[Weekly Defi] Hyperliquid TVL Plummets 32% Due to Liquidation Crisis

# DeFi Liquidity Decline Continues Amid Significant TVL Drops The DeFi (Decentralized Finance) market is grappling with a continued decline in liquidity, leading to noticeable drops in the Total Value Locked (TVL) across major protocols. Notably, the decentralized DeFi exchange Hyperliquid saw a 32.11% plunge in its TVL over a seven-day period, exacerbating market jitters. According to data from DeFiLlama as of the 14th, the TVL across major blockchains has generally decreased. Ethereum's TVL shrank to $44.75 billion, marking a 12.4% dip from the previous week and a 21.17% decline over the past month, underscoring a deterioration in liquidity. Solana also reported a decline in TVL, falling to $6.59 billion. This marked a 13.29% drop in seven days and a 26.33% decrease over the past month. Despite showing strong recovery in recent months, the TVL for Solana has retreated due to weakened investor sentiment and liquidity shortages. Bitcoin's DeFi TVL saw a 9.87% reduction over the past week, down to $5.32 billion, while the Binance Smart Chain (BSC, BNB Chain) experienced a slight decline, dropping 0.96% to $5.09 billion. # Hyperliquid's 32% TVL Plunge Amplifies Concerns The most significant change this week has been Hyperliquid's drastic TVL decrease. Hyperliquid's TVL plummeted 32.11% in a week, falling to $426 million. On a monthly basis, it experienced a 35.10% decline, marking the largest drop among major DeFi protocols. The primary cause of the TVL decline is attributed to a massive liquidation event on the 12th (local time). A trader (wallet address 0xf3f4) opened a long position in ETH worth $340 million, which triggered a forced liquidation after removing collateral. Although the HLP (Hyperliquid Market Maker Vault) system took over the position, price fluctuations resulted in a $4 million loss. Hyperliquid clarified that the incident was not due to a protocol hack or vulnerability exploit. Nevertheless, the platform experienced a sharp drop in liquidity post-event, leading to a rapid decline in TVL as investors pulled out. Following the incident, Hyperliquid's native token HYPE fell by over 12% before showing some recovery. # DeFi Market Volatility Expected to Widen Events like the Hyperliquid liquidation, coupled with decreasing liquidity and deteriorating investor sentiment, suggest that volatility in the DeFi market is likely to persist. To prevent a recurrence of such incidents, Hyperliquid announced measures including a reduction in maximum leverage for Bitcoin (BTC) and Ethereum (ETH) trading, and an increase in margin requirements for large positions. However, it remains uncertain whether these steps will sufficiently restore investor confidence. For the DeFi market to recover, it is crucial to expand liquidity supply, increase trading volumes, and restore investor confidence. Nonetheless, experts caution that risks inherent in market-making models, as evidenced by Hyperliquid's recent turmoil, could lead to additional volatility.