Author: Frank, PANews
"Of all the days in my career as a stock trader, I have the most vivid memory of this day. It was on this day that my profits exceeded $1 million for the first time. It marked the first time I successfully executed my pre-planned trading strategy. Everything I had foreseen had become a reality. But above all, my wildest dream had become a reality.
On this day, I was the king of the market!"
—— "Reminiscences of a Stock Operator"
More than a hundred years ago, the legendary stock trader Livermore used these words to describe his success. A hundred years later, a similar scenario seems to be playing out in the crypto market. Coincidentally, this time the "king of the market" is also a large-scale trader who has succeeded, and has actively triggered a liquidation in a market with insufficient liquidity, staging an extreme operation that has led to market worship.
The Cycle of the Century: The Rebirth of the Wall Street Ghost on the Chain
This whale, who invested $6 million with 50x leverage to long ETH and BTC just before Trump announced the inclusion of BTC, ETH, SOL, ADA, and XRP in the crypto asset strategic reserve, made $68 million in profits. Within about a month, he has repeatedly operated profitably in the market and has once again staged a classic battle that is worthy of being recorded in the Hyperliquid history books.
On March 12, this whale again opened a long position of 160,000 ETH with 50x leverage, withdrew $8 million in funds, and then actively triggered a liquidation, ultimately making a profit of about $1.8 million, while Hyperliquid exchange lost $4 million as a result.
This situation seems to be somewhat illogical, but essentially it is to realize profits by exploiting the "loopholes" in Hyperliquid's on-chain transactions.
Let's review the whale's trading process:
At 6:54 am on March 12, this address deposited $3.48 million through a cross-chain bridge to Hyperliquid and opened a position of 17,000 ETH (worth $312 million).
Subsequently, this address increased its position to 21,790 ETH (worth $408.5 million) by adding margin and further expanding its position.
Later, this address continued to increase its position, bringing the total ETH position to 170,000 (worth $343 million). The account had an unrealized profit of $8.59 million.
In this process, this address used a total of $15.21 million in margin.
Finally, through closing positions and withdrawing margin, it recovered $17.08 million and made a profit of $1.87 million.
In the last operation, the user withdrew $8 million in funds and retained about $6.13 million as margin, waiting for a forced liquidation.
The Moment of the Hunt: The Precise Calculation Behind the 170,000 ETH Position
Why did the whale operate this way instead of waiting for a profitable close-out?
In this process, the whale had two options: one was to directly close the position, with an unrealized profit of $8.59 million. This would maximize the profit. But the counterparty on the chain may not be able to consume such a large order at once, and can only wait for the price to continue to fall to reduce the profit before it can be executed. And once this $343 million order is actively closed, it may have a huge impact on the market trend, causing a significant shrinkage of profits.
Therefore, the whale chose the second option, withdrawing the margin and part of the profit (i.e., closing a portion of the position and then withdrawing the remaining excess margin), keeping the margin at the minimum standard of 50x leverage. In this way, if the market continues to rise, he will be able to obtain greater profits and can choose to close the position in batches. If the market experiences a rapid decline, he will be liquidated at a 2% drop. But since he has already withdrawn $17.08 million in funds, he has already realized a profit of $1.87 million. Therefore, even if he is liquidated, it will not result in an actual loss.
This seemingly crazy gambler's operation ultimately chose a conservative profit-making strategy.
Subsequently, according to the data released by Hyperliquid, Hyperliquid lost $4 million that day (which also included some profits from copy trading). While the whale realized a profit of over $1.8 million.
In fact, in terms of the profit-to-loss ratio, the whale's previous investment was about $15.21 million, and the profit realized was $1.87 million, with a profit margin of about 12.2%. Both in percentage and amount, it is not as good as the profits made by this address when Trump announced the inclusion of ADA and SOL in the strategic reserve.
Aftershocks and Insights: Driving the Evolution of On-chain Exchanges
From the market's perspective, this operation ultimately resulted in the exchange executing a buy order, which is an extremely rare occurrence. However, this situation seems to be achievable only on Hyperliquid.
According to a tweet by KOL Hanba Long Wang, a similar incident occurred on the OKEx exchange in 2018. Using the same method, the user withdrew the margin after making a profit, causing the market to reach the liquidation price without any counterparty to absorb the order, resulting in the exchange executing a buy order.
After the OKEx incident, various centralized exchanges added tiered margin systems, keeping users' margins within a reasonable range in the market. This incident seems to have taught a lesson to the emerging on-chain exchange Hyperliquid. Since it uses a DEX trading model throughout, it has not implemented risk control measures for margin requirements.
Ultimately, when this whale was liquidated, the market lacked sufficient liquidity to absorb the forced liquidation order, and Hyperliquid had to step in as the counterparty. Hyperliquid's data shows that the $4 million loss is almost equivalent to the exchange's monthly profit. As of March 10, Hyperliquid's HLP revenue had accumulated to $63.5 million, so even with this loss, there is still nearly $60 million in profit left.
However, given the heated discussion this incident has sparked on social media, there may be users imitating the whale's operations in the future. Hyperliquid has also stated that to avoid similar issues, it will adjust the leverage ratio to 40x for BTC and 25x for ETH.
Regarding the market's speculation that this method may fundamentally shake Hyperliquid, we can understand the possibility through calculation: Currently, Hyperliquid's HLP pool still holds nearly $60 million, and with a maximum BTC leverage of 40x, it can withstand a liquidation risk of up to $2.4 billion. From this perspective, it seems that there are very few users who have the strength to match it. For ordinary market orders, only the market's counterparty is needed to offset them.
Looking back at the entire incident, we can see that this whale may have conducted multiple tests before completing this operation. Zhu Su, the co-founder of Three Arrows Capital, speculates that the reason this address was able to take such a big risk is that it was shorting on Binance at the same time. It was essentially a hedged order, and it was the discovery of Hyperliquid's liquidation mechanism being different from centralized exchanges that led it to target this platform.
In fact, this operational method is not some magical innovation. As mentioned at the beginning, Livermore had inadvertently achieved a similar effect a hundred years ago. The only difference is that back then, Livermore chose to actively long the market and actively close the position for the survival of the market. Whereas in today's market, there are exchanges that provide a backstop for such phenomena, allowing the user to reverse the extraction of the exchange. It's just that this type of operational space is likely to be closed again from now on, and it will be difficult for similar platforms to achieve similar effects in the future.
For exchanges, this is another case of buying lessons with money. For retail investors, this kind of operation is just a fleeting phenomenon, a chance discovery of loopholes to make profits, and does not have any practical operational significance. It is just a topic of conversation in the boring market trends.
