After the recent ETH liquidation event, which caused $4 million loss to Hyperliquid’s Hyperliquidity Provider vault, the platform said it will increase the maximum leverage allowed for Bitcoin and Ethereum trading to prevent similar incidents in the future.
In the said liquidation event, a whale had built a 50X leveraged long position on Ethereum (ETH) that reached 160,234 ETH. However, when the market moved against them, effectively causing liquidation, the user was still able to withdraw 17.09 million USD Coin (USDC), exiting in profit before the liquidation was executed on the Hyperliquid platform.
The HLP vault, which is designed to act as a backstop, absorbed the $4 million loss (about 1% of the vault’s TVL of $451 million) from this liquidation. Hyperliquidity Provider vault or HLP is like a shared pot of money where people deposit funds (in USDC) to earn profits (or incur losses)—proportional to their stake—resulting from Hyperliquid’s trading activities.
Speculation sparked that the user somehow manipulated the HLP to their advantage by withdrawing equity from the HLP vault in a way that triggered auto-liquidation event with the HLP taking the opposing position on the trade.
However, Hyperliquid recently addressed the incident on X, reassuring users there was no exploit or hack. The platform claimed that their liquidation engine simply couldn’t handle the size of the user’s position. The platform also said that they will increase max leverage for Bitcoin (BTC) and Ethereum to 40X and 25X respectively to increase maintenance margin requirements for larger positions.