- Hyperliquid’s HLP Vault suffered a $4 million loss after absorbing a liquidated high-leverage Ethereum position.
- Eight large wallets withdrew $14.35 million USDC from Hyperliquid following the liquidation event.
Hyperliquid’s HLP Vault, designed to absorb liquidated positions, has recorded over $4 million in losses following the forced liquidation of a highly leveraged Ethereum [ETH] long position.
A whale trader identified as 0xf3f4 engaged in high-stakes leveraged trading on Hyperliquid, a decentralized perpetual exchange.
The trader initially deposited $15.23 million USDC and built a massive 175,000 ETH long position, valued at approximately $340 million.
Source: Arkham
This position carried an average entry price of $1,884.4 per ETH, with a liquidation price of $1,839, making it highly susceptible to price fluctuations.
At one point, the whale had accumulated an unrealized profit exceeding $8 million.
Capitalizing on this temporary gain, they partially closed the position by selling 15,000 ETH and withdrew $17.09 million USDC back to their wallet.
Source: Hyperliquid
One move too many—the domino effect begins
This move, however, had significant consequences. By reducing the margin available in the account, the liquidation price for the remaining 160,000 ETH long position increased, making the position more fragile in volatile market conditions.
As Ethereum’s price moved downward, the liquidation threshold was breached. Hyperliquid’s automated liquidation system transferred the liquidated position to its HLP Vault, an on-chain liquidity pool designed to absorb and unwind failed trades.
The vault takes the hit
The vault took over the ETH position at $1,915 per ETH and began gradually selling it off.
However, as the market price of ETH dropped below $1,896.7, the vault started accumulating significant floating losses.
By the time Hyperliquid addressed the incident publicly, the HLP Vault had lost over $4 million within 24 hours, with losses still increasing as the vault continued unwinding the large ETH position.
Source: Hyperliquid
Blockchain analysis from Lookonchain provided further insights into the whale’s trading patterns and the subsequent market reactions.
Multiple high-value transactions recorded the whale’s activity, showing a rapid flow of funds between Hyperliquid and external liquidity pools.
The wallet’s overall portfolio composition showed a heavy concentration in Ethereum-based assets (AETH/ETH) and gold-backed tokens (PAXG). This indicated a trading strategy that likely involved leveraged ETH positions paired with hedge assets like gold.
At the same time, market depth analysis from EmberCN confirmed that Hyperliquid’s liquidation system was struggling to process the whale’s position without affecting ETH’s price trajectory.
This resulted in additional selling pressure, contributing to the vault’s escalating losses.
The sudden liquidation of such a large position and its direct impact on Hyperliquid’s liquidity system sparked widespread debate.
Source: X
Analysts questioned whether this was simply a high-risk trade gone wrong or a deliberate attempt to exploit Hyperliquid’s liquidation mechanics.
Hyperliquid’s HLP Vault operates as a community-backed risk management fund, absorbing liquidated positions from the platform’s automated liquidation system.
This model, while effective in most cases, can become vulnerable when individual traders build oversized, high-leverage positions that the vault may struggle to absorb efficiently.
A rigged game? was the liquidation intentional?
On-chain analysts pointed out that the whale may have intentionally triggered their own liquidation to shift risk onto the HLP Vault, rather than suffering losses directly.
By withdrawing a significant portion of margin before liquidation, the trader effectively raised their liquidation price, ensuring that their position was forcefully closed at a higher price point.
This meant that Hyperliquid’s liquidation engine had to buy the liquidated assets at an inflated price, leaving the HLP Vault with a costly position that could only be unwound at a loss.
If the whale simultaneously held short positions on other platforms, they could have directly profited from the forced market-wide selling that followed their own liquidation.
This tactic, often referred to as liquidation arbitrage, has been observed in previous DeFi liquidations where large traders manipulate liquidation systems to extract profits at the expense of liquidity providers.
Following the forced liquidation of a whale’s high-leverage Ethereum long position, Lookonchain reported that eight large wallets withdrew a total of $14.35 million USDC from Hyperliquid.
Source: X
Hyperliquid responds
In an official statement posted on X (formerly Twitter), Hyperliquid denied any security breach or exploit, instead framing the event as a consequence of high-leverage trading and margin mismanagement.
Source: X
The company emphasized that the whale had withdrawn margin, increasing their liquidation risk, and that the HLP Vault was simply fulfilling its role in absorbing the position.
Hyperliquid also announced immediate changes to leverage limits, aiming to prevent similar events in the future.
The exchange reduced the maximum leverage for Bitcoin [BTC] trades to 40x and cut Ethereum leverage to 25x. They implemented these adjustments to increase margin requirements for large positions, providing greater protection against systemic liquidations.
Is this the end of high-stakes liquidation manipulation?
The Hyperliquid liquidation event has ignited a broader conversation within the crypto community. Was this just a case of high-risk trading gone wrong, or was it a calculated attempt to exploit the system?
This is not the first time a major trader on Hyperliquid has raised concerns about potential market manipulation.
A whale trader made a highly profitable 50x leveraged trade on Bitcoin and Ethereum just weeks before the liquidation event. This trade coincided with former U.S. President Donald Trump’s announcement about their inclusion in the U.S. Crypto Strategic Reserve.
The trader made $6.8 million within 24 hours, sparking insider trading suspicions.
The similarities between the Trump announcement trade and the recent liquidation event suggest that Hyperliquid is becoming a hotspot for whales strategically timing leveraged positions to maximize gains.
Whether these trades are purely coincidental or indicative of deeper manipulation remains an open question.
While Hyperliquid’s liquidation model has worked in most cases, oversized, high-leverage positions expose the platform to liquidity shocks.
With Hyperliquid tightening its leverage policies, the question remains, will these changes be enough to stop future liquidation arbitrage?
