After the recent ETH liquidation event that resulted in a $4 million loss for Hyperliquid’s Hyperliquidity Provider vault, the platform has announced plans to increase the maximum leverage allowed for Bitcoin and Ethereum trading to prevent similar incidents in the future.
During the liquidation event, a whale had taken a 50X leveraged long position on Ethereum (ETH) totaling 160,234 ETH. Despite facing liquidation as the market moved against them, the user managed to withdraw 17.09 million USD Coin (USDC) and exit with a profit before the liquidation was executed on the Hyperliquid platform.
The Hyperliquidity Provider vault, which serves as a backstop for the platform, absorbed the $4 million loss from this liquidation. This loss accounted for approximately 1% of the vault’s Total Value Locked (TVL) of $451 million. The HLP vault operates as a shared pool of funds where users deposit USDC to earn profits or incur losses based on Hyperliquid’s trading activities.
Speculation arose suggesting that the user may have manipulated the HLP to their advantage by withdrawing equity in a manner that triggered an auto-liquidation event, with the HLP assuming the opposing position on the trade. However, Hyperliquid has since addressed the incident on X, stating that there was no exploit or hack involved. The platform clarified that their liquidation engine was unable to handle the size of the user’s position.
In response to the incident, Hyperliquid has announced plans to increase the maximum leverage for Bitcoin and Ethereum trading. The new leverage limits will be set at 40X for Bitcoin and 25X for Ethereum, aimed at increasing maintenance margin requirements for larger positions.
Hyperliquid’s reassurance to users via X and Twitter has helped alleviate concerns regarding the incident. The platform remains committed to enhancing risk management measures to safeguard user funds and prevent similar incidents in the future. By increasing leverage limits and implementing stricter margin requirements, Hyperliquid aims to maintain the security and stability of its trading platform.