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Whale's Liquidation Triggers $4M Loss on Hyperliquid, ETH Prices Fall

Coin WorldSunday, Mar 16, 2025 4:43 am ET
2min read

On March 16th, a significant movement was observed in the Bitcoin (BTC) and Ethereum (ETH) markets as a prominent whale liquidated a portion of its short holdings. The whale, known for its high-risk trading strategies, successfully sold 387.02 BTC and withdrew 6 million USDC from the Hyperliquid exchange. This withdrawal brings the total amount withdrawn from Hyperliquid to 12 million USDC, comprising 10.6 million USDC as collateral and an additional 1.4 million USDC from the partial liquidation process. The current unrealized profit from these transactions stands at 1.83 million USD. The remaining trading position holds a valuation of 11.275 million USD, with specific details including a 20x short on BTC comprising 125.62 BTC, entered at $94,371.3 with a liquidation threshold of $105,730, and a 20x short on ETH totaling 365 ETH, initiated at $2,658 with a liquidation price set at $9,375.4.

On March 13, 2025, the Hyperliquid platform, a decentralized perpetual contract trading platform known for its high leverage trading capabilities, witnessed a significant event. A whale, identified by the on-chain address "0xf3f4," executed a high-risk trading strategy that resulted in a liquidation event, causing a loss of approximately $4 million in the HLP Vault. The whale deposited about 15.23 million USDC and opened a long position of 160,000 ETH, with a total value of around $307 million, leveraged between 13.5 times and 19.2 times. This position initially showed an unrealized profit of $8 million, but as ETH prices fell, the position triggered liquidation. Hyperliquid's automatic liquidation system took over, and the HLP Vault was forced to take over at a high price, resulting in a loss of $4 million.

The whale's strategy, described as "liquidation arbitrage," involved reducing margin by extracting floating profits, inducing liquidation, and transferring risks to the HLP Vault. This operation allowed the whale to exit a $300 million position at a lower cost, making a profit of about $1.86 million while the HLP Vault incurred a loss of $4 million. The incident triggered a net outflow of $166 million, and the price of HYPE tokens fell from $14 to $12.84, reflecting the market's shaken trust in the platform. ETH prices were also affected, falling to around $1,915.

This event sparked a discussion about the differences in capabilities between decentralized exchanges (DEX) and centralized exchanges (CEX) in high-leverage trading. Some argue that this incident highlights the vulnerabilities of DEXs in managing high-leverage trades, while others view it as a "liquidity game" within the rules. CEXs can adjust leverage limits based on position size through centralized risk management, whereas DEXs lack similar controls due to their decentralized nature. This incident underscores the challenges DEXs face in maintaining decentralization while preventing abuse.

In response to the incident, Hyperliquid has taken several measures to mitigate risks. The platform has reduced the maximum leverage for BTC to 40 times and for ETH to 25 times. Additionally, Hyperliquid plans to introduce a new margin design to ensure that liquidated positions are loss-making for traders, making manipulation uneconomical. The platform also emphasizes that with the addition of market makers, platform liquidity will increase, and the cost of price manipulation will rise significantly.

The community's views on the incident are divided. Some believe that centralized controls are necessary to detect and limit malicious behavior, while others argue that such measures violate the principles of decentralized finance. There are also suggestions to implement features that limit the usability of the platform in exchange for security, such as making unrealized profit and loss (PNL) non-extractable. However, this would impact capital arbitrage strategies and user experience.

Hyperliquid's response reflects its commitment to decentralization while reducing the risk of manipulation through technical innovations. The platform's margin system update aims to ensure that any liquidated position is either a loss relative to the entry price or at least a loss of 18.3% relative to the last margin transfer. As market makers continue to scale on Hyperliquid, the mark price issue will resolve itself, making it increasingly expensive to manipulate prices. This incident serves as a valuable lesson for the DeFi ecosystem, highlighting the potential risks of high-leverage transactions and the importance of platform governance.

Comments

Post
Lucas
03/16

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DisabledScientist
03/16
@Lucas Ok bro
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Pin-Last
03/16
Hyperliquid's moves are solid. Decentralized but safer. Let's see if they really shake off manipulators. 🤔
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MirthandMystery
03/16
Risk management is key. High leverage can be deadly if trends turn against you. Don't get rekt, folks.
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istockusername
03/16
@MirthandMystery 💸
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JC-YNWA
03/16
ETH fall linked to whale's strategy more than HLP loss.
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Urselff
03/16
DEX vs CEX debate heating up. Decentralized but risky. Centralized offers control but at what cost to freedom? 🤷
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Just_Fox_5450
03/16
$HYPE token price dip 🤔 reflects trust issues temporarily.
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mrkitanakahn
03/16
@Just_Fox_5450 Trust takes time to rebuild. True?
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Solidplum101
03/16
@Just_Fox_5450 Agreed, just a dip.
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Mylessandstone69
03/16
$4M loss for HLP Vault is hefty. Hope Hyperliquid recovers strong. DEXs can't afford many more mishaps like this.
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SuperNewk
03/16
Hyperliquid's new margin design aims to make manipulation costly. Market makers could be the game-changers here.
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MysteryMan526
03/16
@SuperNewk Market makers might help, but can Hyperliquid really trust them?
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SelectHuckleberrys
03/16
Hyperliquid's moves: risk reduction without control loss.
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2strange4things
03/16
@SelectHuckleberrys Agree, Hyperliquid's moves seem to balance risk and decentralization.
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Monkiyness
03/16
Manipulation costs rising on Hyperliquid sounds good. But will it be enough to regain user trust? Only time tells.
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meowmeowmrcow
03/16
@Monkiyness Trust takes time to build, but Hyperliquid's moves might help.
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moneymonster420
03/16
Hyperliquid's moves are solid. Decentralized but safer. Let's see if they really make manipulation costly. Market makers could be the game-changer.
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Really_Schruted_It
03/16
DEX vs. CEX: leverage limits make a difference.
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comoestas969696
03/16
Whale's strategy was sneaky. Liquidation arbitrage? More like liquidation art. They turned risk into profit while HLP Vault dipped.
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tempestlight
03/16
@comoestas969696 Whale's move? More like whale dance. They swam in, splashed HLP, and swam out with bags full of ETH. 🐳🚀
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FirmMarket4692
03/16
DEXs need to balance decentralization with safety. It's a delicate dance between freedom and protection from abuse.
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shrinkshooter
03/16
I'm holding ETH long-term. Not diving back in until the dust settles on this Hyperliquid drama.
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Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.
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