Hyperliquid, a decentralized perpetual exchange, recently experienced a significant loss of $4 million in its Liquidity Provider (HLP) vaults within a 24-hour period. The loss was a result of a major liquidation event involving a high-risk trader, which caused panic in the market.
The incident occurred when a trader, identified as 0xf3f4, held a large Ethereum (ETH) long position. This trader opened a 50x leveraged long position of 175,000 ETH, valued at approximately $340 million. However, after closing some of the position and withdrawing $17.09 million USDC, the margin on the remaining 160,000 ETH long position was reduced, leading to large-scale liquidations.
Although the trader managed to close with a profit of around $1.8 million, the impact on Hyperliquid’s HLP vaults was significant, resulting in a $4 million loss. Despite this setback, Hyperliquid emphasized that HLP is not a risk-free strategy and that the vault maintains a historical net profit of approximately $60 million.
HLP serves as a community-driven liquidity vault within Hyperliquid’s ecosystem, supporting market-making and liquidation strategies. Users can stake USDC in exchange for a share of the platform’s profits or losses, bringing institutional-level trading strategies to retail users. However, the vaults have recorded a negative annualized return of 34% as of press time.
In response to the event, Hyperliquid announced that the maximum leverage for BTC and ETH would be updated to 40x and 25x respectively. This adjustment aims to increase maintenance margin requirements for larger positions, providing a better buffer for backstop liquidations of larger positions.
Despite the recent loss, Hyperliquid remains the largest decentralized perpetual exchange by trading volume, controlling more than 64% of the market. The HYPE token, however, responded negatively to the event, dropping over 3% in the past 24 hours and reaching a low of $12.80 before rebounding slightly to $13.90.
In conclusion, while the loss in the HLP vaults was a setback for Hyperliquid, the platform continues to innovate and improve its strategies to mitigate risks and protect its users in the future.