Hyperliquid faced a significant financial setback on Wednesday, incurring a loss of $4.9 million due to extreme volatility in the price of POPCAT. Data from the blockchain analysis platform, Lookonchain, revealed that the price fluctuation was at the center of an organized manipulation. This incident showcased how fragile liquidity depth can become in decentralized derivative markets.
Pushing POPCAT to Artificial Heights
The disruptive episode, which eventually turned into an investigation, began when the perpetrator withdrew $3 million in USDC from OKX. This individual, posing as an investor, distributed the funds across 19 different wallets and opened leveraged long positions with amounts ranging from $20 to $30 million each, setting the stage for inflating the POPCAT price artificially. Subsequently, a $20 million buy wall was established near the $0.21 level, rapidly driving the price upward in a market with limited depth and diverting liquidity.
Upon reaching a certain level, these substantial buy orders were retracted. This abrupt shift caused a steep decline in POPCAT’s price, resulting in the liquidation of highly leveraged trader positions. At this point, the perpetrator’s $3 million collateral was entirely wiped out. The system’s protective mechanisms could not avert this loss within the few seconds it transpired.
HLP Reserve Absorbs the Damage
Following the liquidation process, Hyperliquid’s community-backed liquidity reserve, HLP, was compelled to cover the remaining debt. While the protection fund absorbed the loss ensuring the automatic liquidation protocols of the platform functioned, it also added a $4.9 million burden to its balance sheet. This incident revisited discussions on how devastating sudden price movements can be for decentralized derivative platforms.
Industry veterans described the event as “peak degen warfare.” According to witness accounts, the manipulator created a false perception of demand within the POPCAT market, disrupting depth, and subsequently initiated a rapid collapse, driving the system into losses predominantly borne by HLP. Reactions highlighted that the manipulation targeted not just prices but also the risk management framework of decentralized exchanges.
