Hyperliquid oil spoofing: $170 million in phantom orders for $119,000 in profits

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To understand the matter, you have to start from the order book. It is the public list of pending buy and sell offers in a market, ordered by price. Traders read it all the time. A large wall of sell orders suggests that the price will fall. Conversely, a big buying wall announces an increase.

Spoofing exploits this reading. The manipulator displays large orders that he has no intention of letting be executed. Let's take a simplified example. Brent is trading at $83 and the spoofer places $10 million in sell orders just above the price. The other traders believe in a selling wave and sell in turn, so that the price slides to 81 dollars. The spoofer then purchases discreetly at this low price. Then he cancels his false orders before they are affected. The wall disappears, the price rises and he sells at a profit.

A variant, layering, layers these false orders on several price levels to make the wall more credible. To spot a spoofer, monitoring companies like Solidus Labs look for three main signals. First, an overwhelming share of canceled orders compared to executed orders. Then, large orders withdrawn just before being hit. Finally, transactions in the opposite direction made at the same time by the same account.

The practice has been illegal in the United States since section 747 of the Dodd-Frank Act of 2010. This text prohibits placing an order “with the intention of canceling it before its execution”. In Europe, the regulation on market abuse, known as MAR, also classifies these false orders as price manipulation.

The playing field also deserves a definition. A perpetual contract is a derivative product with no maturity date. It allows you to bet up or down on Brent with leverage, without ever holding oil. On Hyperliquid, these contracts are traded 24 hours a day in an entirely on-chain order book, visible to everyone.

The scenario described by Bloomberg fits this definition. On March 9, one of the two accounts canceled approximately $17 million in sell orders. At the same time, $425,000 of purchases were being made on the other side of the book, or forty times less. In other words, this account was withdrawing approximately $40 in orders for every $1 actually traded. According to Solidus Labs, the Brent perpetual first slipped from 83.06 to 81.42 dollars in around ten seconds. It then climbed to $87.56 in less than a minute. The same trader also accounted for more than 90% of the cancellations in this market. Over three days, the estimated gain reached $119,000.

Machine-translated from French