Bybit CEO Ben Zhou has addressed the recent liquidation of a massive Ethereum (ETH) position on Hyperliquid, shedding light on the challenges of managing high-leverage trading on decentralized exchanges (DEXs) and centralized exchanges (CEXs).
The incident involved a whale holding a long ETH position valued at approximately 300 million, backed by a 15 million margin at 50x leverage. To exit the position without incurring significant slippage from a market order, the whale reportedly pushed the liquidation price higher by withdrawing floating profits, allowing Hyperliquid’s liquidation engine to take over the entire position once the liquidation threshold was reached.
Zhou highlighted that both decentralized exchanges (DEXs) and centralized exchanges (CEXs) struggle with large liquidations, as liquidation engines take control during this process. In response to an incident, Hyperliquid decreased leverage limits, capping Bitcoin leverage at 40x and Ethereum leverage at 25x to mitigate risks.
However, he cautioned that simply lowering leverage may not resolve the issue, as traders might seek higher leverage on other platforms. Zhou proposed a Dynamic Risk Limit mechanism that reduces leverage with larger position sizes, noting that traditional CEXs typically limit leverage for large positions to around 1.5x.
Zhou warned that users might circumvent leverage limits by using multiple accounts, particularly on platforms with weak KYC. He emphasized that decentralized exchanges (DEXs) wanting to maintain high leverage must adopt centralized exchange (CEX)-level risk management, including market surveillance and open interest limits. Despite Hyperliquid reducing leverage, he also noted that abuses could continue without better risk management strategies. He suggested that innovative liquidation mechanisms may be needed to address future risks.
In another development, Zhou has accused Pi Network of being a scam, citing a 2023 Chinese police report warning against fraudulent schemes linked to the project. He claimed X in response to an unofficial Pi Network technical team account that alleged the exchange was “rejected by Pi” for a listing.
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