Chinese authorities crack down on Hyperliquid money laundering

Chinese authorities have investigated cases of using Hyperliquid to launder funds. The DEX liquidation engine has been used to disguise profits with risky bets. 

Chinese authorities have intercepted three cases of money laundering involving Hyperliquid leveraged positions. According to Mirror Tang, founder of the Web3 security company Salus, Hyperliquid was ideal for creating a surface loss, which was then offset by counter-trading on centralized markets. 

Tang explained the mechanism was similar to the trades of James Tang, who has been liquidated multiple times in the past two weeks. The authorities discovered the potential laundering during a period of constant growth of Hyperliquid’s trading volumes, reaching up to 50% of Binance’s derivative market. 

自今年3月以来，中国执法机关已侦破3起使用 @HyperliquidX 进行加密货币洗钱的案件

操作手法是利用 Hyperliquid 的高杠杆爆仓机制，将非法所得对冲洗净：在 HL 上制造爆仓损失，在中心化交易所反向建仓获利，完成资金漂白

该策略结构与 @JamesWynnReal 操作路径高度相似

请 @chameleon_jeff…

— Mirror Tang (@mirrorzk) June 6, 2025

Hyperliquid retains the ability to create big losses and gains, as it returned the 40X leverage with on-chain trading. The perpetual DEX has been growing its influence on the crypto market, especially after the involvement of high-profile whales and the risky trader James Wynn.

The on-chain trading on Hyperliquid means all large positions are transparent, and can draw in counter-traders. This means some positions have been deliberately left to be liquidated, knowing it would cause a significant price move for BTC or other assets. 

Hyperliquid is still a no-KYC environment, allowing anyone to open anonymous, hard-to-identify positions. Unofficially, on-chain investigators have tracked suspicious clusters of liquidations, sometimes as high as $99M. The wallets used on Hyperliquid can also be entirely separate from other exchange accounts, with no direct transfer to KYC exchanges. This leaves whales with clean earnings from trading, with a provable origin from a centralized market. 

Previously, on-chain forensics by ZachXBT have shown that Hyperliquid has been used by hacker William Parker. In addition to laundering funds, Parker made $20M from shorting MELANIA.  

Hyperliquid remains outside regulators’ scrutiny

Hyperliquid remains permissionless, despite the significant risk of losses. The DEX often uses USDC as collateral, which is the only asset that can be frozen on request. However, even for Circle, USDC freezes are rare. 

A total of $2.76B of USDC has been bridged to Hyperliquid, becoming the only tool to stop trading by request of authorities. The tokens are held in liquidity vaults and personal accounts. 

Most of the biggest liquidations come from the BTC and ETH markets, but even meme token positions offer significant leverage. 

Hyperliquid used to short TRUMP tokens

The popularity of Hyperliquid means there are no limitations to trades, or even insider involvement. 

Recently, the advisor of World Liberty Fi opened a short position on Official Trump (TRUMP), after the asset started tanking in the past day. The advisor, known as @cryptogle, received a backlash from the community from seemingly showing disloyalty. He claimed World Liberty Fi and the TRUMP meme token were separate projects. 

The position has a liquidation price of $12.48, while TRUMP traded around $9.72. The whale’s entry at $9.48 put the position at over $60,000 in loss as the TRUMP price recovered from its lows.

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