How did the “Insider” cause Hyperliquid’s treasury to lose $4 million in a short period of time?

On the afternoon of March 12, "Brother Insider" entered Hyperliquid. He deposited $5.22 million and then used 50 times leverage to go long ETH and BTC at $1,884.4 (clearing price $1,838.2) and $82,003.9 (clearing price $61,182) respectively. In the previous two days, he had made a net profit of US$2.2 million with two ultra-short-term long operations with a win rate of up to 100%.

Immediately afterwards, "Brother Insider" was fully fired. He increased his long position in ETH to 72924.87, worth approximately US$138 million, reaching the highest record of personal opening order coins. After some operation, the floating profit reached US$993,000, while the liquidation price was only US$29 from the market price. At this time, he converted all BTC positions into ETH longs, and bridged $10 million to Hyperliquid as margin, placing long orders of 5,508.08 ETH at a price of $1,921.

At this moment, "Brother Insider" has transferred a total of 15.23 million USDC margin. Its long positions in ETH surged to 140,000, worth US$270 million, accounting for 24.65% of the total Hyperliquid ETH contract position (US$1.1 billion), with a floating profit of up to US$3.1 million. At this point, everything seemed normal, with the liquidation price of US$1,877, which is lower than the market price. However, the storm is about to strike.

At 17:08, the situation suddenly changed. "Insider Brother" made three consecutive operations of closing positions, closing positions and being liquidated, and then withdrew about US$8 million. ETH price fell sharply due to his closing operation, and in just 5 minutes, it fell from $1,970 to around $1,910. What is puzzling is that even under ultra-high leverage, the liquidation price is around US$1,877, and it is still far from the market price of US$1,970. Why is this happening?

It turned out that "Brother Insider" staged a "cancerous method". The Hyper block browser shows that when the long position is open, he tried to withdraw three times in a row at 17:05. The first time he failed to succeed in "the withdrawal amount exceeded the single transaction limit", he then divided $8 million and $9 million, withdrew more than $17 million USD. This is nearly $2 million more than its margin, meaning that all remaining positions have been liquidated and he has locked in a profit of nearly $2 million.

After a large amount of margin was withdrawn, the liquidation price of "Insider Brother" quickly rose. At 17:08, more than 100,000 ETH long positions were closed at US$1,915 and were liquidated by Hyperliquid treasury. However, due to the huge amount, ETH continued to fall during the closing process, and HLP eventually suffered all losses of about US$4 million. This series of operations is astonishing and has also caused Hyperliquid to suffer a heavy blow.

From the perspective of platform mechanism, HLP is essentially a liquidated fund, and deposit users are potential victims. This loss exposed the platform problem. If arbitrary withdrawal of floating profits is allowed, most CEXs do not allow this operation because floating profits are unrealized profits, and withdrawals can easily cause liquidity risks. In addition, the platform lacks restrictions on the opening of large-scale orders, and the HLP vault takes over the liquidated warehouse at a fixed price. These loopholes were exploited by "Insider Brother", resulting in huge losses.

Previously, OKX suffered losses due to malicious operations by super big players, and then improved the contract system to limit operations such as floating profits and margin transfers. Hyperliquid's incident also reflects the investment risks of Defi. Even if HLP seems to be full of liquidity, it is hard to compete with the black swan event. The operation of "Brother Insider" sounded a wake-up call to the entire crypto market. Platform regulatory loopholes need to be improved urgently, and investors also need to be more cautious about Defi investment.