Bybit CEO reacts to Hyperliquid ETH liquidation, questions DEXs guardrails

The CEO of Bybit, Ben Zhou, shares his reflections on the massive liquidation of the Hyperliquid ETH whale which led the platform to lose $ 4 million. It highlights the problems that accompany the lever effect on CEX and Dex.

In a recent jobZhou explained how the whale was able to remove a huge liquidation with a long position of 175,000 ethn (Ethn) (worth around $ 340 million) with a 50x lever effect without triggering a market accident. He said that the whale had been able to make a “fast and clean” outing while letting the hyperliquid take the fall.

“Why not just try to reach the liquidation price by removing p & l floating [profit and loss] and increase the liquidation price upwards. Once it is triggered, let HP take the whole position at the liquidation price, so it is no longer your problem. HP would undergo losses, “said Zhou.

The CEO of Bybit also developed that the two centralized And decentralized Exchanges tend to let their liquidation mechanism absorb long positions when the whales are liquidated. In the case of the ETH whale, the hyperliquid liquidation engine, the Vault HLP, took the position at around $ 1,915 per ETH and reduced the lever effect by half to amortize the fall.

“It is a way of doing it and probably the most effective, but it will harm activities because users would like a higher lever effect,” continued Zhou, referring to the loss hyperliquid of $ 4 million incurred.

In addition to reducing the leverage, he also suggested that platforms could deploy tools such as a dynamic risk limit mechanism. The mechanism automatically adjusts the lever effect according to the overall size of the positions. Therefore, if the position increases, the lever effect becomes smaller.

According to Zhou, in CEX, the whale’s position lever effect could drop to around 1.5x with large quantities. However, he also recognized the limits, namely that users can always get around it using several accounts. Since all exchanges do not use know your customer The requirements and it does not cost much to open several accounts.

Zhou believes that if Dex want to avoid this problem, they should deploy more risk management mechanisms. These include market monitoring tools designed to detect attackers and market manipulators on the chain and interest limitations.

“Even with this current abandoned lever effect (BTC at 40x, ETH at 25x) on the hyperliquid, it could always be abused, unless they start to introduce the risk management of CEX or to lower their even lower lever effect,” said Zhou.

What happened to the hyperliquidal safe?

On March 12, a whale opened a long position on the hyperliquid with a 50x lever effect for 175,000 ETH worth $ 340 million. After the fence at 15,000 ETH, the whale transferred approximately 17.09 million USDC (USDC) on the sidelines at their address.

Once the margin has been removed, the position of 160,000 other long-standing ETH has triggered a liquidation of the platform mechanism. Due to the large liquidation size, the HLP hyperliquid supported the position at $ 1,915 and worked to unravel it. As a result, Hyperliquid has lost more than $ 4 million.

In an official declaration on his X accountHyperliquid said that the loss of $ 4 million was not due to a protocol feat or a cyber attack. Instead, the user withdrew when he still had unpaid profits and losses, which lowered his margin and led to liquidation.

Despite the liquidation, the whale managed to secure a net profit of approximately $ 1.8 million. While the safe has lost more than $ 4 million because it absorbed the great position. Consequently, the protocol decided to reduce the BTC (BTC) and a maximum lever effect at ETH at 40x and 25x respectively in order to “increase maintenance margin requirements for greater positions”.