Trader Burns $3M to Create a $5M Deficit in Hyperliquid’s Vault

On a recent Thursday, a coordinated attack on the Hyperliquid platform led to a staggering loss of nearly $5 million from its Hyperliquidity Provider (HLP) vault. An unidentified trader used $3 million of their capital to manipulate the POPCAT market, triggering a series of cascading liquidations.

Key Takeaways

An unknown trader withdrew $3 million USDC and split it across 19 wallets.
The trader used these funds in Hyperliquid to create over $26 million in leveraged long positions.
By generating a $20 million buy wall, the trader artificially inflated market prices before canceling the orders.
The resulting drop in liquidity forced many leveraged positions into liquidation, leading to a significant loss of $4.9 million for Hyperliquid.
Despite causing substantial damage, the trader’s initial capital was entirely lost.

Trader burns $3M to create a $5M deficit in Hyperliquid’s vault

The Incident Explained

According to blockchain analytics firm Lookonchain, the incident began when the attacker withdrew $3 million USDC from the OKX crypto exchange. These funds were then spread across 19 new wallets. The trader subsequently directed these assets into Hyperliquid, taking out over $26 million in leveraged long positions tied to HYPE—a perpetual contract denominated in POPCAT.

Following this, the trader constructed a $20 million buy wall at approximately $0.21, creating a false signal of market strength to drive prices up. Once this wall disappeared, the market’s liquidity decreased sharply, leading to a lack of price support. Consequently, a multitude of highly leveraged positions faced liquidation, and Hyperliquid absorbed these losses, culminating in a $4.9 million deficit—one of the most significant losses the platform has experienced since it launched.

Source: Lookonchain

A Manipulative Strategy with No Profit

While the attack caused notable harm to Hyperliquid, the trader ended up losing their entire $3 million investment. This indicates that the perpetrator’s objective was to inflict structural damage rather than make a profit.

This incident exemplifies a trader deliberately sacrificing their own capital to disrupt an on-chain derivatives platform and examine the limits of its automated liquidity provision. Unlike typical market manipulation cases, the trader did not walk away with any financial gain. Instead, the strategy suggested a desire to fabricate liquidity and then collapse it, dragging Hyperliquid’s vault into a liquidation crisis.

Source: Abhi.sol

The aftermath of the event received mixed reactions from observers. One community member speculated that the $3 million might be hedged, implying that the attacker held concurrent positions elsewhere. Another user referenced the situation as “the costliest research ever.” Some even suggested that the act was merely an elaborate performance art piece, with one X user stating, “Only in crypto do villains burn millions for the plot.”

Another community member dubbed the situation “peak degen warfare,” highlighting how the attacker exploited the vulnerabilities within the automated liquidity framework. A different observer noted that perpetual markets lacking robust liquidity buffers are susceptible to such tactics, likening it to a free-for-all for anyone willing to "light money on fire."

Temporary Suspension of Withdrawals

On the same Thursday, community member jconorgrogan reported that the Hyperliquid bridge halted withdrawals. The developer revealed that the contract was paused using the “vote emergency lock” function, a precautionary measure taken against potential price manipulation. About an hour later, the developer confirmed that the platform had resumed processing withdrawal requests.

Hyperliquid did not officially link the POPCAT incident to this temporary suspension of withdrawals.

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