Understanding the Hidden Traps of DeFi Derivatives Trading from the XPL Incident

Author: K2 Kai; Source: X, @kaikaibtc

The massive liquidation of XPL that occurred on HyperLiquid this time is not an accident, as it mirrors the previous JELLYJELLY incident. It is not just a simple market fluctuation, but an overt "liquidity hunting" that precisely exploited the weaknesses of mechanisms, human nature, and market structure.

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

• 05:35 AM: A whale with the address 0xb9c…6801e suddenly poured a huge amount of USDC into HyperLiquid and opened a long position on the XPL token with 3x leverage. Its fierce buying momentum instantly swept through the entire order book, causing the XPL price to begin a vertical surge.
• 05:36–05:37: Under the strong pull of this giant whale, the price of XPL soared from nearly $0.6 to a peak of about $1.80 in just about 2 minutes, an increase of over 200%. The sharp rise in price triggered a large number of short positions to be liquidated, with address 0xC2Cb losing approximately $4.59 million and 0x64a4 losing about $2 million.
• Quick Profit Taking: When the price peaked, the giant whale quickly closed its position, locking in about $16 million in profit in just one minute. Meanwhile, two other cooperating whale addresses also took profits at high levels. In the end, the three addresses collectively profited nearly $38 million.
• Post-Position: It is noteworthy that after completing the main profit-taking operations, this whale still holds a long position of up to 15.2 million XPL, with a market value exceeding 10.2 million dollars, indicating that it may wish to continue influencing subsequent market trends.

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

Let's take a look at how this targeted strike was achieved?

Exploiting liquidity disadvantages: The process is clearly divided, and the methods are sophisticated. On-chain data shows that at least 4 whale addresses participated in this attack, taking away 46.1 million dollars:

1. Exploiting Liquidity Disadvantages: Why XPL? Because it is a pre-contract, not many people participate, and the liquidity pool is as shallow as a small puddle. In this environment, the control over the price almost entirely depends on the capital volume. Whales use three times leverage to directly sweep away the pending orders, precisely taking advantage of this structural asymmetrical advantage, leveraging the entire market with relatively small costs.
2. Creating a cascade of liquidations: The surge in price from $0.6 to $1.8 wasn't driven by real money purchases; the whales only used initial capital, and the true fuel was all the short sellers.

your short position gets liquidated

1. Highly Coordinated Operations: The on-chain flow of funds clearly reveals that this is not a solo operation. At least four addresses exhibit funding sources, position building rhythm, pump actions, and exit rhythms as if they came from the same training institution.
2. Exaggerated platform design flaws: HyperLiquid's internal pricing mechanism does not connect to external oracles, which means that here, the price is entirely determined by the people in the market. Whales are taking advantage of this, doing as they please in this shallow water. Ironically, the JELLYJELLY incident from a few months ago had the same formula and the same taste.

JELLYJELLY Event Review

The recent XPL incident is not an isolated case. On March 26 of this year, HyperLiquid experienced a similar price manipulation incident involving the JELLYJELLY token. At that time, a certain whale address aggressively sold JELLYJELLY, causing the price to plummet and forcing the platform's liquidity pool (HLP) to passively short. Subsequently, the address quickly bought back, driving the price up, which resulted in a loss of nearly $12 million for the HLP treasury. In the aftermath, HyperLiquid had to delist the trading pair and compensate the affected users.

Despite the platform updating its leverage and liquidation mechanisms after the JELLYJELLY incident, the occurrence of the XPL incident indicates that its system still has significant vulnerabilities when facing attacks initiated by whales exploiting funds and systemic loopholes.

Don't want to become the next "dish on the plate"? Refer to the points below.

The recent XPL incident once again verifies a harsh reality: in a market with insufficient liquidity, retail investors are the natural "counterparty" and "fuel" for whales. To avoid becoming the next victim of a hunt, the following points are crucial:

• Don't go play with sharks in the "small pond"

Do not easily participate in pre-market contracts, new coins, or small-cap leveraged trading. The water is shallow, the fish are few, and it's easy to take a bite. If you must participate, you must regard it as high-risk speculation, investing funds that can be written off at any time; do not harbor the illusion of "catching a big market trend."

• Leverage is the rope that hangs you

In this market, there is no difference between 2x leverage and 20x leverage; it's all a matter of an instant. Always keep your position size within a range you can calmly accept losses, such as 5% of your total capital. Surviving is more important than anything else.

• Beware of abnormal order books and capital flows

When you see a coin take off vertically for no reason, and the sell orders on the order book are torn apart like paper, don’t FOMO, run away! That’s not an opportunity to get rich; that’s the beginning of a massacre. Capable traders can pay attention to on-chain data (refer to on-chain data platforms like Onchain Lens, Lookonchain, etc.), as massive funds flowing into specific platforms before an attack is a common warning sign.

• Don't place bets in a casino with opaque rules

Before playing, take five minutes to see if this platform has an oracle and if there is sufficient trading depth. A good platform will find ways to protect you, rather than letting the rules become a weapon for others to attack you. After the incident, HyperLiquid issued an official statement, which was only one sentence: "It has nothing to do with us, reflect on yourself."

• Don't gamble your fortune on a fantasy

Whales make money from information asymmetries and loopholes in the rules, while many people lose money chasing fantasies of getting rich quickly. Stop chasing opportunities that don't belong to you and focus your energy on risk control; it's better than anything else.

Remember this一句话: In this jungle, the most dangerous thing is not the rise and fall of prices, but those who hide behind the rules and see you as prey. Don't be a prey.