Heads up for Hyperliquid users: their Liquidity Provider (HLP) vaults just took a $4 million hit in a single 24-hour period.

The word comes straight from Hyperliquid’s X post on March 12th, pointing to a major liquidation event caused by a high-stakes trader as the reason for the loss.

Understandably, Hyperliquid’s HYPE token reacted to the news, dipping by over 3% in the last day. It briefly touched a low of $12.80 before seeing a slight recovery to around $13.90 by press time.

It’s worth remembering that Hyperliquid is a big player in the decentralized perpetual exchange space, actually leading the pack with over 64% of the market’s trading volume.

What exactly happened?

According to Hyperliquid, it all started with a trader, identifiable by the wallet address 0xf3f4, taking out a massive long position on Ethereum (ETH).

On-chain analyst EmberCN dug into the details, reporting that this “whale” opened a 50x leveraged long position on a whopping 175,000 ETH, which at the time was valued around $340 million.

Interestingly, the trader then partially closed their position, pulling out $17.09 million USDC. This move unfortunately tightened the margins on their remaining 160,000 ETH long position, ultimately triggering large-scale liquidations.

Hyperliquid has confirmed this sequence of events, but also highlighted that despite the liquidations, the trader still managed to close out with a profit of about $1.8 million. However, the HLP vaults weren’t so lucky, taking that $4 million loss we mentioned.

Hyperliquid is keen to remind everyone that HLP isn’t a guaranteed win, although historically, the vault has maintained a net profit of around $60 million.

For those unfamiliar, HLP is designed as a community liquidity vault within Hyperliquid. It’s geared towards market-making and liquidation strategies, where users can stake USDC and potentially earn a share of the platform’s profits (or absorb losses).

This setup aims to bring sophisticated, institutional-grade trading strategies to the everyday user, generating returns through trading fees, funding rates, and, yes, liquidations. As of now, the vaults are showing a negative annualized return of 34%.

In response to this event, Hyperliquid announced:

“To better safeguard against large position liquidations, we’re adjusting the maximum leverage for BTC and ETH to 40x and 25x respectively. This will increase the maintenance margin required for bigger positions, creating a stronger safety net for backstop liquidations.”