Hyperliquid faces criticism after a whale trader inflated the value of futures contracts for the XPL token by 200%, netting $15 million and incurring millions of dollars in losses for other traders on Wednesday.

Those traders now demand answers on why Hyperliquid didn’t do more to protect them from the large trader who managed to distort the price.

“This was not simply about a whale’s action, but about the mechanics of how it was possible to force the price up on Hyperliquid while other exchanges remained stable,” Monolith, a crypto hedge fund, said in an X post.

Monolith, as well as several other traders who lost money during the incident, argue that Hyperliquid provided no protections to prevent rich users from “manipulating” the market.

The large trader deliberately chose Hyperliquid to execute the trade instead of Binance, Bybit or any other perpetual futures exchange because of a lack of safeguards, Monolith argued.

‘It was only a matter of time before there was a pre-market perp price manipulation.’

—  Ryan Galvankar, founder of Opt.fun.

Hyperliquid did not immediately respond to a request for comment.

The protocol has responded to the August 27 incident, telling users that the platform worked as intended and that such pre-launch markets are inherently unpredictable.

Riskier markets

The incident marks a setback for one of DeFi’s standout success stories in recent years.

Since its 2023 launch, Hyperliquid has eclipsed all other onchain perpetual futures platforms. It’s a hit with traders because it marries the speed and usability of centralised exchanges like Binance with the transparency and self-custody of DeFi.

Over the past month, it handled more than $390 billion in trading volume, 851% more than the next biggest protocol, per DefiLlama data.

Yet Hyperliquid has added new futures markets that put traders at risk in its eagerness to grow the platform’s user base, critics say.

“Pre-market perps are extraordinarily high risk,” Ryan Galvankar, founder of Opt.fun, an options trading protocol on the Hyperliquid blockchain, told DL News.

“It was only a matter of time before there was a pre-market perp price manipulation.”

$15m profit

The whale’s trade focused on the newly launched perpetual futures market for XPL, the native token of Plasma, a soon-to-be-launched blockchain backed by Tether’s sister company, Bitfinex.

They used a large amount of funds to buy up all available futures contracts, pushing up the price from around $0.60 to $1.80 in minutes.

Many traders who bought XPL during its initial coin offering in July had entered into short positions on Hyperliquid’s XPL market to hedge their tokens.

When the price suddenly skyrocketed, these traders were forced to close their shorts by buying contracts on the market, adding fuel to the fire.

The large trader then sold their contracts at the higher price, netting a $15 million profit, according to onchain data.

The mystery trader’s identity remains unclear. Many onlookers allege the wallet that orchestrated the trade belongs to Tron founder Justin Sun. Sun did not respond to a request for comment.

‘Most exposed venue’

The open interest on the XPL market on Hyperliquid swelled to $257 million, almost double the interest on Binance, the biggest crypto exchange, Omer Goldberg, founder of Chaos Labs, a blockchain risk management firm, said on X.

“Becoming the most exposed venue for an illiquid market calls for additional caution in handling the linked risks,” Goldberg said.

The XPL futures markets on other exchanges, such as Binance and Bybit, didn’t experience the same volatility.

These exchanges implement caps on open interest to prevent users from artificially pushing up the price of illiquid assets.

They also reference external price data to ensure the prices of assets on their exchanges do not deviate meaningfully from the prices quoted elsewhere.

Since the incident, Hyperliquid said it will begin to incorporate external pre-launch perpetual futures prices if they’re available.

It’s not the first time a Hyperliquid trader has manipulated markets on the platform.

In March, a trader targeted the futures market for a memecoin called JELLY. The trader executed short trades on Hyperliquid while buying the token onchain, liquidating trades placed by the platform’s market maker vault, costing it $13.5 million.

Understanding risk

To be sure, incidents where traders distort prices on illiquid markets aren’t unique to Hyperliquid.

“Dislocations like this can happen across any derivatives platform when open interest builds quickly and large trades move through thin liquidity,” Nicholas Roberts-Huntley, co-founder of Blueprint Finance, a crypto infrastructure firm, told DL News.

In 2022, traders piled into perpetual futures for defunct lending platform Celsius’ CEL token, pushing it up 65% by targeting the large number of traders shorting the token.

For some, the onus is on traders participating in such markets to fully understand how they work before diving in.

“Every venue makes different design choices: some cap open interest or reference external price feeds, others emphasise speed and self-contained matching engines,” Roberts-Huntley said. “There are trade-offs to each approach.”

“What matters most is that users understand those differences before taking on risk.”