On March 12, 2025, Hyperliquid, a decentralized exchange (DEX), faced a massive $4 million loss after a trader used 50x leverage to create a $270 million Ether (ETH) long position.
On March 12, 2025, Hyperliquid, a decentralized exchange (DEX), faced a massive $4 million loss after a trader used 50x leverage to create a $270 million Ether (ETH) long position from a $10 million investment. The trader withdrew collateral from the position instead of closing it, leaving Hyperliquid to absorb the loss when the position couldn’t be unwound without causing a price drop. This trade, which forced Hyperliquid to cover the loss, was described by smart contract auditor Three Sigma as a "brutal game of liquidity mechanics," confirming it wasn’t due to a bug or hack but rather an issue of liquidity management within the platform.
In the wake of the incident, Bybit CEO Ben Zhou shared his perspective on the risks associated with high leverage in both centralized and decentralized exchanges. He noted that when large positions are liquidated, exchanges often bear the brunt of the financial burden. While acknowledging that lowering leverage as positions grow might help reduce risks, Zhou pointed out that this could harm business by discouraging users who seek higher leverage for larger trades. To address this, Zhou proposed a dynamic risk limit system, which would automatically reduce leverage as a position increases in size. However, he noted that users could still bypass these limits by opening multiple accounts.
Following the incident, Hyperliquid took immediate steps to prevent similar occurrences by lowering the leverage for both Bitcoin (BTC) and Ethereum (ETH) to 40x and 25x, respectively. The new restrictions require traders to hold more margin for larger positions, thus reducing the ability to take on high-risk trades. Despite these changes, Zhou cautioned that, even with lower leverage, the platform could still face manipulation if it does not implement advanced monitoring and surveillance systems. He stressed that decentralized exchanges need risk management measures similar to those used by centralized exchanges to identify market manipulation and prevent abuse of the system.
The aftermath of the trade saw significant investor pullback from Hyperliquid. According to Dune Analytics, the platform suffered a net outflow of $166 million on March 12, the same day as the liquidation event. Additionally, Hyperliquid’s native token, HYPE, experienced a 10.53% drop, while trading volume fell by 21.66%. These reactions highlight the market’s concern over the risks of high leverage in crypto trading.
The incident at Hyperliquid serves as a reminder of the risks high-leverage trading poses to both platforms and traders, especially in decentralized markets where liquidity can be more challenging to manage.
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