Hyperliquids Liquidation Chaos: Bybit CEO Has a Warning For DEXes
- A whale manipulated Hyperliquids liquidation engine, securing a $1.8M profit while the DEX faced a $4M loss.
- Bybit CEO Ben Zhou says high leverage poses risks for both DEXs and CEXs, requiring stronger risk management.
- Zhou suggests DEXs adopt CEX-style risk tools like market surveillance and dynamic risk limits to mitigate losses.
Hyperliquids recent liquidation chaos has sparked manipulation concerns among investors. However, Bybit CEO Ben Zhou isnt surprised by the wipeout. In the tweet thread, Zhou shed light on the broader impact of high-leverage trading on both DEX and CEX.
An anonymous whale recently manipulated Hyperliquids liquidation mechanism to exit his position. By doing this, they avoided the massive slippages and shift the risks to the DEX instead. Heres how- Rather than directly selling its position, the trader may have reduce their margin, pushing liquidation price up, thus triggering Hyperliquids liquidation engine.
Once market price nears liquidation levels, the DEXs automatically take over the position and sell off, incurring significant loss in the process. As reported by TronWeekly, the investor secured $1.8 million in profit amidst a market downturn. On the other hand, the DEXs total estimated loss neared $4 million even though it maintained a $451 million value locked, resulting in a 1% loss from the original $451 million.
Hyperliquid Needs CEX-Level Risk Management for High Leverage
According to Zhou, such kind of leverage challenge isnt exclusive to DEXes. Even centralized exchanges incur heavy loss due to such tactics. Although high-leverage trading amplify both profits and losses, they often trigger significant market disruptions. In response to the incident, Hyperliquid have lowered its overall leverage limits, a standard protocol employed by DEXes. But it has its downsides.
In the long term, it could hurt business as traders often seek high-leverage platforms. Zhou suggests that DEX should deploy many of the risk management tools used by CEXs. This includes market surveillance to spot abusers and market manipulators, OI limit to control overall OI.
He also suggested another tool often used by CEX called a Dynamic Risk Limit Mechanism that reduces the allowable leverage as a traders position size increases. Zhou concludes by saying that it will be interesting to see how DEXs evolve, perhaps through new innovation on liquidation mechanism to address these challenges.
Read more: https://www.tronweekly.com/hyperliquid-liquidation-bybit-ceo/
Text source: TronWeekly
