Bybit CEO Weighs in on Hyperliquid’s ‘Brutal’ $4M Loss - Calls for Smarter Leverage Control
High-risk Ether trade exposes the dangers of excessive leverage as Hyperliquid tightens trading limits
A staggering $4 million loss suffered by decentralized exchange (DEX) Hyperliquid has sparked a debate on risk management, with Bybit CEO Ben Zhou weighing in on how centralized exchanges (CEXs) face similar liquidity challenges.
The $4M Loss: What Happened?
On March 12, a crypto trader executed a high-stakes move on Hyperliquid, walking away with a $1.8 million profit while forcing the platform’s liquidity pool (HLP) to absorb a $4 million loss. The trader leveraged a $10 million position into a massive $270 million Ether (ETH) long trade, using 50x leverage.
The problem? The sheer size of the position made it nearly impossible to exit without crashing the market. Instead of triggering their own downfall, the trader strategically withdrew collateral, offloading assets in a way that left Hyperliquid to foot the bill.
Despite the chaos, blockchain security firm Three Sigma confirmed that this was not an exploit or hack, calling it a “brutal game of liquidity mechanics.” Hyperliquid also assured users that no vulnerabilities were exploited - just a high-risk trade that played out unfavorably for the platform.
Hyperliquid Slashes Leverage for BTC and ETH
In response, Hyperliquid swiftly adjusted its risk management strategy. The platform lowered Bitcoin (BTC) leverage from 50x to 40x and ETH leverage from 50x to 25x, increasing margin requirements to better handle large liquidations.
“This will provide a better buffer for backstop liquidations of larger positions,” Hyperliquid stated.
Bybit CEO: Lower Leverage Hurts Business, But What’s the Alternative?
Bybit CEO Ben Zhou weighed in on the situation in an X post, noting that centralized exchanges (CEXs) face the same liquidity risks when large traders go bust. He explained that Bybit’s liquidation engine manages whale positions when they get liquidated.
While lowering leverage is an obvious solution, Zhou acknowledged that it comes at a cost.
“I see that HP has already lowered their overall leverage; that’s one way to do it and probably the most effective one. However, this will hurt business as users would want higher leverage,” he wrote.
Instead of an across-the-board leverage cut, Zhou suggested a more dynamic risk management approach, where leverage is automatically reduced as positions grow. In a centralized exchange scenario, a whale holding massive positions would see their leverage drop to around 1.5x. However, he admitted that traders could still bypass such restrictions by using multiple accounts.
Zhou further warned that even with the reduced leverage limits, market manipulation risks remain unless DEXs implement better surveillance and monitoring - similar to what CEXs already do.
Hyperliquid Faces $166M Net Outflow
The aftermath of the ETH whale trade triggered a significant investor reaction. On March 12, Hyperliquid saw a net outflow of $166 million in assets under management, according to Dune Analytics. This mass withdrawal underscores the potential impact of high-leverage trading on platform stability and investor confidence.
As the crypto industry grapples with balancing user demand for high leverage and the need for financial stability, the Hyperliquid incident serves as a stark reminder of the risks involved. Whether more exchanges will follow suit in tightening their leverage rules remains to be seen.
