A massive liquidation event involving a whale’s $340 million ETH position has sent shockwaves through Hyperliquid, resulting in an 8.5% price drop for its native HYPE token.

The fallout also left the platform’s HLP vault with a $4 million loss, sparking concerns among traders and investors that it may have fallen victim to hackers.

What Happened?

While there had been rumors that a potential exploit or vulnerability may have led to the liquidation, Hyperliquid clarified that the event stemmed from a margin withdrawal that had reduced the trader’s collateral below maintenance levels.

According to EmberCN, the whale in question used high leverage to build a long position involving 175,000 ETH valued at about $340 million. They later withdrew $17.09 million in margin, decreasing their collateral, triggering the liquidation event, and causing a cascade of losses.

The HLP vault, which serves as a liquidity backstop for the protocol, absorbed the position at $1,915 per ETH, but the sheer size of the liquidation led to a $4 million deficit. In response, the platform has said it will modify its risk parameters to curb similar incidents in the future.

Maximum leverage limits for Bitcoin will be updated to 40x from 50x while Ethereum’s will now stand at 25x from 33x to “provide a better buffer for backstop liquidations of larger positions.”

Despite the setback, Hyperliquid stated that the HLP vault still holds an all-time profit of $60 million. The protocol also recently expanded its ecosystem, launching HyperEVM, a smart contract execution layer designed to improve functionality within the network.

Market Impact

Hyperliquid’s governance token, HYPE, was not left unscathed by the drama. Soon after the occurrence, its price dropped from $14.04 to $12.84, an 8.5% dip in less than half an hour. However, it soon recovered slightly, moving back up to $13.36.

The current price is still 3.2% lower than its level from 24 hours ago. The token is also in the red across different periods, with the worst losses registered over 30 days, at more than 44%. Further, its 24.3% plunge in the past week means HYPE is underperforming both the broader crypto market and similar smart contract platforms, which are down 10.10% and 7.40%, respectively.