Bibit CEO Ben Zhou shares his thoughts on the liquidation of the giant lipid ETH whales that led to the platform losing $4 million. He highlights the problems associated with leverage between CEXS and DEXS.
In a recent post, Zhou explained how the whales were able to pull away from the huge liquidation without causing a market crash with 50x leverage at a long position of 175,000 ETH (ETH) (approximately $340 million). He said the whales were able to create a “quickly and clean” exit while falling into high lipids.
“Why don't you try to withdraw floating P&L and achieve liquidation prices? [profit and loss] It will boost the liquidation price. Once triggered, let HP acquire the overall position at the liquidation price. That way, it's no longer a problem. HP will suffer some losses,” Zhou said.
Bibit CEO also states that both centralized and decentralized exchanges tend to absorb long positions when the whales are cleared. For ETH whales, the HLP vault Hyperliquid's liquidation engine took over the position at around $1,915 per ETH, reducing leverage in half to ease the fall.
“It's one way to do it, and perhaps the most effective way, but this will hurt business because users want higher leverage,” Zhou continued, referring to the overblood of $4 million losses that occurred.
Apart from reducing leverage, he also proposed that the platform could deploy tools such as dynamic risk-limiting mechanisms. The mechanism automatically adjusts leverage based on the overall position size. Therefore, the larger the position, the lower the leverage.
According to Zhou, in CEX, whales' position leverage can drop by a massive amount by about 1.5 times. However, he also admitted the limitation, that is, the user can bypass it using multiple accounts. Not all exchanges adopt customer requirements that are known to them, and opening multiple accounts doesn't cost much.
Zhou believes that if Dexs wants to avoid this issue, they need to deploy a more risk management mechanism. These include market surveillance tools designed to help abusers and market manipulators detect chain and open interest restrictions.
“Even if this current is high and you drop leverage (40x from BTC and 25x from ETH) with liquids, you can still be abused unless you introduce CEX-level risk management or reduce leverage even further,” Zhou said.
What happened to the Hyperliquid safe?
On March 12, the whales opened a long position with high lipids with 50x leverage at 175,000 ETH worth $340 million. After closing at 15,000 ETH, the whales moved about 1709 million USDC (USDC) to their margin and returned to their address.
Once the margin was withdrawn, the remaining 160,000 ETH long positions triggered liquidation from the platform mechanism. Due to the large liquidation size, the high lipid HLP took over the position at $1,915 and worked to unravel it. As a result, Hyperliquid lost over $4 million.
In an official statement on the X account, Hyperliquid revealed that the $4 million loss was not due to protocol exploits or cyberattacks. Instead, users retreated when profits and losses were still unrealized, which reduced margins and led to liquidation.
Despite the liquidation, the whales were able to secure a net profit of around $1.8 million. The vault absorbed a large position and lost over $4 million. As a result, the protocol has decided to reduce the maximum leverage of BTC (BTC) and ETH to 40 and 25 times, respectively, to “increase the maintenance margin requirements for larger positions.”
