Written by: Three Sigma Compiled by: Block unicorn

Traders were liquidated and billions of funds evaporated. But what if the actual liquidation figure is 19 times higher than reported? We extracted the data and it might be worse than you think.

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1. Clearing

The world of trading is becoming easier for ordinary people to reach. Whether through so-called “masters”’s fancy courses or as an alternative to traditional work, the deal offers the temptation to work at home with a comfortable job, just one computer and the potential for a substantial income.

However, this is by no means easy, and if so, everyone will successfully trade. In fact, most people who try to trade will end up losing money and eventually breaking their positions. But what are the reasons for these losses? Often, it all boils down to a decisive event that every trader fears: liquidation.

Liding is a key mechanism in leveraged trading, which occurs when the trader's collateral or margin is insufficient to compensate for the loss in opening a position. In this case, the exchange will step in to automatically close the position, ensuring that the trader or the platform itself does not lose further.

Depending on the severity of margin deficiency and the platform's risk management mechanism, liquidation can take different forms. These can be roughly divided into two categories:

Partial clearing: involves reducing some of the traders' positions, while the rest remains active. This allows traders to stay in the market while reducing the associated risks.

All clearing: the entire position is closed, completely eliminating the trader's exposure. All liquidation is more common in a high leverage environment, and small price fluctuations may completely erase traders' collateral.

Key factors leading to liquidation

There are several factors leading to liquidation in transactions, all of which revolve around the subtlety between risk and marginBalance:

Leverage: Leverage allows traders to control larger positions with less capital, but this amplification of potential profits is accompanied by higher risks. The higher the leverage, the smaller the price fluctuation required to trigger liquidation. For example, using 50x leverage, a reverse volatility of only 2% will result in a loss of all collateral. 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 clears positions to prevent further losses. Ignoring or failing to monitor these requirements can quickly lead to forced liquidation.

Market volatility: sudden and extreme price volatility is the biggest enemy of traders, especially in high leverage positions. Volatility can quickly deplete available margin, leaving traders with little reaction time. In addition, high volatility periods usually lead to chain liquidation, and one liquidation triggers a chain reaction, further pushing the price to move in the wrong direction.

Squeeze!

One ​​of the most dramatic and rapid liquidation triggers is squeeze, which occurs when severe price fluctuations force traders on the wrong side of the market to close their positions. These events are driven by high leverage and low liquidity, creating a snowball effect that accelerates price action and intensifies market volatility.

When the price rises rapidly, traders holding short positions find themselves in trouble because their collateral is not enough to support their trading. To avoid further losses, they were forced to close their positions by buying back their assets, which further increased the pressure on price increases. This dynamic often turns into a series of liquidations, with one trader's exit pushing prices up, forcing others to liquidate as well.

In contrast, traders holding long positions face the same risks when prices suddenly fall. As their collateral value diminishes, they are forced to sell positions to meet margin requirements, further exacerbating the downward momentum. This selling pressure amplified the price decline, triggered more liquidation, and continued the decline spiral.

However, retail traders are driven by communities such as WallStreetBets on RedditThe coordinated purchases drove the stock price to soar unexpectedly. As prices rise, short sellers are forced to buy back their stocks at increasingly high prices to close their positions, further pushing up the price.

This feedback loop evolved into a historic event, with GameStop’s price soaring from about $20 in early January 2021 to an intraday high of $483 at the end of the month. The squeeze triggered billions of dollars in losses for institutional investors trapped in short positions.

2. API and clearing

In the cryptocurrency field, there are several noteworthy clearing events in history. However, the most memorable and far-reaching events are often the bull squeeze that occurs when the decline is. These events are larger in scale and have a more significant impact on traders and markets.

The following are some of the biggest clearing events in cryptocurrency history:

Not something unusual, Anonymous? Do you think the FTX crash or the Luna crash has done more damage than the liquidation incidents we’ve seen this year? Well, you are right.

Three key factors have led to the belief that the recent liquidation is greater than events such as the collapse of FTX or Luna:

Total market capitalization

In March 2020, the total market capitalization peaked at $266 billion, and by 2025, it had grown to a peak of $3.71 trillion. To truly understand the scale of these liquidations, we should consider the ratio of liquidation to market capitalization, not just absolute liquidation figures. The original numbers may make the recent liquidation appear larger than it actually is.

This chart allows us to better see the scale and impact of these liquidations, but there are still some data that are not true; this is the second point.

CEX WebSocket API Limitation

Until the second quarter of 2021, most CEXs provide accurate liquidation data through their APIs, reporting each liquidation. However, after 2021, they introduced a limit that limits liquidation data to liquidation per second, regardless of the number of liquidations actually occur.

This change significantly reduces the reported liquidation numbers, making the data after 2021 look smaller and less impact than accurate and comprehensive data in 2021.

@K33Research wrote a research article that they explained the situation with two simple but powerful charts:

In the first chart, you can see how liquidation slows down after API changes and continues to remain low, even if the total market capitalization is much higher than in 2021.

In the second chart, they compared the total liquidation volume to the daily changes in nominal open contracts. Daily big changes in nominal open contracts usually lead to large liquidation, but as we see in the chart, after the second quarter of 2021, there were no big liquidation peaks on days when open contracts fluctuated.

These APIs The official reasons for the change are "to provide a 'fair trading environment' (Bybit, September 2021) and 'optimized user data flow' (Binance, April 2021)", but some believe this is just a PR cause to avoid causing excessive FUD and retain real data for themselves.

Hyperliquid As an honest platform

Hyperliquid is the first Layer 1 blockchain to have a perpetual contract DEX, with transaction volumes that match CEX. Unlike CEX, Hyperliquid provides fully transparent and unlimited liquidation reports because its data is public.

This creates a unique environment for clearing data on one side (from CEX, due to reporting limitations) is restricted, but not on the other side (from Hyperliquid). Therefore, the overall reported liquidation data has increased significantly, thanks to Hyperliquid's transparency.

This level of transparency is of great significance to the wider trading ecosystem. In traditional centralized exchanges, clearing data are often selectively reported or summarized, limiting traders' ability to analyze market dynamics in real time.

Hyperliquid ensures that every liquidation event is publicly accessible, making the understanding of leveraged trading activities more accurate and comprehensive.

For traders, this means better understanding of market conditions, allowing them to identify potential squeeze scenarios, monitor risk levels or check market sentiment. Researchers and analysts also benefit from unfiltered on-chain liquidation data, which provides valuable insights into volatility patterns, risk behaviors and market responses to liquidation.

This unlimited access to data promotes a more equitable and efficient trading environment where all participants can access information equally.

By setting new transparency standards for perpetual trading, Hyperliquid not only challenges CEX opacity, but also improves the overall reliability of cleared data, allowing traders to operate with greater trust and improved market insights.

3. Real clearing data 3.1. Calculate the clearing ratio of Hyperliquid

Hyperliquid's transparency and extensive metrics allow us to see what has happened over the long period of time, while derivatives of centralized exchanges (CEX) fail to report data that matches the actual situation due to API restrictions. The data differences shown in the chart further confirm this problem, and although CEX's open contracts and trading volumes are significantly larger, its reported liquidation figures are still unrealistic.

Thanks to Hyperliquid, we now have a verifiable and accurate data set that compares the degree of deviation of CEX liquidation reports. The numbers provided to the media often depict an incomplete picture because they are based on a limited API and fail to capture the full scope of the liquidation. By contrast, Hyperliquid’s unlimited report provides transparent and detailed records of all liquidations, proving that CEX’s liquidation activity may be much higher than the publicly disclosed figures.

As we see in the two charts, the difference in clearing data between Hyperliquid and centralized exchanges highlights a major issue in the way clearing reports are. On CEXs such as Binance, Bybit, and OKX, open contracts and trading volumes are significantly greater than Hyperliquid, but their clearing percentages are unusually low. This inconsistency suggests that CEX's clearing data is either undervalued or obscured because it does not match the scale of leverage and trading activity that occurs on these platforms.

In the chart on the left, Hyperliquid's clearing is much higher as a percentage of open contracts, while the CEX ratio is questionably low, despite their derivatives market being very large. Likewise, in the chart on the right, the clearing of CEXs as a percentage of trading volume is almost negligible, which makes little sense given their huge leverage drive trading activity.

These charts show how Hyperliquid provides a more accurate and transparent view of the liquidation. Unlike CEXs that restrict public access to full liquidation data, Hyperliquid’s open on-chain report ensures that every liquidation is recorded, providing the true picture of market liquidation.

The small bar charts of Binance, Bybit and OKX do not indicate less liquidation, but reflect the opacity of CEX liquidation data reports.

3.2. Adjust CEX clearing data using the Hyperliquid ratio

To estimate the "real" clearing numbers for CEX, we use Hyperliquid's clearing to volume ratio and clearing to open contract ratio as the benchmark. We then compare them with the values ​​reported by CEX on two specific dates (December 9 and February 3) to obtain an adjustment factor.

Calculate the average ratio of Hyperliquid:

Liding / Open Contract (Hyperliquid)

December9: 1.07B / 3.37B ≈ 0.3175

February 3: 1.42B / 3.08B ≈ 0.461

Average ≈ 0.389 (38.9%)

License / Transaction Volume (Hyperliquid)

December 9: 1.07B / 5.30B ≈ 0.2021

February 3 Day: 1.42B / 18.0B ≈ 0.0789

Average ≈ 0.14 (14%)

We use these numbers (38.9% and 14%) as reference points to estimate how other exchanges will be cleared if they follow a similar ratio to Hyperliquid.

Apply these ratios to Binance, Bybit, and OKX:

For each CEX, we calculated two "adjusted" clearing numbers:

Use Hyperliquid's clearing/volume ratio

Use Hyperliquid's clearing/open contract ratio

Use Hyperliquid's clearing/open contract ratio

We then averaged the two adjustments for each date.

The results show that the liquidation figures reported by CEX (usually in the hundreds of millions of dollars range) are much lower than the billion dollar range implied by the Hyperliquid ratio.

The following are reports and adjusted clearing charts for each exchange on December 9 and February 3. Each exchange has two bar charts, with light blue and light green representing the reported liquidation, and dark blue and dark green representing the adjustedLiquidation.

The adjusted value is calculated by using the average of Hyperliquid's clearing to trading volume and clearing to open contract ratios as the benchmark. While this provides a clearer perspective for potential liquidation differences, there may still be some changes due to differences in market structure, retail participation and market maker activities.

Key Comments:

Significant underestimation of Binance, Bybit, and OKX: The reported liquidation (light blue/light green) is much lower than the adjusted value (dark blue/dark green), indicating that the actual liquidation may be much higher than the publicly disclosed figures.

Binance should report approximately 1.764 billion in liquidation: Adjusted data show that Binance's real liquidation on February 3 should be close to 1.764 billion, not the reported 611 million, highlighting the significant differences. On December 9, Binance should report 1.002 billion, not 739 million.

Bybit and OKX follow the same pattern: Bybit's adjusted liquidation was estimated at 815 million on February 3, rather than the reported 247 million; and 462 million on December 9, rather than 370 million. OKX also showed significant differences, with adjusted liquidation reaching 739 million on February 3 and 398 million on December 9, while its reported figures were 402 million and 425 million respectively.

3.3. Major liquidation events and their "real" estimates

We found a significant difference after comparing Hyperliquid's liquidation data with limited numbers reported by the main CEX. To quantify this, we collected data from Binance, Bybit, and OKX on December 9 and February 3, and specifically analyzed their reported clearing and trading volume and clearing-opening ratios.

To estimate the real liquidation, we calculated the average of the liquidation to transaction volume ratios for Hyperliquid, and then applied these ratios to the CEX data. Instead of using simple arithmetic mean, we are based onThe trading volume ratio for each exchange is weighted on each date. The clearing ratio for each exchange is calculated. This approach more accurately reflects clearing activities within the market scope.

When we first calculate the exchange-specific multiplier (Binance: 21.19, Bybit: 22.74, OKX: 13.87), the simple average indicates that the global multiplier is 19.27 times. However, after adjusting for the weighted differences in trading volume between exchanges, the more accurate weighted average reached 19.22 times.

This suggests that the true liquidation level of CEX may be about 19 times the official reported figure, or at least 19 times the number publicly provided through its restrictive API.

With this 19.22x multiplier, we analyzed some of the most important clearing events in cryptocurrency history to estimate what their true clearing numbers might be if they were reported transparently like Hyperliquid. The following table compares the liquidation amounts commonly cited with the adjusted value using the revised 19.22 times multiplier:

"Report" refers to the number published on an aggregator, social media, or limited API.

For events before the second quarter of 2021, clearing data is much more reliable due to the lack of API restrictions.

As this chart emphasizes, many post-2021 events can be significantly underestimated when directly referenced from CEX-reported data sources. By applying the multiplier derived from the full transparency of Hyperliquid, the liquidation scale of these events is much larger than the official figures suggest.

3.4. Comparison of liquidation with total market value

To provide more background information, we compared the total "real" liquidation of these events with the total market value at that time. The ratio calculation formula is: (Liquidation / Total Market Value) × 100:

By comparing the "real" clearing figures with the broader total market capitalization of the cryptocurrency market, we can have a more detailed understanding of the impact of each event on market dynamics. This not only illustrates the scale of capital that has been erased in a short period of time, but also reflects the dramatic changes in market sentiment when leverage is lifted.

In many cases, the adjusted ratio is more compelling, indicating that participants may face greater systemic risks than they might initially appear.

Authorizing these liquidation to market capitalization ratios allows for a clearer understanding of how market psychology and liquidity conditions change during extreme volatility.

4. Conclusion

From all the above data and comparisons, a clear pattern emerges: the content of CEX public reports is often much lower than that of "real" liquidation activities. When adjusted to match Hyperliquid’s transparency ratio, events like the Luna and FTX crashes showed a greater impact than their official numbers suggest, reinforced the view that CEX might underestimate liquidation data to mask volatility or manage public perceptions.

This comparison is particularly significant when considering historical events: The 2020 COVID crash, although larger in its era, is now relatively small, precisely because few participants were highly leveraged at the time. As leverage becomes more common, both the absolute and relative scale of liquidation is growing, but the limitations of official data flows may cause traders and analysts to have distorted views on systemic risk.

In addition, exchanges often quote reasons such as "optimizing data flow" or "ensure fair trading conditions", but limiting real-time clearing of data flows is obviously in the broader interest. Undervaluation of liquidation can reduce the fear of new retail participants, while also giving exchanges more proprietary insight into the overall risk exposure of the market.

Nevertheless, there are still signs that transparency is increasing. Bybit's Ben recently announced that Bybit has begun releasing real liquidation data, a move that could indicate the industry is moving towards a more open direction.

While these steps may help close the gap between reporting and actual liquidation activity, Hyperliquid's fully on-chain, unlimited reporting continues to highlight true transparency for any wish to navigate the leverage plusHow important is people with complexity in cryptocurrency transactions.