Written by: Jaleel Jia Liu
(Black Mirror) The story of the first episode of the last season (The White Christmas) is: the female lead casually clicked 'agree', and as a result, the platform, based on that user agreement that no one read carefully, made her daily life into a real-life drama broadcast worldwide.
In fact, every industry has its own user agreement. Doing Perp is no different; the liquidation rules are the 'user agreement' for this track.
It may not be sexy or eye-catching, but it is very, very important. The same token has different depths on each trading platform, different K-line trends, and different liquidation mechanisms, leading to completely different position outcomes.
Today's examples of the two perp dexes are very good teaching materials: At the same time, while Binance's pre-market contract quotes did not show equivalent fluctuations, the XPL price on Hyperliquid was pulled up to nearly +200% in about 5 minutes; and the ETH price on Lighter spiked to $5,100.
In extreme market conditions, some people are happy while others are worried.
Within just one hour, multiple whales on Hyperliquid cleared counterparties' short positions by pushing up prices, collectively profiting nearly $38 million to $46.1 million; among them, the widely watched address 0xb9c…6801e had been positioning long since August 24 and after the 'order sweep' at 5:35, made about $16 million in profit in just one minute; HLP netted about $47,000 in this anomaly. But the shorts were not so lucky; the XPL shorts from 0x64a4 were liquidated in a chain reaction within minutes, leading to a loss of about $2 million; the shorts from 0xC2Cb were fully liquidated, losing about $4.59 million.
Rather than saying this is a result of 'bad actor manipulation', it is more accurate to say it is the result of the interaction between the liquidation system and market structure, and it provides a new lesson for all crypto players: always pay attention to depth and liquidation mechanisms.
How is liquidation generated?
At any perpetual contract platform, the first thing to understand is: initial margin (IM) and maintenance margin (MM): IM determines the maximum leverage that can be opened; MM is the liquidation line. When account equity (collateral plus unrealized profit and loss) falls below it, the system will take over the position and enter the liquidation process.
Next, let's look at prices. The price that determines whether liquidation occurs is not the last transaction price but the mark price (Mark). It is often determined by the external index, oracle, and the platform's own order book, and is smoothed and manipulated against; while the index price is closer to a pure external weighted spot reference; the latest price (Last) is the most recent transaction on this platform, easily manipulated by instantaneous sweeps.
So when 'account equity < maintenance margin', liquidation is triggered. However, the details of the liquidation still depend on the platform's own liquidation execution mechanism.
Hyperliquid: Let the market absorb liquidation orders.
First, let's look at Hyperliquid. Hyperliquid's liquidation mechanism is: when account equity falls below the maintenance margin (MM), the system prioritizes directly placing liquidation orders into the order book, eating up the risk in a market-oriented way.
If it is a large position (for example, >100,000 USDC), it usually clears 20% first, then cools for about 30 seconds, and if it triggers again, it may handle the entire position. If it still can't be cleared and further deteriorates to a deeper threshold (for example, equity falls below 2/3 × MM), backup liquidation will be triggered, taken over by the community Liquidator Vault (HLP component). To ensure that 'the bottom can continue', this step often does not return the maintenance margin.
The entire process does not charge a 'liquidation fee', but in the case of external anchors being weak and depth being poor, the liquidation action itself will further push the price in the same direction, causing a temporary price surge.
At the same time, Hyperliquid's mark price is determined by external CEX quotes and its own order book. When there is volatility, if the internal market drives the transactions, it will accelerate the triggering pace. Additionally, isolated and cross positions behave differently in the backup phase: when a cross position is taken over, it may transfer all positions and margins together; an isolated position only affects that position and its isolated margin.
So let's rewind to early this morning and briefly review the Hyperliquid XPL incident. Starting at 5:35, Hyperliquid's XPL buying surged by 'sweeping the order book', rapidly raising the transaction range, and the mark price was dominated by the platform's matching, with the upward movement far exceeding normal periods.
For one side with a highly crowded short position, this jump causes the ratio of account equity/maintenance margin to be instantaneously compressed: when equity falls below MM, the system takes over the position according to the established process. Next, the system will buy in the order book to cover shorts (larger positions may first partially close and enter a cooling period), and this group of buy orders will continue to push prices and mark prices higher, triggering more shorts to fall below MM. In a matter of seconds to tens of seconds, a positive feedback loop of 'sweep the order book → trigger liquidation → liquidation sweeps the order book again' is formed—this is also the mechanistic explanation for the price nearing +200% in just a few minutes.
If it still can't be cleared on the order book, and the equity of the liquidated account further falls to a deeper threshold (like 2/3 × MM), the backup liquidation mechanism will take over, continuing to absorb the bottom buy orders, ensuring risks are 'eaten' within the system.
Once the order book restores depth and the liquidation queue is digested, addresses that actively take long positions start to take profits, and the price quickly falls from the high like a roller coaster—this is the entire process of 'Hyperliquid's XPL nearing +200% → chain liquidations of shorts → rapid decline'.
This is actually the inevitable result of the coupling of pre-market liquidity depth + position congestion + liquidation mechanism.
Will Lighter really liquidate earlier?
Let's take a look at Lighter. This morning, the ETH price on Lighter spiked to $5,100, which also attracted a lot of attention. As a perp dex that is very popular in the foreign CT circle, second only to Hyperliquid in trading volume, Lighter's price spikes have caused many discussions.
Lighter has three thresholds: IM (initial margin) > MM (maintenance margin) > CO (closure margin). Falling below IM enters 'pre-liquidation', where only reductions can be made; falling below MM enters 'partial liquidation', where the system sends out IOC limit orders to reduce positions at the pre-calculated 'zero price'. The design of the zero price ensures that even if executed at zero price, account health will not continue to deteriorate; if executed at a better price, the system will extract no more than 1% of the liquidation fee into the LLP (insurance fund). Further down, when equity falls below CO, 'full liquidation' is triggered, clearing all positions and transferring the remaining collateral into the LLP; if the LLP does not have enough funds to cover, ADL (automatic deleveraging) will be triggered, removing parts of the high-leverage/large unrealized profit positions on the counter side at their respective zero prices, striving to complete deleveraging without harming innocents at the system level. Overall, Lighter sacrifices some 'liquidation speed' to exchange for controllability over account health and book impact.
So does this mean that Lighter's liquidation price is much higher than other dexes, and will it liquidate earlier?
A more accurate answer is: yes, but not entirely.
In simpler terms, Lighter's 'earlier liquidation' is a phased 'reducing positions to save fire': it sends out IOC limit orders at 'zero price' to reduce positions, aiming not to worsen account health. Many times, it reduces positions to a safe level, which does not equal being 'liquidated'; only when it worsens to CO will it clear.
Therefore, it cannot simply be said that 'Lighter is easier to liquidate', but rather that it liquidates and reduces positions more gently, spreading the risk and reducing the price impact caused by a single sweep of the order book; the cost is that if executed at a price better than 'zero price', a liquidation fee of ≤1% will be charged into the insurance fund (LLP).
Interestingly, in the early days, Lighter's point weight for the liquidation amount was relatively high. According to analysis by Lighter community member 0xTria, at that time, the initial liquidation of an account was 'every $1 of liquidation ≈ 1 point', and the community valued points at $15-30, which directly induced many users to use sub-accounts and new accounts to 'liquidate for points' for arbitrage. However, in subsequent versions, this weight has been significantly reduced.
How to avoid being manipulated by bad actors?
The crypto world is survival of the fittest. For ordinary people, we should not think about how many times we can earn, but how to minimize the chances of being liquidated or manipulated by large players. So how can we minimize the possibility?
Look at the chip structure.
The data platform ASXN has organized several Hyperliquid data that are very illuminating:
For example, OI/market cap ratio data. Open interest (OI) divided by market cap, expressed as a percentage. The higher the ratio, the more the derivatives position occupies the token's volume, making it more susceptible to capital manipulation. A typical example is when the positions inherited from the HLP liquidation vault once exceeded 40% of JELLY's circulation, leading to a domino effect where the price fell with just one push.
Similarly, the DEX liquidity table allows for a quick view of token on-chain liquidity and its manipulation risks, and to identify signs of hoarding by holders.
Funding rates and comparisons with major centralized exchanges allow us to discover potentially manipulated assets. When large positions enter thin open contracts, funding rates may appear abnormal compared to other exchanges.
Measure depth.
How to measure depth? How much would it cost to push the price up or down by 2%: How much buying volume is needed to push the price up by 2%? How much selling volume is needed to push the price down by 2%?
This is the true order thickness of optimal buy/sell on the outside, which is the attack cost for large players. Assets with poor depth = lower cost to skew the price, and the threshold for manipulation is low, so the risk is naturally high.
This also means that we should trade the tokens with the best liquidity on the platform with the best liquidity as much as possible.
Taking the core BTC/USDT as an example, within a 0.01% price difference range, the current mainstream perp dex depths are: edgeX $6M, hyperliquid $5M, Aster $4M, Lighter $1M.
This also means that the liquidity of other altcoins will be far below this level and depth, and the risk of manipulation will greatly increase, not to mention tokens like XPL that are traded before the market opens.
Be sure to read the liquidation agreement thoroughly.
Those who can see the rules usually find it easier to understand the risks they can bear.
Before starting formal trading, be sure to read all the liquidation rules: How is the mark price calculated? Does the platform primarily rely on external index prices, or is its own order book weight high? Especially for pre-market/cold varieties, be wary of whether the mark can easily be swayed by internal transactions. You can observe the Mark/Index/Last three numbers during normal and abnormal periods to see if there are significant deviations.
Is there layered margin? If so, the larger the position, the higher the maintenance margin, which means the explosion point moves forward. Is the liquidation path a market-order sweep of the order book or a phased building of positions? What is the liquidation ratio? What are the trigger conditions for backup liquidation? Are there liquidation fees? Where do the liquidation fees flow, to team income, vault, or foundation buybacks?
Additionally, even if two trading platforms hedge for risk management, there is still a significant risk if depth and liquidation mechanisms are ignored. Cross-platform hedging ≠ on-platform margin; these two matters should be viewed separately. If you can stop losses, you must set stop-losses; if you can use isolated positions, do so. Isolated positions will only affect that position and its margin, while cross positions should only place liquidity you can bear.
Lastly, it is worth noting that the risks of contract mechanisms are greater than most people imagine.
