As on-chain crypto exchange HyperLiquid gained popularity and its proprietary token HYPE reached all-time highs on Monday, misrepresentations about its traders’ profits spread across social media.
Crypto historian Smolting, known by his X handle InverseBrah, logged one particularly egregious example of a HyperLiquid trader — who had actually lost millions of dollars overall — climbing the wealth leaderboard.
Unfortunately, HyperLiquid’s profit and loss (PnL) dashboards can be confusing. By the end of the day on Monday, for example, HyperLiquid’s leaderboard claimed that its most profitable trader made more than $400 million in profit in the past 30 days despite no trading volume during those 30 days.
It’s the same story for the next three positions on the leaderboard: $200 million, $82 million, and $77 million in profit despite $0 trading volume.
Only the fourth-ranked trader or lower had actually traded this month.
A Binance wannabe spawning offshore hedge funds
Like Binance, HyperLiquid’s most popular offerings are leveraged bets on crypto prices via perpetually-rolling futures contracts, known simply as “perps.”
Both platforms are mostly centralized, operate their own blockchain, and have issued a proprietary token that provides trading discounts.
Unlike Binance, however, HyperLiquid allows users to create their own offshore hedge fund called a “vault.” In addition, HyperLiquid publishes the profit and loss of most of its traders — a marketing tactic that attracts disproportionate attention for its relatively small size.
Traders on both platforms are also subject to whimsical tweaks of collateralization requirements by administrators.
Although the older and far larger Binance is more orderly about changes to margin rules nowadays, the far younger HyperLiquid suddenly increased collateral margin requirements to 20% a few weeks ago. This was done after someone intentionally liquidated a large trade to incur a multi-million dollar loss onto a HyperLiquid liquidity pool (LP) operator.
HyperLiquid has also struggled with allegations of pay-to-play practices, closed-source code, poor documentation, and a centralized API.
Read more: Hyperliquid growth driven by leveraged degeneracy, trade sharing
Traders hyper-liquidating in public
Misconceptions about HyperLiquid’s leaderboards and the profits of its traders are so prevalent that Smolting, leader of the cunning community of wassie crypto traders, flagged a particularly comical claim that the pseudonymous James Wynn profited millions of dollars.
LookOnChain, a popular social media influencer with over half a million followers, looked at one version of HyperLiquid’s leaderboard and gleaned that Wynn’s profitability must have exceeded $25 million.
In fact, that trader was suffering a miserable losing streak at the time. The irony of the inappropriate applause earned the congratulatory tweet an archive in the permanent memory of the wassie collective.
Even Maru, Smolting’s predecessor, found the inverse correlation of profitability between Wynn and HyperLiquid hilarious.
Researchers corrected LookOnChain’s mistaken praise, noting Wynn’s below-average success ratio and dismissing his one-time, $25 million profit snapshot as only a partial recovery of prior, catastrophic losses.
Unfortunately, the prevalence of losses is a well-kept secret by many crypto trading platforms that often trade against their own customers. The higher the leverage, the higher the risk of loss.
Moreover, many unprofitable traders create new wallets to hide their past losses. Taking advantage of recency bias and the pseudonymity of crypto wallets, traders exploit HyperLiquid’s automated leaderboards to broadcast recent winners and down-rank old wallets.
