Bybit CEO Warns of High Leverage Risks After Hyperliquid’s $4M Loss

Highlights:

• Bybit CEO says high leverage is risky and suggests reducing it as positions grow to protect exchanges from big losses.
• A trader used 50x leverage on Hyperliquid and caused a $4M loss, forcing the platform to lower Bitcoin and Ethereum limits.
• The HYPE token fell 10.53% after the loss, while trading volume dropped after the incident. 

Bybit CEO Ben Zhou shared his thoughts on the recent liquidation event that caused Hyperliquid to lose $4 million. According to Zhou, both centralized and decentralized trading platforms experience equivalent risks linked to high leverage used by large traders. Zhou explained that exchanges frequently end up bearing the burden of liquidated whale positions through their automated liquidation processes, which usually lead to major financial damage.

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. Hear me out:

Essentially what happened was a whale used Hyperliquid…

— Ben Zhou (@benbybit) March 13, 2025

According to Zhou, the principal challenge arises from excessive platform leverage levels. The higher amounts of leverage operated by traders seeking substantial profits lead to greater dangers for both traders and the platform execution system. Zhou proposed reducing leverage to reduce risk but admitted this could drive users toward platforms providing higher leverage.

His solution proposes a dynamic risk limit system that handles leverage adjustments according to position size fluctuations. The system would modify position leverage automatically in response to the current position scale. The expanding position size would reduce available leverage, which would limit the ability of traders to trigger stability risks for the platform. However, he noted that traders might navigate the restriction by opening multiple trading accounts.

Zhou stated that advanced risk management tools must be developed and implemented to ensure system safety. He proposed that decentralized exchanges should adopt surveillance platforms identical to the ones used by centralized trading systems.

The proposed system would both detect market manipulation activities and stop traders from taking advantage of existing platform weaknesses during liquidations. Zhou argued that reduced leverage levels still cannot eliminate abuse risks unless improved monitoring controls are implemented.

ETH Whale Liquidation Triggers Heavy Losses for Hyperliquid

A trader initiated the liquidation process by opening a 175,000 ETH long position using leverage at 50x that equaled about $340 million in value. The trader withdrew their floating profit and loss from the margin rather than closing their position through normal procedures. The action reduced their margin ratio until it reached critical levels that resulted in liquidation.

One trader VS. Hyperliquid’s HLP vault.

$4M gone. No bug. No exploit. Just a brutal game of liquidity mechanics.

Here’s how they pulled it off. 🧵👇 pic.twitter.com/ivkMBcwS2q

— Three Sigma (@threesigmaxyz) March 12, 2025

The liquidation engine operated by Hyperliquid acquired the 160,000 ETH position at a price of $1,915 per ETH after the liquidation process began. Hyperliquid encountered challenges while unwinding the large position which led to a total $4 million loss. Although the trader achieved $1.8 million in net profits, Hyperliquid bore the entire financial cost of the loss.

Hyperliquid Adjusts Leverage Positions After Loss

After the incident occurred, Hyperliquid adjusted its leverage restrictions to minimize future occurrences. Hyperliquid modified its framework by decreasing Bitcoin leverage to 40x and Ethereum leverage to 25x.

The adjustment requires traders to maintain higher amounts of margin on large positions, thus restricting their ability to conduct strategies with similar risk potential for the exchange. The technical fault that led to the loss emerged from internal liquidity operations within Hyperliquid and not from a hack.

Regarding commentary and questions on the 0xf3f4 user's ETH long:

To be clear: There was no protocol exploit or hack.

This user had unrealized PNL, withdrew, which lowered their margin, and was liquidated. They ended with ~$1.8M in PNL. HLP lost ~$4M over the past 24h. HLP's…

— Hyperliquid (@HyperliquidX) March 12, 2025

Investors pulled $166 million from Hyperliquid’s Asset Under Management within a short period after learning about the loss. The platform recorded its biggest single-day withdrawal in history during this period.

HYPE Token Faces Sell-Off Amid Market Uncertainty

The liquidation event also impacted Hyperliquid’s native token, HYPE. Following the loss, HYPE has dropped by 10.53% and is trading at $12.41. The trading volume has decreased 21.66% to $150.64 million, and the market capitalization has dropped to $4.14 billion.