Bybit CEO Questions DEXs’ Risk Controls After Hyperliquid ETH Liquidation

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Hassan Shittu

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Hassan Shittu

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Hassan, a Cryptonews.com journalist with 6+ years of experience in Web3 journalism, brings deep knowledge across Crypto, Web3 Gaming, NFTs, and Play-to-Earn sectors. His work has appeared in...

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March 13, 2025 07:24 EDT

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Bybit CEO Ben Zhou has raised concerns about decentralized exchanges (DEXs) and their risk management mechanisms following a massive Ethereum (ETH) liquidation on Hyperliquid.

The event saw a whale strategically liquidate a 175,000 ETH position with 50x leverage, resulting in a $4 million loss for Hyperliquid’s liquidation engine, HLP Vault. Ultimately, the whale secured a net profit of $1.8 million.

Zhou pointed out that both CEXs and DEXs face challenges in managing whale liquidations.

He suggested that while lowering leverage is a short-term solution, it may hurt business by discouraging high-leverage traders.

Instead, he proposed alternative risk control measures, such as dynamic risk limits and enhanced market surveillance tools.

How the Hyperliquid Liquidation Unfolded

On March 12, an anonymous whale opened a long position worth $340 million on Hyperliquid, leveraging 175,000 ETH at 50x.

The trader initially closed 15,000 ETH before withdrawing approximately 17.09 million USDC in margin, reducing their collateral and increasing the liquidation risk.

Once the remaining 160,000 ETH position hit its liquidation threshold, Hyperliquid’s liquidation engine took over, executing the liquidation at approximately $1,915 per ETH.

The HLP Vault, which absorbs liquidated positions, suffered a floating loss exceeding $4 million as it attempted to unwind the position.

Hyperliquid later clarified that the loss was not due to a hack or exploit but rather a consequence of the whale’s strategic liquidation.

The platform responded by reducing the maximum leverage on BTC and ETH trades to 40x and 25x, respectively, and raising maintenance margin requirements for large positions.

Despite the loss, the whale exited with a $1.8 million profit, demonstrating how high-leverage traders can manipulate liquidation mechanisms to their advantage.

Hyperliquid’s native token, HYPE, briefly fell by 12% before recovering as concerns over further vault losses subsided.

Are DEXs Equipped to Handle High-Leverage Trades?

This is not the first time a DEX platform has suffered from a similar event. In 2022, GMX, another DeFi trading platform, experienced a comparable incident where a trader exploited how asset prices were calculated to execute large trades without significantly affecting market prices.

The trader extracted between $500,000 and $700,000 in profit, exposing weaknesses in GMX’s liquidity model.

Given this repeated pattern, Zhou argued that DEXs must rethink their risk controls to continue offering high leverage.

He noted that while Hyperliquid’s decision to lower leverage may reduce future risks, it does not eliminate the possibility of similar events occurring.

One of Zhou’s key suggestions was implementing a dynamic risk limit mechanism, which adjusts leverage based on position size.

Under such a system, large positions would see their leverage automatically reduced, making it harder for traders to manipulate liquidation processes.

He noted that in a CEX, a position of this size would likely be limited to around 1.5x leverage, significantly lowering systemic risk.

However, Zhou acknowledged that traders could circumvent such measures by opening multiple accounts.

The lack of know-your-customer (KYC) requirements on many DEXs allows users to create multiple wallets, spreading their positions across different accounts to maintain higher leverage.

To mitigate such risks, Zhou suggested that DEXs consider implementing market surveillance tools similar to those used by CEXs.

These could help detect abusive trading behavior, such as intentional liquidation triggers and coordinated market manipulation.

Additionally, he recommended open interest (OI) limits to prevent individual traders from accumulating disproportionately large positions that could threaten platform stability.

For now, Hyperliquid’s leverage reduction is a step toward risk mitigation. However, Zhou believes that unless DEXs introduce CEX-level risk management tools, they will remain vulnerable to strategic liquidations and potential market exploits.