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How One Trader Cost HyperLiquid $4M
Last week, HyperLiquid lost $4M because of a single trader. Here's what happened.
What's HyperLiquid? It's the most successful new L1 of this cycle.
It started off as a perps platform. And built a cult-like community by creating a world-class perp product and rewarding its users with a generous airdrop.
Like all perps platforms, HyperLiquid needs market makers to provide liquidity. That's where HLP comes in.
What is HLP? It stands for Hyperliquidity Provider, a core part of HyperLiquid.
It's a protocol vault that runs market-making strategies on HyperLiquid. Its fully community-owned. Anyone can deposit USDC to the vault.
You can learn more about HLP here.
The vault had been consistently making money. In fact, to date, it has an all-time profit of around ~$60M. Naturally, some users started assuming it was a risk-free machine.
But that was never true.
When you deposit USDC into HLP, you're taking on the market risks of the vault's strategies. Essentially, you're acting as the counterparty to traders on HyperLiquid.
Smart investors knew that HLP could take losses. But they figured, "The house always wins, right?"
Well, not this time. A trader on HyperLiquid "cheated" and HLP lost $4M.
How did the attacker "steal" from HLP?
He deposited a total of ~$15.23 million, built a 20x leveraged long position in $ETH. The notional value had reached 160,234 ETH ($306.85 million).
But he had a problem. It is a problem that everyone who trades in big size faces: they can't sell without tanking their position. If he tries to close the trade normally, it'll tank position value, and his profits will evaporate.
Instead, he withdrew collateral. He got $17.09M USDC out. And made a profit of $1.86M.
HLP, the counterparty to the attacker, was left holding the ETH long position.
Since the collateral was gone, ETH position was force-liquidated. Their native liquidation engine couldn't manage the huge size. And HLP couldn't recover the full amount it fronted. It lost ~$4M.
And that's not even the end of it. The attacker knew forced liquidation would crash the price. He likely made even more money by shorting ETH on other exchanges like Binance.
The attacker probably made more than $1.86M. He knew ETH was gonna dump cuz of the massive forced liquidation. He'd get more money if had opened short positions on other exchanges like Binance.
The Aftermath
The fallout was immediate. $HYPE crashed. The price was ~$14.5 on March 12. It crashed to ~$12 on March 13th. That's a big 17.2% fall.
There was some debate if this should be considered as a hack or exploit. But as HyperLiquid said, there was no hack. The "attacker" just made use of a weakness in HLP's mechanism design.
HyperLiquid is working on fixes. They've already lowered the leverage limits for BTC & ETH. We might see more changes to better manage these kinds of risks.
This whole episode is a reminder: DeFi is complex, and even the best-designed systems have hidden weaknesses.
Sponsored By SynFutures
Synthia: The Door to a Simpler DeFi Experience
It's no secret that A.I. is transforming everything.
And Crypto is an industry that will benefit from A.I. We all caught a glimpse of it with the recent A.I. agent narrative.
It was the first time in a LONG TIME that I felt as though we're actually creating something innovative (and not just another layer 2).
Now that things are quieter, it's time to see which projects are real vs. which ones are simply hype.
One of the best examples of a real protocol that combines A.I. and Crypto is SynFutures.
What is SynFutures? It's a derivatives platform on Base & Blast.
- ~$280 billion in cumulative perp trading volume.
- It's the #1 derivatives project on Base in the last 30 days.
- The team has been building since 2022. So they're long-term players, not just hype-chasers.
- Despite launching its token in Q4 2024, they've kept building. They released products like the Spot Aggregator and Synthia AI Agent and plan to launch their web3 AI framework.
- Top teams like Polychain, Pantera Capital, Dragonfly, Framework Ventures, Hashkey Capital, and more also back it.
DeFi's original promise was to bring "Finance for everyone". But let's be real—we're nowhere close.
Why? Because using DeFi is still a nightmare. You have to learn the horrible wallet UX, secure seed phrases, click through multiple websites, confusing protocols, and more.
SynFutures has a great solution for this problem.
Meet Synthia. It's a DeFi-focused AI Agent from SynFutures. Using it, everyday users can access DeFi from X/Twitter using natural language commands.
Just tag @Synthia_SF and tweet out your DeFi command in plain English, She'll handle everything for you. She'll find the best rates, execute the order on chain, and confirm it.
No more struggling with clunky interfaces—just tweet and trade.
Saw some $F alpha on X? Instead of fumbling through a DEX, just tweet "Hey @Synthia_SF buy $500 worth of $F." Boom. You get $F in your wallet within seconds.
This isn't just a cool trick. It'll allow you to execute your trades faster than others.
Additionally, Synthia further reduces friction to use DeFi. Checking X is already part of our habits. It'll be easier to tweet at Synthia to buy something rather than going through the usual terrible UX.
Natural language is intuitive for everyone. So once this agent interface is perfected by SynFutures, it can attract a ton of normie users who otherwise wouldn't bother with DeFi.
All that sounds great.
But what exactly can Synthia do?
#1. Asset transfers. You can simply use a command on X to send tokens to your friends' addresses or ENS names. No more complicated UX.
#2. Spot trading. By just posting text commands on X, you'll swap assets via SynFutures' Spot Aggregator.
The Smart routing is built-in. So you'll get the best prices across multiple spot DEXs. You can see the trades onchain as well. It's transparent. You don't have to trust some company like with CEXes.
Key point: it only works for assets on the Base chain.
#3. Market intel. Synthia's X account shares market updates, analysis, trending opportunities, and more constantly. You might be able to find good alpha there.
If you find alpha on X, you can immediately buy the token by replying to it. You'll be faster than people who use traditional UX.
But tbh, this isn't my preferred strategy. I don't like blindly buying tickers mentioned on X. Especially tickers from an agent.
If you say that DeFi is a lot more than the above actions, you are correct. In the future, Synthia will add the ability to execute many more DeFi actions.
- #4. Cross-chain swaps. Right now Synthia can only trade assets on Base. But once it integrates bridging solutions, it'll be able to access assets on other chains as well.
- #5. Perpetual futures trading. Perp trading will be accessible from X. Due to the user-friendly UX, it can lead to spot traders starting trading perps.
- #6. Liquidity management. Providing liquidity and earning yield on assets is a foundational skill in DeFi. Normies will be able to do that by
- #7. Copy trading. Do you have a CT influencer who consistently makes great calls? Based on his tweets, Synthia can copy-trade him for you.
- #8. Complex trading strategies Beginner trading strategies like placing stop loss and limit orders will come soon.
- Advanced set-and-forget strategies will come as well. Users can define trading conditions directly on Twitter. Synthia will handle the execution.
- #9. And more. Onchain activities are expanding rapidly. Betting on Truemarkets is an example. Synthia will eventually allow you to do new actions like that as well.
Soon, Synthia will be your personal assistant, automating everything with simple commands.
But SynFutures' vision isn't limited to that. They want to create an AI-driven DeFi ecosystem.
AI-Powered DeFi
They have a 3-phase roadmap for their DeFAI ecosystem. The current Synthia agent is just phase 1 of a bigger plan.
In Phase 2, they'll focus on the AI Agent Development Ecosystem.
- Anyone will be able to create AI trading agents using no-code tools.
- Devs will be able to customize DeFi automation using API/SDK access.
- It'll have a modular architecture that enables customized trading strategies.
- Ready-made AI agents specializing in specific tasks such as trading strategies or market analysis will be available.
- AI agent marketplace to trade and deploy AI agent templates, plugins, and data APIs.
Phase 3 will focus on meta agents. They're AI agents that create and manage other AI agents. Agent swarms, aka collaboration of multiple agents, will be prioritized during this phase as well. These can give us self-optimizing trading models.
Learn more about their AI roadmap here.
Right now, you should be hyped up about Synthia. But she does have limitations that you need to keep in mind.
- Right now, Synthia can only execute transactions on the Base chain.
- X/Twitter account dependency. In the current model, your X account will have control over your assets. So if someone hacks your X account, they'll get your assets as well.
- So, make sure to secure your X account properly. Set a strong password, change it regularly, add 2FA, yada, yada, yada.
Still, Synthia is a game-changer. At the very least, it's worth trying out. Then you can decide if it's for you.
Getting started is super simple. You just have to go to this website. Everything is intuitive.
But if you need a step-by-step explanation, here's one:
But honestly? You don't need a guide. Just try out the agent directly below.
🚀 DeFi Catalysts
Solana failed to pass the SIMD-228 that proposed to reduce the SOL inflation. This happened despite the vocal support from SOL leaders like Toly & Mert.
Ethena introduced the Converge blockchain. It's a purpose-built settlement layer secured by $NEA and with a permissioned application set.
Ethereum launched a new testnet called Hoodi. This was the result of two testnet failures while upgrading to Pectra on them.
Compound Finance has launched Morpho-powered vaults on Polygon PoS. Using a competitor at the backend had created some controversy.
LayerZero introduced a new tool that allows smart contracts to quickly query and compute data from any source with minimal gas fees. It's called lzRead.
Crypto.com validators related to the company forced through a vote that'll re-mint 70B CRO. This highlights the need for decentralization.
🪂 Airdrop Alpha
Shardeum has opened the airdrop registration. Early contributors and testnet participants are eligible for the airdrop.
🚀 New Launches
RemusDEX, a fully onchain order book DEX went live on StarkNet. It claims to offer a CEX-like experience.
Bullet is a network extension (aka L2) that focuses on trading with features like 2ms latency. It has launched testnet.
Biconomy Network introduced its application layer. It aims to be the universal interface for all chains. With it, all chains will feel like one.
🐦⬛ X Hits
- 52 trading tips.
- Overview of MegaETH ecosystem.
- Binance Research's report on BTC in DeFi.
- Three ponzi problem: an analytical framework.
- HyperLiquid founder on the $4M loss.
😂 Meme
Until next time,
Edgy
Today's email was written by Edgy and Yayya.
DISCLAIMER: I'm NOT a financial advisor. This content is for education and information purposes only. Crypto and DeFi are risky and speculative. Please do your research before investing.
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