Hyperliquid Implementing New Safeguards After XPL Liquidation

Hyperliquid experienced a remarkable 2.5x price surge in the XPL perpetual market prior to its launch, triggering rapid updates to its protocol-level safeguards in light of extensive liquidations. The price increase was linked to substantial trades by large investors, or whales, affecting the entire order book. As a result, the platform switched from standard liquidations to auto-deleveraging in mere minutes, resulting in over $17 million in trades primarily lost by short positions, according to CoinGlass data. Four addresses reportedly executed the short squeeze on XPL, yielding profits exceeding $46 million. Currently, the XPL token from Plasma, which is supported by Bitfinex, is available on several pre-listing platforms, including Hyperliquid and Binance's pre-market environment. At one point on Tuesday, the price of Hyperliquid's XPL/USD pre-market perpetual contract peaked at nearly $1.80 before seeing a correction and a smaller increase back to $1 on Wednesday. During the same timeframe, the XPL/USD pair on Binance peaked at only $0.55. Despite the market chaos, Hyperliquid confirmed via its official Telegram channel that both the blockchain and liquidation systems functioned as intended, executing liquidations through the order book initially before reverting to auto-deleveraging, a fallback liquidation method for when traders' positions lack sufficient margin. Hyperliquid assured users that its "hyperps" utilize isolated margin, meaning profits or losses from XPL positions do not affect other assets, ensuring only the XPL market experienced these liquidations, with no bad debt incurred by the protocol. The company highlighted that "Pre-launch markets are inherently unpredictable" and emphasized that its robust mark price formula effectively regulated instant price spikes by necessitating a period of elevated order book prices before liquidations could commence. The incident showcased the dual nature of permissionless and composable markets. While some criticized Hyperliquid's handling of the situation, fearing it might erode confidence in its pre-market model, others defended the platform, stating it acted within its guidelines and held no obligation to intervene or provide reimbursement. The team reaffirmed that Hyperliquid operates as a permissionless protocol with diverse markets, each presenting unique risk profiles. Users are strongly urged to review the documentation to comprehend market mechanics and implement appropriate risk management strategies prior to trading. All hyperps come with warnings regarding low liquidity, high volatility, and increased liquidation risk. In response to user feedback and the recent events, Hyperliquid is set to introduce two significant updates in its next network upgrade. The first is a hard cap that will restrict hyperp mark prices to 10 times the 8-hour exponential moving average, establishing clearer risk boundaries for over-collateralized shorts. The platform clarified that this measure aims to boost liquidity provision during volatile periods and will not retroactively change any existing liquidations. Secondly, the mark price formula for hyperps will now factor in external perpetual market data when available, such as Binance's XPL market data, enhancing price signal reliability in thin markets without altering profit or loss realizations or funding mechanisms. Hyperliquid had previously clarified that its hyperps do not rely on an external index oracle; instead, funding is benchmarked against the contract’s own moving average, which lowers manipulation risks associated with pre-launch futures. Regardless of the tumult, Hyperliquid's native cryptocurrency surged more than 10% in the past 24 hours, reaching a new all-time high of approximately $51, as reported by The Block's HYPE price page.