Hyperliquid's $4M Liquidation Loss Sparks Market Manipulation Concerns

Whale's $300M Ethereum Bet Ends in Forced Liquidation

Hyperliquid’s HLP Vault has recorded over $4 million in losses after absorbing the liquidation of a highly leveraged Ethereum position. A whale trader, identified by the wallet address 0xf3f4, placed a high-stakes bet on Ethereum, initially depositing $15.23 million USDC to build a massive 175,000 ETH long position worth approximately $340 million. 

The trader entered the position at an average price of $1,884.4 per ETH, with a liquidation threshold set at $1,839. At one point, the unrealized profit exceeded $8 million, prompting the trader to close a portion of the position, selling 15,000 ETH and withdrawing $17.09 million USDC. However, this move reduced available margin, increasing the liquidation risk of the remaining 160,000 ETH long position.

A downturn in Ethereum’s price ultimately triggered the liquidation, forcing Hyperliquid’s automated system to transfer the position to its HLP Vault. Designed as a risk management mechanism, the vault took over the position at $1,915 per ETH and attempted to unwind it gradually. As the market price fell below $1,896.7, the vault faced mounting floating losses. Within 24 hours, Hyperliquid confirmed that the vault had lost over $4 million, with the impact continuing to grow as the large ETH position was sold off at lower prices. 

Lookonchain’s blockchain analysis traced the whale’s trading activity, revealing rapid fund transfers between Hyperliquid and external liquidity pools. The whale’s portfolio was heavily concentrated in Ethereum-based assets and gold-backed tokens, indicating a leveraged trading strategy intertwined with hedging. 

EmberCN’s market depth analysis further confirmed that Hyperliquid’s liquidation system struggled to offload the whale’s position without disrupting Ethereum’s price trajectory, adding downward pressure that exacerbated the vault’s losses.

The liquidation event sparked widespread debate in the crypto community. Analysts questioned whether this was merely an instance of reckless leverage trading or a calculated attempt to manipulate Hyperliquid’s liquidation mechanics. 

Some on-chain investigators suggested that the whale deliberately triggered the liquidation to shift risk onto the HLP Vault. By withdrawing a substantial portion of margin, the trader raised the liquidation price, ensuring the forced sell-off happened at a higher level. This strategy positioned the vault to take on the liquidated assets at an inflated price, forcing it to absorb losses while the whale potentially profited elsewhere. 

If the trader held short positions on other platforms, they could have capitalized on the market-wide selling triggered by their own liquidation. This practice, known as liquidation arbitrage, has been observed in past DeFi market disruptions, where whales manipulate liquidation mechanisms to extract gains at the expense of liquidity providers.

Following the incident, Lookonchain reported that eight large wallets withdrew a combined $14.35 million USDC from Hyperliquid. The exchange responded publicly, denying any security breaches or external exploits. In an official statement on X (formerly Twitter), Hyperliquid attributed the event to excessive leverage and improper margin management by the whale trader. 

To mitigate future risks, the exchange swiftly reduced leverage limits, cutting maximum leverage for Bitcoin trades to 40x and Ethereum trades to 25x. These changes are intended to prevent systemic liquidations by increasing margin requirements for large positions.

The incident has fueled broader concerns over whether Hyperliquid is becoming a hub for strategic high-stakes trading. A similar case emerged weeks earlier when a whale executed a profitable 50x leveraged trade on Bitcoin and Ethereum, coinciding with Donald Trump’s announcement about crypto’s inclusion in the U.S. Crypto Strategic Reserve. That trade generated $6.8 million in profit within 24 hours, raising insider trading suspicions. 

Hyperliquid is under intense scrutiny following concerns over these suspicious high-leverage trades that have raised alarms about potential money laundering activities. Analysts have flagged multiple trades on Bitcoin (BTC) and Ethereum (ETH) for their near-perfect execution and unusually high success rate, fueling speculation about insider trading or illicit financial operations.

The most striking aspect of these trades was the trader’s 100% win rate, pocketing $2.2 million in just two days. This unusual pattern led Spotonchain to publicly question whether these trades were part of a money laundering scheme or insider trading, stating, “Notably, in the past 2 days, this whale closed two quick ETH long positions with a 100% win rate, netting $2.2 million in profit.”

Concerns have grown over a potential link between these transactions and North Korean cybercriminals, who have been known to use high-frequency crypto trading for laundering illicit funds. Crypto analyst AB Kuai Dong speculated that the funds might be tied to North Korean hackers testing automated trading systems for laundering purposes. 

His suspicions align with previous research by analyst Ai, which revealed that three addresses had generated $2.53 million in profits from GMX high-leverage trades. These addresses were linked to platforms such as Roobet and AlphaPo—both frequently associated with illicit activity—as well as ChangeNOW, an exchange often used by hackers.

Coinbase analyst Conor Grogan uncovered further evidence that one of the involved addresses was tied to phishing scams. The revelation suggests that the trader may have been using stolen funds to engage in high-risk leveraged trades rather than benefiting from insider trading. 

Adolyb, citing Grogan’s findings, stated, “Coinbase people found out that it is a phishing address with 4 layers of jumps + gambling players.” These revelations have reignited discussions about the role of decentralized exchanges in facilitating illicit finance, particularly as high-leverage trading platforms provide a discreet avenue for moving large sums of money across the blockchain.

The market response to Hyperliquid’s crisis was immediate. The platform’s native token, HYPE, dropped 11%, falling to $12.80 before rebounding to $13.02. Ethereum also saw a decline, reaching $1,915.83—precisely aligning with the whale’s liquidation level. 

Analysts fear the incident could slow down ETH’s recent rally above $2,000, as the broader market weighs the implications of high-risk leverage trading on decentralized exchanges.

This article has been refined and enhanced by ChatGPT.