Bybit CEO Ben Zhou criticizes decentralized exchange (DEX) risk controls after an Ethereum (ETH) trade liquidation tanked Hyperliquid. The loss and its impact on the platform have restarted conversations about DEX safety measures and their ability to handle dangerous market activities.
On March 12 an unknown whale carried out an organized trade strategy targeting an ETH position that used 50x leverage and 175,000 ETH assets. The trader using $340 million gradually moved their funds to reach their liquidation limit.
The trader initiated position closing by selling 15,000 ETH assets and receiving 17.09 million USDC from margin funds that lowered security but increased the chance for market forces to take action.
Folks are asking me for my take on Hyperliquid Whale massive ETH position liquidation. To me, this ultimately leads to the discussion on Leverage, DEX vs CEX capabilities to offer low or high leverage. Hear me out:
Essentially what happened was a whale used Hyperliquid…
— Ben Zhou (@benbybit) March 13, 2025
Whale Liquidation Causes $4M Hyperliquid Loss
After the 160,000 ETH position was sold at $1,915 each the liquidation engine HLP Vault failed to unwind it leading to over $4 million in floating losses. Despite losing money from the platform Hyperliquid the whale achieved profits worth $1.8 million when leaving the market.
After the incident Hyperliquid confirmed that the loss came from a purposeful liquidation tactic carried out by the whale. The platform lowered trading leverage for Bitcoin and Ethereum to 40x and 25x plus boosted margins for big positions to avoid future financial risks.
A 12% dip in HYPE values happened at first when news broke out yet market stability returned when investors stopped worrying about the vault losses. Zhou indicates that the main weaknesses in DEX risk management would remain even if leverage limits were lowered.
Regarding commentary and questions on the 0xf3f4 user's ETH long:
To be clear: There was no protocol exploit or hack.
This user had unrealized PNL, withdrew, which lowered their margin, and was liquidated. They ended with ~$1.8M in PNL. HLP lost ~$4M over the past 24h. HLP's…
— Hyperliquid (@HyperliquidX) March 12, 2025
Decentralized trading platforms faced this issue for the initial time during their operations. During 2022 GMX experienced a match when traders exploited an asset pricing flaw to undertake sizable trades without disrupting the market much.
The trader successfully took between $500000 and $700000 out of GMX because its liquidity system had important flaws. According to Zhou the current challenges at DEXs will remain until they make essential upgrades. By decreasing leverage Hyperliquid decreases future risk exposure but even so such situations can happen again.
Zhou Proposes Security Measures for DEXs
Zhou has created various security measures to help DEX infrastructures better resist intentional market withdrawals from users. A dynamic risk limit system should handle leverage changes automatically according to trading position numbers. At positions above certain limits the trading platform would automatically decrease leverage to prevent traders from exploiting liquidation procedures.
According to Zhou leverage for CEX trades usually stays below 1.5 maximum since it lowers overall industry dangers. The trader would need to use multiple accounts to work around these rules according to our speaker.
DEXs face an important challenge because they do not require traders to prove their identity. This makes it easy for users to create many wallets and maintain extreme leverage ratios in their trading activities. Zhou recommended DEXs develop surveillance technologies comparable to what CEXs employ to address these issues.
These monitoring tools would find traders who misuse the system by launching collaborative trading schemes and manipulating market order books. Zhou wanted DEXs to put restrictions on open positions to block traders from building excessive holdings that might weaken the platform.
Although Hyperliquid lowered its leverage levels successfully Zhou warns that DEXs need to match what centralized exchanges do to prevent liquidation exploits. He demands that trading platforms adopt active techniques like adjusting leverage levels and checking market behavior to guarantee their lasting availability.
The importance of risk control at DEXs stays a top challenge in the developing DeFi world. Organizations will have to show if they will actively shield users from next threats or keep enduring market attacks as they did.
