A cryptocurrency whale has recently made a massive $200 million leveraged bet on the Hybrid cryptocurrency exchange Hyperliquid, leading to a $4 million loss on the protocol’s Hyperliquid Provider (HLP) vault. That event, an analyst said, could be a necessary stress test.
Some have even suggested that the incident could benefit Hyperliquid’s native HYPE token in the long run. The protocol’s recent loss occurred after a trader, identified as 0xf3f4, given the initials of their wallet address, leveraged around $4.3 million to create a 113,000 ETH position on the protocol.
As the trader started withdrawing funds, they eroded their margin for the position, leading to a $1.8 million profit and a $4 million loss for the protocol. Prominent DeFi analyst Aylo argued that such stress tests are vital for protocol refinement.
In this case, 1% hit on HLP was a very reasonable price to pay for the lesson learned and the apparent vulnerabilities discovered. Hyperliquid is not perfect at this stage in its life cycle. But I do expect the underlying product to continually improve, because the team continuously ship and are very quick to react, the analyst said.
Aylo also pointed to the potential undervaluation of the HYPE token, citing its revenue stream and market share in the perpetual futures trading space despite its inherent risk. According to DefiLlama data, HYPE’s price-to-earnings (P/E) ratio stands at 7.06, which Aylo believes indicates potential upside if Hyperliquid sustains its growth trajectory.
While the price of Hyperliquid’s HYPE token initially plunged, it soon surged back up to over 15% in the last 24-hour period, according to CoinMarketCap data.
Bybit CEO Comments on Hyperliquid Incident
Reacting to the incident, the CEO of the second-largest cryptocurrency exchange by trading volume, e Bybit, Ben Zhou, noted that high leverage on centralized and decentralized exchanges is risky.
Zhou highlighted the protocol’s liquidation engine’s role in mitigating the impact by reducing leverage but stressed the need for robust risk management tools.
In response to the liquidation, Hyperliquid has implemented stricter leverage limits, reducing maximum leverage for Bitcoin and Ethereum to 40x and 25x, respectively. The company underscored its track record of rapid response to challenges, noting HLP’s two-year operational history with minimal issues.
Even with this current dropped leverage (btc to 40x, eth to 25x) on Hyperliquid, it could still be abused, unless they start to introduce CEX level risk management or drop their leverage even lower, Zhou argued.
