Hyperliquid Loses $4M as Ethereum Whale Deliberately Pulls Collateral

The unpredictability of the crypto market hit the famous decentralized perpetual exchange Hyperliquid, as a single Ethereum whale created a $4 million loss for the platform. The news itself is shocking, as the community speculated an insider. Still, some speculated that the crypto market mafias are taking over, claiming that the competing centralized exchanges (CEX) may have a hand in this. What’s happening? Let’s discuss this.

How did Hyperliquid lose $4M?

The incident began with an Ethereum whale opening a long position on ETH, established to be worth $285M, backed by only $14M in collateral. In the trading market, these long or short positions have a liquidation level. If the market moves against the price position, they get closed forcefully on this point.

Interestingly, the whale made smart decisions and strategically withdrew collateral over time, lowering the margin and forcing HLP to liquidate positions. On-chain data reveals that the earlier liquidation level was $1,800, but the collateral pulling pushed it to $1,930.

When the Ethereum price surged and hit this mark, the position got liquidated, transferring all the bad debt directly to Hyperliquid’s liquidity pool (HLP). Interestingly, the Ethereum whale had this calculated, and they hedged by shorting ETH on another exchange, making profits. As a result, the platform had to bear all this loss while the Ethereum whale walked with a $1.2M profit.

Hyperliquid Insider Attack or Bigger Conspiracy at Play?

The incident has sparked speculation, where some initially attributed insider or North Korean hackers to this activity. However, Hyperliquid team’s announcement has ruled out that possibility, as they said:

To be clear: There was no protocol exploit or hack.”

The platform explained that the whale had unrealized profit, whose withdrawal resulted in the lowered margin and the liquidation. Interestingly, despite the $4M loss, the team revealed that HPL’s all-time remains at $60M before warning that it is not a risk-free strategy.

As the hack or insider speculation is out of the picture, the focus has shifted to centralized exchanges. Some experts allegedly claimed this mega whale liquidation could be a CEX attack to undermine Hyperliquid as it’s their competitor.

One blames Binance and its former CEO Changpeng Zhao, claiming they acquired intel with Chinese logs. More importantly, they allegedly connected it to the CZ vs SBF mishap, arguing that the community may see a similar CEX Vs. DEX fight. Another added that this smells of 2021, which led to the Sam Bankman and FTX’s downfall.

Experts believe HPL’s struggles could impact its image and investors’ confidence. More importantly, decentralized exchange’s downfall could benefit the centralized crypto platform. However, this is just a speculation and doesn’t have any proof or basis.

What This Means for HYPE Price and the Crypto Market?

This event has exposed a potential vulnerability in Hyperliquid’s risk management system. Investors’ concern, as this reveals that people can withdraw their collateral even in the active trade.

This event has also significantly affected the HYPE price, as it crashed 9% after this news. Although it has recovered somewhat from the dip of $12.75, currently trading at $12.2, the risk of a crash further persists as the investors’ sentiments turn fearful.

It also impacts the platform’s images and experts’ concerns that this CEX Vs. DEX battle will get nasty, affecting the entire market, especially by breaking investors’ trust in decentralized platforms.