Understand the hidden pitfalls of DeFi derivatives trading from $XPL events

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The huge liquidation of XPL staged in HyperLiquid this time is not an accident, because it is not a simple market fluctuation, but a blatant "liquidity hunting" that accurately exploits the weaknesses of mechanisms, humanity and market structure.

According to on-chain data monitoring, the core process of this incident is as follows:

• 05:35 a.m.: An address with 0xb9c... The 6801e whale suddenly invested a huge amount of USDC into HyperLiquid and opened a long position on XPL tokens with 3x leverage. Its ferocious buying momentum instantly wiped out the entire order book, causing the XPL price to start pulling up vertically.

• 05:36 – 05:37: The XPL price surged from nearly $0.6 to a peak of about $1.80 in just about 2 minutes, an increase of more than 200%. The sharp rise in price triggered the liquidation of a large number of short positions, with addresses losing about $4.59 million 0xC2Cb and 0x64a4 losing about $2 million.

• Swift Profit-Taking: At the peak of the price, the whale swiftly closed its position, locking in approximately $16 million in profits in just one minute. At the same time, the addresses of the other two whales that operate together are also taking profits at a high level. In the end, the three addresses made a combined profit of nearly $38 million.

Post-Profit Holdings: It is worth noting that after completing the main profit-taking operation, the whale still holds long positions of up to 15.2 million XPL, with a market capitalization of more than $10.2 million, indicating that it may want to continue to exert influence on subsequent market trends.

A total of 4 major addresses participated in the $XPL hedging sniping, with a cumulative profit of $46.1 million (Source: @ai_9684xtp)

Let's take a look at how this targeted sniping was done.

Utilize the disadvantages of liquidity: the process is clear and the techniques are sophisticated. On-chain data shows that at least 4 whale addresses participated in this sniping, sweeping away $46.1 million:

1. Exploiting Liquidity Disadvantages: Why XPL? Because it is an OTC contract, few people play it, and the liquidity pool is as shallow as a small puddle. In this environment, price control depends almost entirely on the volume of funds. The whale used triple leverage to directly sweep short pending orders, taking advantage of this structural asymmetry and leveraging the entire market at a relatively small cost.

2. Create a chain reaction of liquidation: The price soared from $0.6 to $1.8, not buying with real money, the whales only used the starting capital, the real fuel, and all the people who shorted.

Let me explain this "death spiral" to you: whales use large orders to pull up the price -> your short order is liquidated -> the system forces you to buy and close your position -> your buy order pushes the price further up -> The next short liquidation line has arrived...

When the snowball rolled to its maximum, the whales calmly sold chips to these passive buyers at high levels, completing the harvest.

1. Highly coordinated operations: The flow of funds on the chain clearly reveals that this is not a single battle. At least four addresses are like a training institution in terms of fund source, position building rhythm, pulling action and exit or rhythm.

2. Amplified platform design flaws: HyperLiquid's internal pricing mechanism is not connected to external oracles, which means that here, the price is completely up to the people in the field. Whales take advantage of this and "do whatever they want" in this shallow beach. What's even more ironic is that the JELLYJELLY incident a few months ago was the same recipe and the same taste.

JELLYJELLY Incident Review

This XPL incident is not an isolated case. On March 26 this year, HyperLiquid had a similar JELLYJELLY token price manipulation incident. At that time, a whale address first sold JELLYJELLY on a large scale, causing the price to plummet, forcing the platform's liquidity pool (HLP) to passively short. The address then quickly reversed the purchase, driving up the price, causing the HLP treasury to lose nearly $12 million. Afterwards, HyperLiquid had to delist the trading pair and compensate the damaged users.

Although the platform updated its leverage and liquidation mechanisms after the JELLYJELLY incident, the occurrence of the XPL incident demonstrated that its systems are still significantly vulnerable to attacks launched by whales using vulnerabilities in funds and mechanisms.

Don't want to be the next "meal on the plate", refer to the following XPL

incident to once again verify a cruel reality: in a market with insufficient liquidity, retail investors are the natural "rivals" and "fuel" of whales. To avoid falling prey to the next hunt, it is important to do the following:

• Don't play with sharks in the "little pond"

Don't easily engage in leveraged trading on pre-market contracts, new coins or small coins. Shallow water, few fish, good to start. If you have to participate, you must also regard it as a high-risk speculation, invest funds that can be reset to zero at any time, and do not have the illusion of "seizing the big market".

• Leverage is a rope that hangs you to death In

this market, there is no difference between 2x leverage and 20x leverage, it is a matter of moments. Always keep your position within a range that you can comfortably accept losses, such as 5% of your total capital. Survival is more important than anything else.

• Beware of abnormal markets and capital flows

When you see a coin taking off vertically for no reason, the sell order of the market is torn like paper, don't FOMO, run! That's not the opportunity to get rich, it's the beginning of the massacre. Capable traders can pay attention to on-chain data (refer to on-chain data platforms Onchain Lens, Lookonchain, etc.), and the inflow of large amounts of money into a specific platform before an attack is a common red flag.

Don't bet in a casino with opaque rules, take five minutes to see if the platform has oracles and if there is enough trading depth.

A good platform will find ways to protect you instead of letting the rules become a weapon for others to attack you.

After the incident, HyperLiquid released an official statement, with only one sentence in the full text: "It has nothing to do with us, you reflect on yourself".

• Don't bet on a fantasy

whale that makes money from poor information and loopholes in the rules, while many people lose money from fantasy gets rich. Stop chasing opportunities that don't belong to you, focus on risk control, more than anything else.

Finally, remember one sentence: in this jungle, the most dangerous thing is never the rise and fall of prices, but those who hide behind the rules and treat you as prey. Don't be prey.