Hyperliquid hit by $4 million loss after whale's high-risk trading incident

Hyperliquid reported a $4 million loss in its Liquidity Provider (HLP) vaults within 24 hours.

According to a March 12 post on X, the loss followed a major liquidation event involving a high-risk trader.

Following the news, Hyperliquid’s HYPE token responded negatively to the event, dropping over 3% in the past 24 hours. The token reached a low of $12.80 before rebounding slightly to $13.90 as of press time.

Hyperliquid is the largest decentralized perpetual exchange by trading volume, controlling more than 64% of the market.

What happened?

The protocol stated that a trader using the wallet address 0xf3f4 held a large Ethereum (ETH) long position.

On-chain analyst EmberCN reported that the whale opened a 50x leveraged long position of 175,000 ETH, valued at approximately $340 million.

However, the trader later closed some of the position, withdrawing $17.09 million USDC. This move reduced the margin on the remaining 160,000 ETH long position, leading to large-scale liquidations.

Hyperliquid confirmed the development but noted that the trader still managed to close with a profit of around $1.8 million. However, the event had a negative impact on HLP, which saw a $4 million loss during the reporting period.

Hyperliquid emphasized that HLP is not a risk-free strategy, though the vault maintains a historical net profit of approximately $60 million.

HLP acts as a community-driven liquidity vault within Hyperliquid’s ecosystem. It supports market-making and liquidation strategies, allowing users to stake USDC in exchange for a share of the platform’s profits or losses.

This model brings institutional-level trading strategies to retail users, generating revenue through trading fees, funding rates, and liquidations. As of press time, the vaults have recorded a negative annualized return of 34%.

Following this event, Hyperliquid stated:

“Max leverage will be updated for BTC and ETH to 40x and 25x respectively to increase maintenance margin requirements for larger positions. This will provide a better buffer for backstop liquidations of larger positions.”