The price of Hyperliquid's native token dropped 8.5% on Wednesday morning as a whale liquidation event appeared to leave Hyperliquid's HLP (Hyperliquidity Provider) vault with a $4 million loss.
HYPE fell from around $14.04 to $12.84 following the incident, according to The Block's Hyperliquid Price page, before recovering slightly.
HYPE/USD price chart. Image: The Block/TradingView.
The HLP is a core component of the Hyperliquid protocol, a decentralized perpetual futures exchange built on its own Layer 1 blockchain. HLP is a community-owned vault that runs market-making and liquidation strategies, allowing users to deposit USDC and share in the profits — or losses — proportional to their stake. It democratizes access to strategies typically reserved for institutional market makers, earning revenue from trading fees, funding payments and liquidations. Deposits are locked for four days, and the vault's performance is transparently tracked onchain.
Some community members and analysts suggested that an individual or entity may have manipulated the HLP to extract value, potentially causing losses to the vault and impacting the token price. The user might have withdrawn equity from the HLP vault in a way that triggered an auto-liquidation event, with the HLP taking the opposing side of the trade and absorbing a loss — to the tune of about $4 million, around 1% of the vault's $451 million total value locked.
Blockchain analytics platform Lookonchain noted that a Hyperliquid whale had deposited a total of 15.23 million USDC to build a long position in ether that reached 160,234 ETH ($306.85 million). The trader was subsequently liquidated but managed to withdraw 17.09 million USDC, making a profit of $1.86 million, according to Lookonchain.
Hyperliquid later responded to confirm that there had been no exploit or hack of the protocol, but that its liquidation engine simply could not handle the size of the position.
"This user had unrealized PNL, withdrew, which lowered their margin, and was liquidated. They ended with ~$1.8M in PNL. HLP lost ~$4M over the past 24h. HLP's all-time PNL remains at ~$60M. As a reminder, HLP is not a risk-free strategy," Hyperliquid posted on X. "Max leverage will be updated for BTC and ETH to 40x and 25x respectively to increase maintenance margin requirements for larger positions. This will provide a better buffer for backstop liquidations of larger positions."
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