Hyperliquid trader’s $170M oil orders raise spoofing concerns

Solidus Labs has flagged more than $170 million in suspicious oil-linked perpetual orders on Hyperliquid during March's energy-market volatility.

Summary

• Solidus reportedly identified two accounts placing suspicious orders during three days of volatile oil trading.
• Brent crude contracts accounted for most of the activity, with WTI and natural gas involved.
• Hyperliquid Labs pointed to public blockchain records in its response to the reported findings.

Lookonchain said the activity involved two accounts between March 8 and 10, with large orders repeatedly canceled while trades were completed on the opposite side of the order book.

Hyperliquid oil orders involved repeated cancellations

In Lookonchain's account, Solidus estimated the trader's three-day profit at roughly $119,000, with canceled order value around 30 times the value of opposite-side executions.

One March 9 example involved approximately $17 million in canceled sell orders alongside $425,000 in completed purchases, the summary said. Solidus described spoofing characteristics, although intent remained unconfirmed.

Hyperliquid Labs responded that orders, cancellations and transactions are publicly recorded onchain for review by market participants and regulators, according to the summary.

HIP-3 documentation assigns market operations to deployers

Hyperliquid's documentation assigns the definition and operation of HIP-3 markets to independent deployers. Their duties include choosing contract specifications, defining the oracle, setting reference prices and leverage limits, and settling a market when needed.

Each deployment has its own margining, order books, and operator settings, according to the protocol specification. The documented settlement function allows a deployer to halt an asset's trading, cancel outstanding orders, and settle positions at the current mark price.

The specification describes a separate validator process for penalizing deployers through reductions to their staked HYPE. Its stated focus is conduct that threatens the protocol's correctness, availability or performance, including irregular inputs that exploit system limits.

The documentation says technical slashing does not distinguish malicious behavior from incompetence or compromised operator keys.

In September, crypto.news reported that Hyperliquid was testing optional permissioned markets, allowing deployers to manage lists of approved participants. The preliminary design let operators appoint sub-deployers to handle access decisions, while existing markets could continue without adopting permissioning.

US spoofing guidance requires intent to cancel

The CFTC's May 2013 guidance defines the statutory spoofing offense around bidding or offering with the intention of canceling before execution. The commission says the standard requires intent beyond recklessness and excludes legitimate, good-faith order cancellations.

When assessing possible violations, the agency says it considers market conditions, trading patterns, fill characteristics, and other relevant circumstances.

A partially executed order does not automatically exempt the remaining activity from scrutiny, according to the guidance, which describes the provision's application to products traded on registered entities, including designated contract markets and swap execution facilities.

CME Group's explanation of its own rule describes large orders used to create an artificial appearance of buying or selling pressure while a trader obtains executions on the opposite side. The exchange says making a two-sided market with unequal quantities is permitted when the orders are entered for genuine transactions.

For energy perpetuals, the CFTC opened a separate consultation in June covering contracts linked to physically delivered or storable commodities. In its announcement, the commission sought comments on both continuous trading in conventional futures and the potential listing of perpetual energy contracts.

CFTC Chair Michael Selig called for a "clear, data-driven record" in the agency's June announcement.

Hyperliquid Policy Center and trade[XYZ] subsequently requested regulated energy perpetuals on Aug. 26, naming WTI crude, Brent crude and Henry Hub natural gas. Their submission called for a technology-neutral framework and safeguards covering leverage, funding and liquidation disclosures, according to the groups' published account of the filing.

The policy center cited its own research comparing weekend crude perpetual prices with the subsequent reopening of the benchmark futures market. In nearly 75% of the closures sampled, it said, the perpetual finished closer to the Sunday reopening price than the benchmark's Friday close.

Its study reported no statistically significant deterioration in CME WTI reopening quality after the crude perpetual launched.

The groups' published account said dated futures would continue serving participants needing physical settlement or exposure to particular delivery months. Their proposed perpetual contracts would have no expiration, using recurring funding payments to bring their prices toward the referenced market.

Payward's US market proposal separates clearing and client access

In an Oct. 26 update, Hyperliquid outlined Payward's proposed US markets, which would use optional HIP-3* permissioning and remain subject to regulatory approval. The announcement described preliminary specifications on testnet, with support for the configuration planned through a future network upgrade.

Payward's September announcement set out the proposed operating structure. Bitnomial, its regulated exchange and clearinghouse, would create, own and administer the markets while clearing and settling their contracts.

NinjaTrader Clearing would carry customer accounts, and participants would need to complete onboarding and appear on both entities' allowlists.

Payward co-CEO Arjun Sethi described the company's proposed role as "holding the keys and carrying the regulatory obligations." Its release said the new contracts would be listed under Bitnomial Exchange's rules, subject to regulatory approval.