Bybit CEO take on Hyperliuid whale 50x leverage trade on Ethereum
Folks are asking me for my take on Hyperliquid Whale massive ETH position liquidation. To me, this ultimately leads to the discussion on Leverage, DEX vs CEX capabilities to offer low or high leverage.
Essentially what happened was a whale used Hyperliquid liquidation engine to exit. Imagine you opened a 300m long position on ETH with around $15m margin on 50x leverage, how do you exit quick and clean? market order would have massive slippage. Why not just try to hit the liquidation price by withdrawing floating P&L and push the liquidation price up, once it’s triggered, let HL take the whole position at the liquidation price, so its not your problem anymore. HL would suffer some loss.
CEX or DEX in this case faces the same challenge, our liquidation engine also takes over the whole position when whales get liquidated. I see that HL has already lowered their overall leverage, that’s one way to do it and probably the most effective one, however this will hurt business as users would want higher leverage.
They can also think about deploying tools like Dynamic Risk limit mechanism: as the position gets bigger, the overall leverage is reduced based on the overall position size. In CEX this whale would drop to around around 1.5x with this amount of open position. However, this won’t solve the problem if users use multiple accounts (no kyc, very low cost to open) to achieve the same goal.
Then this leads to if DEX really want to have high leverage in the long run and avoid this problem, They probably needs to delpoly many CEX level of risk management such as market surveillance to spot abusers and market manipulators, OI limit to control overall OI and the list go on.
Even with this current dropped leverage (btc to 40x , eth to 25x) on Hyperliquid, it could still be abused, unless they start to introduce CEX level risk management or drop their leverage even lower. Would be interesting to see how it develops, maybe new innovation on liquidation mechanism? @chiarapromos