Blockchain analytics firm Lookonchain noted that a whale deposited 15.23 million USDC to build a massive 160,234 ETH long position, worth approximately $306.85 million.
After being liquidated, the trader withdrew 17.09 million USDC, making a profit of $1.86 million, while the HLP vault absorbed a $4 million loss—approximately 1% of its $451 million total value locked (TVL).
Hyperliquid’s Response and Risk Mitigation Steps
Hyperliquid denied claims of an exploit or hack, explaining that the liquidation engine struggled to handle the position’s size. To prevent future incidents, the protocol announced that it would adjust max leverage for BTC and ETH to 40x and 25x, respectively.
This move aims to increase margin requirements for large positions, reducing the risk of forced liquidations impacting the vault. While HLP has still generated $60 million in lifetime profits, this event highlights the risks associated with leveraged trading on decentralized exchanges.
