Original title: Liquidations, liquidations everywhere!
Original author: threesigmaxyz
Original translation: zhouzhou, BlockBeats
Editors note: This article explores the huge gap between the liquidation data reported by CEX and the actual liquidation activities. By comparing Hyperliquids transparent liquidation data with CEXs reported data, it reveals that CEX may underreport liquidation data to cover up market volatility or manage public perception. The article also emphasizes the importance of transparency to understand market risks and systemic risks, and points out that exchanges such as Bybit are taking more open liquidation data release measures to promote the industry towards higher transparency.
The following is the original content (for easier reading and understanding, the original content has been reorganized):
Traders were blown up and billions of dollars were wiped out. But what if the true blow-up number is 19 times higher than reported? We pulled the data, and it’s worse than you think.
1. Liquidation
The world of trading has become increasingly accessible to the average person, whether through fancy courses from so-called “mentors” or as an alternative to traditional work, trading offers the lure of potentially earning a substantial income from the comfort of your own home, with a computer.
However, it is far from easy, if it were that simple, everyone would be successful. In fact, most people who enter trading end up losing money and eventually blow up their accounts. So, what causes these losses? Usually, it all comes down to one defining event that every trader fears: blow-up.
A margin call is a key mechanism in leveraged trading, which occurs when a traders margin is insufficient to cover the losses of an open position. In this case, the exchange will step in and automatically close the position to ensure that the trader or the platform does not incur further losses.
Depending on the severity of the margin shortage and the platform’s mechanisms for managing risk, liquidation can take different forms. These forms can be roughly divided into two types:
Partial liquidation: involves reducing part of a traders position, while the remaining part remains active. This allows traders to continue to stay in the market while reducing the associated risks.
Full Margin: The entire position is closed, completely eliminating the traders exposure. Full margin margin is more common in a highly leveraged environment, where a small price movement can completely wipe out a traders margin.
The key factors behind the liquidation
There are many reasons for margin calls, all of which revolve around the delicate balance between risk and margin:
Leverage: Leverage allows traders to control larger positions with less capital, but this amplification of potential profits comes with higher risks. The higher the leverage, the smaller the price fluctuation required to trigger a margin call. For example, with 50x leverage, the price only needs to fluctuate 2% against the trend to result in a complete loss of margin. This makes risk management crucial in leveraged trading.
Maintenance Margin: Each exchange sets a minimum margin requirement that traders must maintain to keep their positions open. This maintenance margin acts as a safety buffer. When margin falls below this threshold due to losses, the exchange closes the position to prevent further losses. If these requirements are ignored or failed to be monitored, traders can quickly face forced liquidation.
Market volatility: Sudden and extreme price movements are a trader’s worst enemy, especially in highly leveraged positions. Volatility can quickly deplete available margin, leaving traders with little time to react. Additionally, periods of high volatility often lead to chain reaction liquidations, where one liquidation triggers a cascade of other liquidations, further driving prices in the wrong direction.
extrusion
Squeezes are one of the most dramatic and rapid triggers of margin calls, usually occurring when prices fluctuate sharply, forcing the markets opposite traders to close their positions. Such events are often driven by high leverage and low liquidity, creating a snowball effect that accelerates price movements and exacerbates market volatility.
When prices rise rapidly, traders holding short positions find themselves in a difficult situation because their margin is insufficient to support their trades. To avoid further losses, they are forced to close their positions by buying back assets, which puts more upward pressure on prices. This dynamic often quickly turns into a chain of liquidations, where one traders liquidation drives prices higher, forcing others to close their positions as well.
Conversely, when prices suddenly fall, traders holding long positions face the same risk. As their margin shrinks, they are forced to sell their positions to meet maintenance margin requirements, further exacerbating downward momentum. This selling pressure amplifies the price decline, triggering more liquidations and forming a downward spiral.
However, coordinated buying by retail traders, particularly driven by communities like WallStreetBets on Reddit, sent the stock price soaring unexpectedly. As the price rose, short sellers were forced to buy back the stock and the price kept climbing, further driving the price higher.
This feedback loop ultimately turned into a historic event, with GameStops stock price soaring from around $20 in early January 2021 to an intraday high of $483 at the end of the month. The squeeze event caused many institutional investors who were trapped in short positions to lose billions of dollars.
2. API and liquidation
There have been many noteworthy liquidation events in the cryptocurrency space throughout history. However, the most memorable and influential ones are often the “long squeezes” that occur in down markets. These events are larger in scale and have more far-reaching impacts on traders and the market.
Here are some of the biggest liquidations in cryptocurrency history:
Notice anything unusual here, Anonymous? Do you think the FTX crash or Luna debacle was more damaging than the liquidations we’ve seen this year? Well, you’re not wrong.
There are three key factors behind the recent liquidation incident, which is more serious than the FTX or Luna crash:
Total Market Value
In March 2020, the market cap reached $266 billion, and by 2025, the market cap had peaked at $3.71 trillion. To truly understand the scale of these blowups, we should consider the blowup-to-market cap ratio, rather than just the absolute blowup numbers. The sheer numbers can make the recent blowups look more severe than they actually are.
This chart gives us a clearer picture of the scale and impact of the blowup, but some of the data still doesn’t make sense; and that’s where the second problem lies.
Limitations of the CEX WebSocket API
Until the second quarter of 2021, most CEXs provided accurate liquidation data through their APIs, reporting every liquidation. However, starting in 2021, they introduced restrictions that limited the liquidation data to one liquidation per second, regardless of how many liquidations actually occurred.
This change significantly reduced the reported liquidation figures, making the late 2021 figures appear smaller and less impactful than those before 2021.
@K 33 Research wrote a research article explaining this, and demonstrated it with two simple but powerful charts:
In the first chart, you can see that after the API change, the number of liquidations has slowed down significantly, and even though the total market value is far higher than in 2021, the liquidation data remains at a low level.
In the second chart, the author compares the total liquidation volume with the change in daily notional open interest (OI).
Huge intraday moves in notional open interest typically trigger a large number of liquidations, but as we can see in the chart, after the second quarter of 2021, there has been no significant surge in liquidations on days with such large OI moves.
The official reasoning behind these API changes is: To provide a fair trading environment (Bybit, September 2021) and optimize user data flow (Binance, April 2021), but some people believe that this is just for public relations reasons to avoid causing excessive panic and to keep real data for themselves.
Hyperliquid as a real platform
Hyperliquid is the first Layer 1 blockchain perpetual DEX to reach sufficient trading volume to compete with CEX. Unlike CEX, Hyperliquid provides full transparency and unlimited reporting of all liquidation events because its data is public.
This creates a unique environment where on one hand CEX’s liquidation data is limited (due to reporting restrictions) and on the other hand Hyperliquid’s data is not. As a result, the total liquidation data reported has increased significantly, thanks to Hyperliquid’s transparency.
This transparency has significant implications for the wider trading ecosystem. In traditional centralized exchanges, liquidation data is often selectively reported or aggregated, which limits traders’ ability to analyze market dynamics in real time. Hyperliquid ensures that every liquidation event is publicly visible, providing a more accurate and comprehensive understanding of leveraged trading activity.
For traders, this means better visibility into market conditions, enabling them to identify potential squeeze scenarios, monitor risk levels, or gauge market sentiment. Researchers and analysts also benefit from unfiltered on-chain liquidation data, which provides valuable insights into volatility patterns, risk behavior, and market reactions to liquidations.
This unrestricted access to data promotes a fairer and more efficient trading environment where all participants have equal access to information. By setting a new transparency standard for perpetual trading, Hyperliquid not only challenges the secrecy of CEXs, but also enhances the overall reliability of liquidation data, allowing traders to operate with greater trust and richer market insights.
3. Real liquidation data
3.1 Calculating Hyperliquid Ratio
Hyperliquid’s transparency and extensive metrics allow us to see what is happening over long periods of time, while CEX’s derivatives section fails to report numbers that align with reality due to API limitations. The discrepancy in data seen in the charts further confirms this problem, as even though CEX’s open interest and volume are much larger than Hyperliquid’s, their reported liquidation numbers are still unrealistically low.
Thanks to Hyperliquid, we now have a verifiable and accurate dataset to compare the degree of distortion in CEX liquidation reports.
The data provided to the media often presents an incomplete picture because they are based on limited APIs and fail to capture the full extent of liquidations. In contrast, Hyperliquids unrestricted reports provide a transparent and detailed record of all liquidation events, proving that CEX liquidation activity may be much higher than publicly disclosed figures.
3.2 Adjust the CEX liquidation data to use Hyperliquid ratio
To estimate the “real” liquidation numbers on CEX, we used Hyperliquid’s liquidation/volume ratio and liquidation/open interest ratio as a benchmark. We then compared these ratios with the data reported by CEX on two specific dates (December 9 and February 3) to come up with an adjustment factor.
Calculate the average ratio for Hyperliquid:
Liquidation/Open Interest (Hyperliquid)
December 9: 1.07 B / 3.37 B ≈ 0.3175
February 3: 1.4 2B / 3.08 B ≈ 0.461
Average ≈ 0.389 ( 38.9%)
Liquidation/Trading Volume (Hyperliquid)
December 9: 1.07 B / 5.30 B ≈ 0.2021
February 3: 1.4 2B / 18.0 B ≈ 0.0789
Average ≈ 0.14 ( 14% )
We use these numbers (38.9% and 14%) as reference points to assess what liquidation data might look like if other exchanges followed similar ratios to Hyperliquid.
Apply these ratios to Binance, Bybit and OKX:
For each CEX, we calculate two types of “adjusted” liquidation data:
Liquidation/Trading Volume Ratio Using Hyperliquid
Liquidation/Open Interest Ratio Using Hyperliquid
We then took the average of these two adjusted results for each date.
As a result, the liquidation figures reported by CEXs (typically in the hundreds of millions of dollars) are far lower than the multi-billion dollar range implied by the Hyperliquid ratio.
Below is a chart of reported and adjusted liquidation data for December 9 and February 3. There are two bars for each exchange, with light blue and light green representing reported liquidation data and dark blue and dark green representing adjusted liquidation data.
The adjusted value is calculated by using the average of Hyperliquids liquidation/volume ratio and liquidation/open interest ratio as a benchmark. While this provides a clearer perspective on potential liquidation data discrepancies, there may still be some variation due to differences in market structure, retail participation, and market maker activity across exchanges.
Key comments:
The liquidation data of Binance, Bybit and OKX are seriously underreported: the reported liquidation data (light blue/light green) is much lower than the adjusted data (dark blue/dark green), indicating that the actual liquidation data may be much higher than the publicly disclosed figures.
Binance should have reported around 17,640M liquidation: The adjusted data suggests that Binance’s true liquidation on February 3rd should have been closer to 17,640M, rather than the reported 611M, which highlights a huge discrepancy. On December 9th, Binance should have reported 10,020M, not 739M.
Bybit and OKX follow the same pattern: Bybit’s adjusted liquidation data on February 3rd was 8,150M instead of the reported 247M, and on December 9th it was 4,620M instead of 370M. OKX also shows significant differences, with adjusted liquidation data of 7,390M on February 3rd and 3,980M on December 9th, while it reported 402M and 425M respectively.
3.3 Major liquidation events and their “real” estimates
After comparing Hyperliquid’s liquidation data with the limited data reported by major CEXs, we found significant differences. To quantify this difference, we collected data reported by Binance, Bybit, and OKX on December 9 and February 3, specifically analyzing their liquidation/volume and liquidation/open interest ratios.
To estimate the true liquidation data, we calculated the average ratio of liquidation/volume for Hyperliquid and then applied these ratios to the CEX data. Instead of using a simple arithmetic average, we weighted the liquidation ratio based on the proportion of each exchanges volume on each date. This approach provides a more accurate reflection of the markets overall liquidation activity.
When we first calculated the adjusted multiples for each exchange (Binance: 21.19, Bybit: 22.74, OKX: 13.87), a simple average gave a global adjusted multiple of 19.27x. However, after accounting for differences in volume weighting across exchanges, a more accurate weighted average is 19.22x.
This suggests that CEX’s true clearing data may be approximately 19 times higher than what is officially reported, or at least 19 times higher than what is publicly available through their restricted APIs.
With this 19.22x adjustment multiple, we analyzed some of the most notable liquidation events in crypto history to estimate what their true liquidation figures might be if they had the same transparency as Hyperliquid. The following table compares common liquidation amounts to what they would look like using the corrected 19.22x adjustment multiple:
“Reported” refers to numbers published on aggregators, social media, or limited APIs.
For events prior to Q2 2021, liquidation data is much more reliable as there are no API restrictions.
As this chart highlights, many post-2021 liquidation figures from CEX-reported data sources likely significantly underestimate actual activity. By applying multipliers derived from Hyperliquid’s full transparency, these events represent much larger liquidations than official figures would assume.
3.4. Comparing Liquidations to Total Market Cap
To provide more context, we compared the total “real” liquidations for these events to the total market cap at the time. The ratio is calculated as: (liquidation amount / market cap) × 100.
By comparing “real” liquidation data to the broader crypto market cap, we are able to get a more nuanced view of the impact each event had on market dynamics. This not only shows the scale of capital that was wiped out in a short period of time, but also how market sentiment can change dramatically when leverage is unwound.
In many cases, the ratios are more significant after adjustment, suggesting that participants may be exposed to greater systemic risk than initially apparent. Therefore, understanding these liquidation-to-market ratios can provide a clearer perspective on how market psychology and liquidity conditions change during periods of extreme volatility.
4. Conclusion
From all of the data and comparisons above, a pattern becomes clear: the numbers publicly reported by CEXs are often far lower than “real” liquidation activity. When adjusted to match the ratios transparent to Hyperliquid, events like the Luna and FTX crashes reveal larger impacts than the official data indicates, further reinforcing the idea that CEXs may be underreporting liquidation data to mask volatility or manage public perception.
This contrast is particularly stark when considering historical events: the 2020 COVID crash, while a major market event at the time, now looks relatively small precisely because there were fewer leveraged participants at the time. As leverage becomes more prevalent, the absolute and relative size of liquidations continues to grow, but limitations on official data flows can give traders and analysts a distorted view of systemic risk.
Furthermore, exchanges often use the excuse of “optimizing data flow” or “ensuring fair trading conditions”, but it is not difficult to see that limiting the release of real-time clearing data can serve a wider interest. Underreporting clearing data can reduce the fear of new retail investors, while also allowing exchanges to gain exclusive insights into the overall risk exposure of the market.
While these initiatives may help close the gap between reported data and actual liquidation activity, Hyperliquid’s fully on-chain, unrestricted reporting still highlights how important true transparency is for anyone looking to navigate leveraged crypto trading.
