Hyperliquid to introduce new safeguards following crypto whale-driven XPL pre-market liquidations

A sudden 2.5x price spike in Hyperliquid's pre-launch XPL perpetual market prompted swift updates to protocol-level safeguards, following widespread liquidations. 

The surge, attributed to whale-driven sweeps of the entire order book, forced the platform to shift from standard liquidations to auto-deleveraging in a matter of minutes, with over $17 million worth of traders' positions wiped out amid the anomaly, according to CoinGlass data, mostly on the short side. According to one analyst, four addresses participated in short-squeezing XPL on Hyperliquid, with cumulative profits reaching over $46 million.

Plasma's yet-to-launch XPL token currently trades on pre-listing venues, including Hyperliquid, as well as Binance's pre-market platform. Hyperliquid's XPL/USD pre-market perpetual contract shot up to a price of nearly $1.80 at one point late Tuesday before correcting, followed by a smaller spike toward $1 again on Wednesday. In contrast, XPL/USD on Binance only reached a peak of $0.55 during the period.

Plasma is a Bitfinex-backed, stablecoin-focused Layer 1 that secured around $373 million worth of commitments in a 10-day oversubscribed public sale in July.

Hyperliquid XPL/USD price chart. Image: Hyperliquid.

No technical issues

Despite the chaos, Hyperliquid confirmed via its official Telegram channel that the blockchain and liquidation systems functioned as designed without any technical issues, first executing liquidations against the order book and then falling back to auto-deleveraging — a last-resort liquidation mechanism that kicks in when a trader's position has insufficient margin and the system cannot liquidate the position through the order book without bad debt.

Hyperliquid reassured users that its "hyperps" use isolated-only margin, meaning that profit and loss on XPL positions are isolated from other assets, confirming that the liquidations only affected the XPL market and the protocol incurred no bad debt.

"Pre-launch markets are inherently unpredictable," the team said. "The robust mark price formula for hyperps correctly prevented an instant spike, requiring several minutes of elevated order book prices before triggering liquidations."

The incident serves as a reminder of the double-edged nature of permissionless, composable markets. While some criticized Hyperliquid for allowing such anomalies to occur, warning it could collapse confidence in its pre-market model, others argued the platform acted within its stated rules and bore no obligation to intervene or offer compensation.

"Hyperliquid is a permissionless protocol with different markets, each with unique risk profiles," the team added. "Users are strongly encouraged to read the documentation to understand the mechanics of markets like hyperps and to apply appropriate risk management before trading. All hyperps include a warning for users to beware of low liquidity, high volatility, and increased liquidation risk. "

New safeguards

In response to the incident and user feedback, Hyperliquid is rolling out two key updates in its next network upgrade. First, a new hard cap will limit hyperp mark prices to 10x the 8-hour exponential moving average — a measure aimed at offering overcollateralized shorts clearer risk boundaries.

"Note that this would not have changed any of today’s liquidations or ADLs, but is intended to encourage liquidity provision during periods of volatility," the project said. "Different suggestions from users all come with a different set of risk vectors. The best solution is to onboard more liquidity for these markets to reduce the effects of volatility."

Second, the mark price formula for hyperps will now incorporate external perpetual market data, where available, for the same pre-launch asset — such as Binance's XPL market. This is designed to improve the robustness of price signals in thin markets, without changing realized profit and loss or funding mechanisms.

Hyperliquid previously explained that its hyperps do not rely on an external spot or index oracle. Instead, funding is set versus a moving average of the contract's own mark price — arguing that this approach would reduce manipulation risks typical of pre-launch futures.

Despite the issue, Hyperliquid's native cryptocurrency rose more than 10% over the past 24 hours to reach a new all-time high of around $51, according to The Block's HYPE price page.

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