Bybit CEO Ben Zhou has weighed in on a $4 million loss incurred by Hyperliquid, a decentralized exchange, following a high-leverage trade executed by an Ether whale. On March 12, a crypto investor profited $1.8 million while the Hyperliquidity Pool absorbed the loss. The trader had used approximately 50x leverage to transform $10 million into a $270 million Ether long position but was unable to exit without impacting their own position. Instead, they removed their collateral, leaving Hyperliquid to manage the financial void.
The event was explained by smart contract auditor Three Sigma as a stark demonstration of liquidity mechanics, not a technical glitch or exploit. Following this, Hyperliquid made changes by reducing Bitcoin leverage trading to 40x and Ethereum to 25x, aimed at increasing maintenance margin requirements to provide more security against significant position liquidations.
Commenting on the situation, Zhou pointed out that centralized exchanges face similar challenges. He suggested that while lowering leverage is effective, it could deter business as traders prefer higher leverage options. Zhou proposed a dynamic risk mechanism that adjusts leverage downwards as the size of a position increases. He acknowledged that even this approach could be circumvented through multiple accounts unless strict monitoring and surveillance are implemented to detect market manipulation.
The incident led to a massive $166 million net outflow from Hyperliquid on the same day as the liquidation event, according to Dune Analytics data.
