A recent incident on the Hyperliquid platform involved the liquidation of a large Ethereum (ETH) position. Bybit CEO Ben Zhou discussed the challenges of managing high-leverage trading on decentralized and centralized exchanges.
Incident Details
The incident involved a whale's long ETH position valued at approximately 300 million, backed by a 15 million margin at 50x leverage. To avoid significant market order slippage, the whale reportedly raised the liquidation price, allowing Hyperliquid's liquidation engine to control the position once the threshold was reached.
Challenges on DEX and CEX
Zhou highlighted that both decentralized and centralized exchanges face difficulties with large liquidations, as control is transferred to liquidation engines. In response, Hyperliquid reduced leverage limits, capping Bitcoin leverage at 40x and Ethereum at 25x.
Regulation and Proposals
Zhou proposed a Dynamic Risk Limit mechanism to reduce leverage for larger positions and noted the potential for users to circumvent limits by using multiple accounts, especially on platforms with weak KYC. Decentralized exchanges must adopt centralized exchange-level risk management, including market surveillance.
The Hyperliquid liquidation incident highlights the need for innovative mechanisms and risk management strategies to address future market challenges.
