Decentralized Derivatives Trading Platform Hyperliquid’s Native Token HYPE Drops 8.5% Following Whale Liquidation Event
Hyperliquid, a decentralized derivatives trading platform, saw its native token HYPE drop 8.5% earlier on Wednesday, following a whale liquidation event that seemingly led to a loss of $4 million in the Hyperliquidity Provider (HLP) vault. Some community members speculated that there might have been manipulation involved, but Hyperliquid has stated that there was no vulnerability or hacker attack. The Hyperliquidity Provider is a core component of the Hyperliquid protocol. This vault is owned by the community and is responsible for running market-making and liquidation strategies, allowing users to deposit USDC stablecoins and share profits or incur losses based on their positions. This mechanism enables regular users to participate in trading strategies that are traditionally exclusive to institutional market makers, earning profits from trading fees, funding rates, and liquidations. Deposits are locked for four days, and the performance of the vault is trackable on-chain.
Some community members and analysts believe that an individual or entity may have manipulated the HLP to extract value, resulting in the vault’s loss and affecting the token price. This user may have triggered an automatic liquidation event, extracting funds from the HLP vault. During this process, HLP, as the counterparty, bore the loss, which ultimately amounted to $4 million, or 1% of the vault’s total locked value of $451 million.
Blockchain analytics platform Lookonchain pointed out that a Hyperliquid whale had deposited 15.23 million USDC to open a long position in Ether (ETH), reaching 160,234 ETH (valued at approximately $306.85 million). According to Lookonchain, the trader was subsequently liquidated but successfully withdrew 17.09 million USDC, making a profit of $1.86 million.
Hyperliquid later responded, stating that the event was not caused by a protocol bug or hacker attack, but rather due to the liquidation engine’s inability to handle such a large position. The Hyperliquid team wrote on the social media platform X:
Hyperliquid further stated that the maximum leverage for BTC and ETH will be updated to 40x and 25x respectively, in order to increase the maintenance margin requirements for larger positions, which will provide a better buffer for emergency liquidations of larger positions.
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