A story that piques the interest of the crypto community
While the crypto market has been relatively flat for a few weeks, a whale came to disturb this tranquility over the weekend.
Hyper liquid, a decentralized exchange (DEX) well-known for distributing a massive airdrop to its users, has found itself at the center of all this turmoil by becoming a veritable digital battleground. A story worthy of an epic saga that we will tell via this article with the information we have at the time of writing.
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It seems that our main protagonist has a deep understanding of the mechanics of Hyper liquid, allowing him to make substantial gains from his positions.
The saga of Hyper liquid’s famous whale
In order to remain as factual as possible, we will base this story full of twists and turns on the analysis of Three Sigma, a company specializing in audits and crypto security.
The 1st attack
The 1st episode of this saga ended with a gain of $1.8 million for the whale and a loss of $4 million for the vault Hyper liquidity Provider (HLP).
How? The whale turned $10 million worth of USDC into a long position on Ether, representing $271 million with high leverage. It then withdrew its collateral, forcing the HLP vault to accept the transaction.
Indeed, trading with such a large position can lead to a significant loss due to slippage by closing it. The trader therefore used a clever method to thwart this mechanism.
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Instead of selling ETH in the order book, the trader withdrew his collateral, reducing his margin and forcing Hyperliquid to liquidate the position. HLP therefore bought back this $286 million long position, leaving it exposed to the aftermath of events.
The trader knew that the forced sale of the HLP would lower the price of Ether, so he played on both sides. At the same time, he took a short position on ETH, on a centralized exchange (CEX), in order to take advantage of this mechanism.
Although the trader’s gain is “only” $1.8 million on Hyperliquid, it is highly likely that his gains will be more substantial with his short position on a CEX.
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The Revenge Play
After losing $1 million on his next attempt, the trader started over with a new plan. He took a long position on the $20 million LINK token, still on Hyper liquid while simultaneously opening a $20 million short position on Binance, creating a delta-neutral position.
If Hyper liquid liquidated it, the HLP vault would be forced to sell within 30 minutes, giving the trader a chance to get ahead of the sell and drive down the price of LINK.
As long as the price declined by more than 1%, its short position on Binance appreciated, ensuring a profit. Again, the trader took advantage of Hyperliquid’s mechanics to make a profit.
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The saga continues
The whale this weekend opened a short position on BTC leveraged 40 times for a total of $376 million, with a liquidation price of $85,500.
Nevertheless, some people who have understood the trader’s game, have decided to join forces to reverse the trend. It even seems that Justin Sun, the founder of the Tron blockchain, has decided to join the movement, without him officially confirming it:
Screenshot shared by the organizer of the movement to liquidate the whale
However, the whale did not let it happen. It added $5 million in collateral to increase its position to $518 million, with a liquidation price of $85,590.
In addition, the whale decided to use a psychological means to tip the scales in her favor. It then renamed itself “Tether FUD” to simulate that it was in possession of information that the general public does not have. The price of BTC then went down, and the trader’s position then reached an unrealized profit of $7 million.
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Eventually, the whale closed its short positions on ETH, made surprising moves by taking a long position on MELANIA, and then, over several hours, gradually closed its position on BTC.
According to the information we have, the trader would be in a final profit of about $9.4 million.
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Outlook for Hyperliquid following these events
While these events have demonstrated that some whales, with a deep understanding of liquidity and hyperliquid mechanisms, can make substantial gains from the situation, attacks of this style are on the rise.
According to Vladimir Novakovsky, the founder of Lighter, Copycats are attempting the same attack against Lighter Liquidity Provider (LLP): “Some traders are trying to harm LLP. We are studying the situation. »
After the 1st attack, Hyper liquid quickly took steps to reduce these risks. Leverage multipliers have been reduced and margin requirements for large positions have been increased.
It is nevertheless important to remember that Hyperliquid’s famous whale did not hack the system but only took advantage of advanced expertise to take advantage of the liquidity mechanisms, and ultimately make a substantial profit from them.
However, according to the most famous on-chain investigator, ZachXBT, the whale behind these twists and turns is none other than a “cybercriminal” who is flaming with stolen funds:
It’s funny watching CT speculate on the “Hyper liquid whale” when in reality it’s just a cybercriminal gambling with stolen funds.
Although Hyperliquid lost $4 million in this story, or about 1 month of profit, the official position of the team behind the project on this situation is clear:
Hyper liquid has redefined trading. When a whale sells short […] and wants a public hearing, this is only possible on Hyper liquid… Anyone can edit a screenshot of an unrealized profit. No one can question a Hyper liquid position, just as no one can question a Bitcoin balance. The decentralized future is here.
It is clear that decentralization brings its share of inconveniences and questions. It will be interesting to see what future changes Hyper liquid makes to its protocol in order to avoid, or at least weight, this kind of situation.
