protos.com
HyperLiquid, a blockchain and derivatives exchange that incentivized early adoption with a large airdrop, is in the news this week for a degenerate example of crypto trading.
Rektober, a crypto influencer with 83,000 followers, took just two weeks to lose more than $1 million belonging to people who thought it would be a good idea to tag along in a copy-trading fund.
HyperLiquid platformed the losing strategy with its flagship offering, Vaults.
On HyperLiquid, influencers can create “vaults” that are basically miniature hedge funds. Although HyperLiquid is careful to prohibit US users and avoid language describing these vaults as though they’re investment products, the company designed them to ensure fund managers have “skin in the game” and share in the trading profits using users’ money.
Indeed, anyone can create, name, and advertise a vault, provided they seed it with at least 100 USDC and maintain 5% of its monetary value at all times. Vault leaders then welcome other people’s deposits into their fund and trade with those funds.
Vault leaders trade users’ money on crypto pairs and, as compensation for their leadership, receive a 10% profit share for managing the fund. To prevent outright theft, vault leaders may not withdraw users’ money from the vault. They may simply execute trades.
Rektober created a million-dollar HyperLiquid vault a few weeks ago. After a series of terrible trades, they wrecked (colloquially, “rekt”) their depositors to $0. Unsurprisingly, Rektober’s main social media account is now closed to public view.
Read more: HyperLiquid downplays ‘extreme centralization’ and pay-to-play criticisms
Sifu now tops HyperLiquid vaults
The next trader in line is only slightly better. According to HyperLiquid’s own leaderboard, the leader with the most money today operates the vault “Sifu.” The fund has lost 14% of its users’ money in the past month.
For context, Sifu is the nickname of Omar Dhanani, the convicted felon and co-founder of failed crypto projects QuadrigaCX and Wonderland.
While leading QuadrigaCX, Dhanani used the name Michael Patryn to disguise his identity. At Wonderland, he hid his identity using the pseudonym 0xSifu.
Since inception, HyperLiquid admits that over 300,000 users have experienced over $17 billion worth of liquidations while trading on its exchanges. HyperLiquid’s total value locked has declined by more than 29% in the past four weeks.