Decentralized perpetual trading platform, Hyperliquid has suffered a loss of $4 million after an alleged market manipulation involving its HLP Vault. The DeFi trading community is shaken after this tricky incident and calling it an exploit on Hyperliquid.
The trader had an open long position on ETH and they exploited HLP vault by withdrawing equity in a manner that triggered an auto-liquidation event. As a result, the vault was forced to take the opposing side of the trade, leading to a significant loss of around $4 million.
While the incident seems somewhat of an exploit at first glance, the Hyperliquid team had to clarify that there was no hack or exploit involved. The team said that the trader went for unrealized PnL withdrawal that caused their position to liquidate as margin level dropped significantly.
Following the incident, the Hyperliquid team has updated the leverage limit for BTC and ETH to 40x and 25x in order to provide “better buffer for backstop liquidations of larger positions.”
As details of this event remain scarce, some analysts speculate that the trader strategically exited positions and targeted the HLP to absorb losses while securing unrealized profits for themselves. This has sparked discussions about potential improvements in Hyperliquid’s liquidation mechanisms that would prevent similar exploits in the future.
Although the vault has total value locked (TVL) of approximately $450 million and the loss represents merely 1% of its holdings.
