☄️ Hyperliquidated

If you weren’t one of the unlucky traders to be liquidated over the weekend — that counts for something. Happy to see you on the other side!

We could wring hands about how much leverage is too much, whether centralized exchanges are equipped enough to handle a futures market this big, or whether coins like BERA are, in fact, worthy enough collateral for margin trading. 

To which someone might say: Scared money don’t make money. There’s no crying in the casino. 

In a real casino, the rules are somewhat clear. Unlike Las Vegas, crypto only truly finds out the rules of the market in a crisis.

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📅 An existential day

It’s not like mass liquidation events need a logical reason to occur. But reasons do help with coping. 

There are a few theories speculating who might be responsible for tipping over the first domino that led to over $19 billion in liquidations this past weekend. Among the most curious is malicious traders exploiting Binance’s loose definition of collateral, alongside its flimsy oracles, even if it’s so far just a theory.

What’s clear is that the brunt of the initial collapse was localized around Binance books for Ethena stablecoin USDe, which depegged by one-third on the platform, and two liquid staking tokens in BNSOL and WBETH.

Binance has since apologized to affected users and says it has paid out $283 million in compensation. The exchange also outlined additional safeguards moving forward, including a minimum price threshold for USDe.

But the damage spilled out from Binance and onto perps DEXs. Hyperliquid’s engine “completely wiped out” more than 1,000 wallets during the crash, per Lookonchain, with combined losses across over 6,300 wallets totaling over $1.2 billion.

“I think the thing that got so many people so upset this weekend, especially with Hyperliquid, is that they weren’t even that levered,” Yano told Doug Colkitt (Ambient Finance) on an impromptu Empire livestream on Sunday.

“They weren’t 30x levered — I’ll read a message from a friend, which says:

“‘Hyperliquid failed, I don’t care what nonsense they preach. They just sold our funds, an eight-figure position. Pretty much an existential day for perps in my opinion. Not sure how anyone can trade on them — you could have been on 1.2x leverage and fully liquidated, which is insane.’”

The implication being that Hyperliquid’s auto-develeraging (ADL) system scooped up as many open positions as possible in the chaos, even ones with the narrowest of margins.

“If they’re going that far deep…,” Colkitt said, “like, eventually you’re going to ADL everyone in the market if things move bad enough; everyone’s going to get ADL’d. Even if you’re in profit. There are these criteria for how we rank people, but eventually you need a way to shut down the entire casino.”

No doubt, the ADL mechanisms for every CEX and perps DEX are going to be under scrutiny for the time being. 

For what it’s worth, CoinGlass provides a top-10 list of liquidation events in crypto of all time. It ranks October 10th as the number one by far – $19.2 billion, more than $9 billion ahead of the second-biggest, in April 2021, amid a ban on bitcoin mining in China.

What’s interesting is that eight of the top 10 liquidation events ever occurred in 2021, during peak bull market season.

The other two have happened this year, with $3.62 billion liquidated from what CoinGlass describes as a flushing of “over-leveraged longs” in September. That alone was three times as large as liquidations during the Terra depeg. CoinGlass blamed this weekend’s event on Trump’s threat of new tariffs on China.

With all the active points campaigns and potential future airdrops across perps DEXs, there’s little indication that leverage trading will slow down in light of all this. Maybe so if altcoin markets don’t rebound at all. But if they do, and exchanges respond appropriately, then the outcome might be simple: Margin traders will eventually come back, emboldened to bet bigger. 

So you’ve heard of bullish downtime. Now get ready for bullish liquidations.

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• Jeff Yan, Hyperliquid CEO, has outlined how Hyperliquid’s ADL system works on X.

• About 20% of the top-100 coins are still down by 20% or more over the past week, including ASTER, AVAX, ENA and SUI.

• BNB is otherwise up by 7%, having completely rebounded.