Bybit CEO on ‘brutal’ $4M Hyperliquid loss: Lower leverage as positions grow
Bybit CEO Ben Zhou shared his insights on a recent $4 million loss suffered by decentralized exchange (DEX) Hyperliquid due to an Ether whale’s high-leverage trade. The incident highlights the challenges faced by decentralized exchanges in maintaining liquidity and managing risk.
Smart contract auditor Three Sigma described the trade as a “brutal game of liquidity mechanics,” not an exploit or bug. However, Hyperliquid has clarified that this incident was not a protocol exploit or hack. To mitigate similar incidents in the future, Hyperliquid has lowered its Bitcoin (BTC) leverage to 40x and its ETH leverage allowance to 25x, increasing maintenance margin requirements for larger positions on the DEX.
"This will provide a better buffer for backstop liquidations of larger positions," Hyperliquid stated. The move aims to reduce the risk associated with large trades on the platform.
In an X post, Bybit CEO Ben Zhou shared his thoughts on the incident, suggesting that centralized exchanges (CEXs) face similar challenges. According to Zhou, their liquidation engine takes over whale positions when they get liquidated. While lowering leverage may be an effective solution, Zhou cautioned that it could also have negative consequences for businesses.
"This could be bad for business," Zhou said. He proposed a more dynamic risk limit mechanism that reduces overall leverage as the position grows. In centralized platforms, such whales would typically be limited to a leverage of 1.5x with large open positions.
Despite this measure, Zhou recognized that users can still exploit the system unless the DEX implements robust risk management measures, such as surveillance and monitoring, to detect market manipulators on par with CEXs.
Following the liquidation event and the losses suffered by HLP Vault, Hyperliquid experienced a massive outflow of assets under management. According to Dune Analytics data, the protocol had a net outflow of $166 million on March 12, the same day as the trade.