An unexpected price surge of 2.5 times in the perpetual contract market XPL (hyperp) of Hyperliquid before the token launch led to a series of liquidations, forcing the platform to quickly implement protective measures at the protocol level.
The cause is believed to be due to some whales clearing the entire order book, forcing Hyperliquid to switch from standard liquidation mechanisms to auto-deleveraging in just a few minutes. According to data from CoinGlass, this event wiped out over 17 million USD of trader positions, mainly on the short side. An analyst noted that four wallet addresses participated in this short squeeze, with total profits estimated to exceed 46 million USD.
Currently, Plasma's XPL token has not officially launched and is only traded on pre-listing platforms like Hyperliquid and Binance Pre-Market. By the end of Tuesday, the XPL/USD contract price on Hyperliquid had nearly reached 1.80 USD before correcting, then rising back to around 1 USD on Wednesday. Meanwhile, the XPL/USD price on Binance only peaked at 0.55 USD during the same period.
Plasma is a Layer 1 blockchain focused on stablecoins, backed by Bitfinex, which raised approximately 373 million USD during a 10-day public sale in July.
The system operates stably
Despite the chaos, Hyperliquid confirmed on its Telegram channel that the blockchain and liquidation system are still operating as designed, without technical issues. Specifically, the platform was the first to implement liquidation through the order book and only switched to the auto-deleveraging mechanism – a last-resort measure activated when liquidation through the order book cannot occur without creating bad debt.
Hyperliquid also reassured that hyperp contracts use an isolated margin mechanism, meaning profits/losses from XPL positions do not affect other assets. Therefore, liquidations only impact the XPL market, and the protocol does not incur bad debt.
"Pre-launch markets are inherently fraught with unpredictable risks," the Hyperliquid team emphasized. "The mark price calculation formula for hyperp worked correctly, preventing immediate price volatility and only triggering liquidations after a few minutes when high prices persisted."
This event highlights the downside of decentralized, composable markets. Some criticized Hyperliquid for allowing significant volatility, arguing that this could undermine confidence in the pre-market model. Conversely, many believe the platform acted in accordance with regulations, without obligation to intervene or compensate.
Hyperliquid advises: "Hyperliquid is a permissionless protocol, with each market carrying its own unique risks. Users should read the documentation carefully, understand how hyperp works, and apply risk management strategies before trading. All hyperp warn of low liquidity, high volatility, and increased liquidation risk."
Update safety mechanisms
To respond to the incident and user feedback, Hyperliquid will implement two significant changes in the upcoming upgrade:
Mark price limit: Set a maximum threshold for the mark price of hyperp at 10 times the 8-hour EMA. This measure aims to provide clearer risk boundaries for short positions on assets.
Incorporate external data: The mark price calculation formula will integrate data from external perpetual contract markets (if available) for the same type of pre-launch asset, such as Binance's XPL market, to enhance the accuracy of price signals in low liquidity markets.
Hyperliquid stated that hyperp currently does not rely on external spot price oracles, but calculates funding based on the moving average of internal mark prices to reduce the risk of manipulation often seen in pre-launch futures contracts.
Despite recent fluctuations, the native token price of Hyperliquid has increased by over 10% in the past 24 hours, reaching a record high of around 51 USD, according to data from The Block.