Bybit CEO Ben Zhou has weighed in on a recent $4 million loss at decentralized exchange (DEX) Hyperliquid, highlighting the challenges both decentralized and centralized exchanges face with high-leverage trades.
On March 12, a savvy crypto investor turned heads by pocketing $1.8 million, leaving Hyperliquid to absorb a hefty $4 million loss. The investor used a jaw-dropping 50x leverage to morph $10 million into a staggering $270 million Ether (ETH) position. But here’s the kicker: they couldn’t exit without crashing their own position. Instead, they cleverly withdrew collateral, sidestepping a self-inflicted price drop, and leaving Hyperliquid holding the bag.
Smart contract auditor Three Sigma chimed in, describing the trade as a “brutal game of liquidity mechanics,” not a bug or exploit. Hyperliquid also confirmed it wasn’t a protocol hack.
In response, Hyperliquid has dialed down its leverage offerings—Bitcoin (BTC) leverage is now capped at 40x and ETH at 25x. This move aims to bolster the maintenance margin requirements for larger positions, providing a safety net for backstop liquidations.
Bybit’s CEO, Ben Zhou, took to X (formerly Twitter) to share insights, noting that centralized exchanges (CEXs) face similar predicaments. Zhou explained that their liquidation engine steps in when whale positions get liquidated. While reducing leverage might seem like a quick fix, Zhou cautioned it could deter business, as users often crave higher leverage.
Zhou proposed a dynamic risk limit mechanism that scales down leverage as positions grow. On a centralized platform, he noted, whales would see their leverage shrink to 1.5x with substantial open positions. However, he acknowledged that users could still exploit multiple accounts to achieve similar results.
The Bybit CEO further warned that even with reduced leverage, abuse is possible unless DEXs implement robust risk management measures akin to those of CEXs. This includes surveillance and monitoring to identify potential market manipulators.
In the aftermath of the ETH whale’s liquidation and the resulting losses for the HLP Vault, Hyperliquid witnessed a significant asset outflow. According to Dune Analytics data, the protocol saw a net outflow of $166 million on the same day as the trade.
As the crypto world spins with tales of high-stakes trades and strategic maneuvers, exchanges continue to adapt and evolve. The dance between risk and reward remains ever-present, with each player striving to find their rhythm in this dynamic market.
