HYPE Token Drops as Leveraged Trade Sparks $4 Million Loss for Hyperliquid

Decentralized exchange Hyperliquid said on Wednesday that a user was able to profit on a highly leveraged Ethereum trade before it was liquidated.

A user with a wallet beginning in “0xf3f4” was able to make $1.8 million in profit before the position was forcibly closed, the DEX said in a post on X, formerly known as Twitter.

Hyperliquid emphasized that the $285 million Ethereum trade was not related to a “protocol exploit or hack.”

But the user’s bet, which relied on 50x leverage to supercharge their position, still resulted in a $4 million in loss for a community-owned vault dubbed the Hyperliquidity Provider (HLP).

Users are able to pool funds into the community-owned vault, potentially earning a return as the HLP executes trading strategies and accrues platform fees. However, as the HLP moved to liquidate 0xf3f4’s position, the vault was stuck holding a toxic position.

0xf3f4’s gains may have evaporated as the user tried to exit their trade, but Hyperliquid said that 0xf3f4 was able to avoid this by instead withdrawing collateral. That increased the price at which the user’s position would be liquidated until Hyperliquid was ultimately forced to step in.

Since May 2023, the HLP has profited $60 million, according to the DEX’s website. Wednesday’s liquidation erased the vault’s gains since Feb. 16, making this its worst day on record.

Hyperliquid’s native HYPE token meanwhile fell as much as 10% on Wednesday to $12.90, according to CoinGecko data, as the DEX pushed forward with new changes. The token has since recovered slightly, trading at $13.41 at the time of writing.

Hyperliquid said that it would lower the maximum amount of leverage that users can access on the DEX to 40x and 25x for Bitcoin and Ethereum, respectively. It will also increase maintenance margin requirements for positions that are teetering on the brink of liquidation.

When a trader takes on margin, they are borrowing funds to control a larger position than they could otherwise. Under maintenance requirements, which can vary across exchanges, a trader can be asked to deposit additional funds to keep the position open.

“This will provide a better buffer for backstop liquidations of larger positions,” Hyperliquid said.

Per Hyperliquid’s leaderboard, “0xf3f4” has made $1.8 million over the past day, but it also has an all-time profit of $4 million since its first Hyperliquid transaction on Monday.

Wednesday’s liquidation was not the first time Hyperliquid faced scrutiny stemming from user behavior. In December, HYPE plunged after a crypto wallet associated with a North Korean hacking group lost nearly $500,000 on Hyperliquid.

While Hyperliquid and its community pushed back, some experts thought at the time that the loss could have been intentional and allowed bad actors to snoop for vulnerabilities.

Edited by Stacy Elliott.