Bybit CEO Ben Zhou has weighed in on the recent Hyperliquid ETH whale liquidation, which resulted in a $4 million loss for the decentralized exchange. Zhou highlighted the risks associated with high-leverage trading on both centralized (CEX) and decentralized (DEX) exchanges.
How the Whale Executed the Liquidation
In a recent post, Zhou explained how the whale was able to open a 175,000 ETH long position (worth approximately $340 million) with 50x leverage and exit the trade cleanly without causing a market-wide crash. The liquidation was absorbed by Hyperliquid’s liquidation mechanism (HLP Vault), which took over the position at $1,915 per ETH and reduced the leverage by half.
Zhou pointed out that the whale likely strategized their exit to avoid personal losses, instead letting Hyperliquid absorb the fallout:
“Why not just try to hit the liquidation price by withdrawing floating P&L [profit and loss] and push the liquidation price up. Once it’s triggered, let HP take the whole position at the liquidation price, so it’s not your problem anymore. HP would suffer some loss.” – Ben Zhou
Issues with Leverage on DEXs and CEXs
Zhou emphasized that both CEXs and DEXs typically rely on their liquidation mechanisms to absorb large liquidations. However, in this case, Hyperliquid lost $4 million due to the whale’s exit strategy. While reducing leverage requirements can help, Zhou warned that it could also impact business, as users prefer access to higher leverage trading options.
To mitigate such risks, Zhou suggested that DEXs implement additional safeguards, including:
- Dynamic risk limit mechanisms that adjust leverage based on position size
- Market surveillance tools to detect abusive trading behavior
- Open interest limitations to prevent overexposure in leveraged positions
Even with Hyperliquid’s new leverage limits (BTC now capped at 40x, ETH at 25x), Zhou cautioned that the issue could persist without stricter CEX-style risk management.
What Happened to Hyperliquid’s Vault?
On March 12, a whale opened a 50x leveraged long position for 175,000 ETH on Hyperliquid. After closing 15,000 ETH, they withdrew 17.09 million USDC in margin, significantly lowering their collateral levels.
With insufficient margin left, the remaining 160,000 ETH position triggered a liquidation event. Due to the large position size, Hyperliquid’s HLP Vault absorbed the liquidation at $1,915 per ETH, ultimately losing over $4 million.
Hyperliquid clarified in an official statement that the loss was not caused by an exploit or attack, but rather by a user who strategically withdrew their funds before the liquidation was triggered.
Despite Hyperliquid’s losses, the whale secured a net profit of $1.8 million. In response, Hyperliquid has now reduced the maximum leverage for Bitcoin and Ethereum trades to 40x and 25x, respectively, in an effort to increase margin requirements for larger positions.
The Hyperliquid incident underscores the risks of high-leverage trading on decentralized platforms. While Bybit CEO Ben Zhou has suggested stronger risk management mechanisms, DEXs must balance trading flexibility with investor protection. As platforms work to refine their liquidation processes, the debate over leverage limits in crypto trading is likely to continue.
