A coordinated attack caused Hyperliquid's Hyperliquidity Provider (HLP) vault to lose nearly $5 million, as an unidentified trader spent $3 million in capital to manipulate the POPCAT market, triggering a chain liquidation.
Blockchain analysis firm Lookonchain shared that it all began when the attacker withdrew $3 million in USDC from the OKX cryptocurrency exchange and split the funds into 19 new wallets. The trader then injected the assets into Hyperliquid, opening over $26 million in leveraged long positions linked to the platform's POPCAT-priced perpetual contract HYPE.
Subsequently, the trader established a $20 million buy wall around the price point of $0.21. This became a man-made strong signal, driving the market up, after which the orders were canceled. When the buy wall collapsed, liquidity decreased, and price support vanished.
This meant that dozens of high-leverage positions were forced to liquidate, with HLP absorbing these losses. Hyperliquid's vault later showed a loss of $4.9 million, marking one of the largest single-event blows since the platform's launch.
While the attacker caused damage to Hyperliquid, the event showed that the market manipulator's own $3 million capital was completely wiped out. This indicates that the attacker's goal was structural destruction rather than profit.
This series of events clearly demonstrated a trader intentionally burning their own capital to shock on-chain derivatives venues, leveraging their liquidity architecture and stress-testing the limitations of automated liquidity provider vaults.
The incident differed from typical market manipulation events, as the attacker did not profit from the occurrence.
Instead, the trading structure indicated that the goal was to create artificial liquidity and make it collapse, dragging Hyperliquid's vault into a liquidation chain reaction.
Observers reacted differently to this move. One community member speculated that the $3 million was hedged, suggesting the attacker locked positions elsewhere. Another X user described the event as "the most expensive research in history."
Another community member suggested that the event was not an attack but rather a $3 million performance art piece. "Only in the cryptocurrency space would a villain burn millions for the plot," this X user wrote.
Meanwhile, one community member described this as "top-tier decentralized warfare," with the attacker exploiting the absorption capacity of automated liquidity providers.
This X user stated that it serves as a reminder that perpetual markets without solid liquidity buffers are open to anyone willing to "burn money."
On Thursday, community member jconorgrogan reported that the Hyperliquid bridge had stopped processing withdrawals.
Developers stated that the contract used the "voting emergency lock" feature to pause, indicating that the team had taken precautions to prevent potential manipulation.
About an hour later, developers reported that the platform resumed processing withdrawals.
Hyperliquid did not release any official announcement linking the POPCAT incident to the temporary freeze on withdrawals.
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Original article: “Trader Burns $3 Million, Leading to $5 Million Shortfall in Hyperliquid's Fund Pool”
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