Hyperliquid 3.12 Incident: A Strategic Trade That Cost the Exchange $4 Million
Introduction
On March 12, 2025, a notable incident occurred at the decentralized derivatives exchange Hyperliquid.
A large trader known in the industry as a ‘whale’ successfully made a profit of $1.87 million from the exchange through a carefully designed high-leverage trading strategy, while causing approximately $4 million in losses to Hyperliquid. This event quickly became a hot topic in the cryptocurrency trading and DeFi risk management field.
By cleverly using high leverage, intelligent fund management, and precise timing, this trader built up a massive position, then strategically triggered a forced liquidation, shifting all losses to the exchange.
This incident has sparked widespread discussion in the blockchain finance and cryptocurrency trading community. Some professional traders see it as a legitimate arbitrage strategy, while regulatory advocates believe that this behavior exposes security vulnerabilities in decentralized exchanges (DEXs). This article will delve into the whale’s ETH leveraged trading strategy, explain why Hyperliquid’s risk control mechanism failed, and explore its impact on the future development of decentralized finance (DeFi) trading platforms.
Whale’s meticulous trading strategy for cryptocurrencies: detailed analysis of the Hyperliquid 3.12 event
This is not a lucky trade by chance. According to on-chain data analysis, this cryptocurrency whale investor has rich experience in derivative trading, and successfully executed multiple high-yield trades before the Hyperliquid event on March 12th:
March 2: Long BTC and ETH with 50x leverage, earning $6.83 million within 24 hours.
March 3: Short BTC before the US stock market opens, making a profit of $300,000.
March 10: Long ETH with 50x leverage, making a profit of $2.15 million in just 40 minutes.
March 11: Engage in rapid ETH trading, testing the market with a small profit of $5000.
But on March 12th, he completed the largest operation to date.
Step 1: Establish a large leverage position
The whale deposited $3.48 million into Hyperliquid and used 50x leverage to buy 17,000 ETH (worth about $31.2 million). It then continued to increase its position, increasing it to 170,000 ETH (worth about $343 million), driving up the market price.
Step 2: Lock in profits and create liquidation traps
As the position value increased, the unrealized profit reached $8.59 million. However, instead of choosing to close the position, he withdrew $8 million from the account, leaving only $6.13 million as margin.
This is a key step: After the margin is reduced, the liquidation price is closer to the market price. If the price continues to rise, he can profit at a higher price; if the price slightly drops, he will be liquidated - but since most of the profit has been withdrawn, the actual loss is very small.
Step 3: Trigger liquidation to make the exchange bear the loss
The market slightly dropped, triggering a forced liquidation. As the Hyperliquid system had to take over his position, but there were not enough buyers in the market, the exchange’s HLP insurance fund had to bear losses—up to $4 million.
Meanwhile, the whale has already locked in a profit of $1.87 million and exited the market risk-free.
DEX Vulnerability Analysis: Why Did Hyperliquid Suffer a $4 Million Loss?
From a security perspective of decentralized exchanges, this is not just a savvy trading strategy—it exposes multiple systemic risks and design flaws of the Hyperliquid platform. The following are the key factors that made this exploit possible:
No position limit, allowing the use of substantial leverage
Hyperliquid does not strictly limit the maximum position size, allowing whales to build large positions with up to 50x leverage, enabling them to push market prices in their favor based on oracle data rather than market orders.
Unlike centralized exchanges (CEX) that use order books, Hyperliquid uses oracle price feeds to determine contract prices. On CEX, large market orders can cause slippage, making price manipulation difficult. On Hyperliquid, whales can buy and sell based on precise oracle prices, avoiding slippage impact.
DeFi security measures upgraded: Hyperliquid’s response strategy and industry feedback
After this incident, the Hyperliquid team quickly implemented a series of exchange security upgrades:
- Lower the maximum leverage: the maximum leverage for Bitcoin (BTC) trading has been reduced from 50 times to 40 times, and the maximum leverage for Ethereum (ETH) has been reduced to 25 times
- Optimize risk control system: Introduce a tiered margin system similar to centralized exchanges (CEX) to prevent large-scale market manipulation
- Improving the liquidation mechanism: adjusting the operation of the insurance fund to better cope with extreme market conditions
- Enhanced market surveillance: deploying more advanced abnormal trading detection algorithms
But are these measures enough to prevent similar behavior in the future? Some traders are not sure.
Zhu Su, co-founder of Three Arrows Capital, believes that the whale held short positions on a centralized exchange. When his long positions on Hyperliquid were liquidated, it triggered a temporary market crash, allowing his short positions to profit.
Other traders, like CryptoApprenti1, even believe this is a form of wash trading strategy - a form of market manipulation.
The Future of DeFi Trading Security: Industry Insights from the Hyperliquid Incident
The Hyperliquid 3.12 incident has become a key turning point in the history of blockchain finance, revealing the inherent vulnerabilities of decentralized derivative trading platforms when faced with complex trading strategies. When an experienced trader walked away with a profit of $1.87 million and the platform suffered a $4 million loss, the entire industry had to rethink its security architecture. This case is not just about the savvy strategy of an individual trader, but also a wake-up call for the entire DeFi ecosystem.
For cryptocurrency investors, this event has revealed the value of understanding the exchange mechanism in depth - knowledge and insight can create opportunities that are difficult for ordinary people to discover. However, this has also sparked a discussion about trading ethics:
What is legal arbitrage, and what crosses the moral boundary? When the boundary between trading strategies and system vulnerabilities becomes blurred, we need more mature industry standards.
At the same time, liquidity management has also become a focal issue. In the Hyperliquid incident, when large positions needed to be liquidated, insufficient market liquidity led to huge losses. To address this challenge, many platforms are designing innovative liquidity incentive mechanisms to ensure sufficient trading depth even under extreme market conditions.
