Falling again? Liquidation data is underestimated, and market risks are far beyond imagination

The liquidation data released by CEX is often significantly lower than the actual liquidation activity.

Author:Three Sigma

Compiled by: Shenchao TechFlow

Traders were liquidated and billions of dollars were wiped out. But what if the actual liquidation size is 19 times higher than reported? We dug deep into the data and found that the situation was worse than you might think.

1. liquidation

With just one computer, you can easily work from home and potentially earn a good income.

But the truth is far from that simple. If trading is so easy to succeed, everyone will be winners. However, the reality is that most people who try to trade will end up losing money or even losing their positions. So, what caused these losses? The answer often points to one word that every trader fears:Liquidation.

Clearing is the core mechanism in leveraged trading. When a trader’s collateral or margin is insufficient to cover losses on open positions, the exchange will automatically intervene and force the position to avoid further losses to the trader or the platform.

Depending on the severity of the margin shortage and the platform’s risk management mechanism, liquidation is usually divided into the following two forms:

• Partial liquidation:Only part of the trader’s position was reduced, and the rest remained in the market. This approach reduces risk while allowing traders to continue to participate in the market.

• Full liquidation:Directly close all positions and completely eliminate traders ‘risk exposure. This situation is more common in highly leveraged transactions, because even small price movements can cause a trader to clear out all of his collateral.

Main reasons for liquidation

Liquidation usually occurs due to an imbalance between risk and margin, and the following are several key factors that lead to liquidation:

• lever：Leverage allows traders to control larger positions with less money, but it also amplifies risk. The higher the leverage, the less price volatility is needed to trigger liquidation. For example, at 50 times leverage, only 2% price fluctuations can cause traders to lose all collateral. Therefore, in leveraged trading, risk management is crucial.

• Maintenance margin:Every exchange sets a minimum margin requirement, which traders must maintain to keep their positions from being cleared. Maintaining a margin is equivalent to a security buffer. When losses cause margins to fall below this threshold, the exchange will force the position to liquidate to avoid greater losses. If traders ignore or fail to monitor these requirements in a timely manner, they may quickly fall into forced liquidation.

• Market volatility:Violent price fluctuations are the biggest enemy of highly leveraged traders. Volatility quickly consumes margins, giving traders little time to react. In addition, during periods of high volatility, the market often experiences chain liquidations: a liquidation may trigger a chain reaction, further pushing prices in an unfavorable direction and exacerbating losses.

market squeeze

One of the most dramatic and fastest triggers in liquidation is“Squeezes”。This occurs when sharp price fluctuations force traders in the wrong direction in the market to close their positions. Extrusion is usually made byhighleverand low liquidityJointly promote, form a snowball effect, accelerate price changes and intensify market volatility.

When prices rise rapidly, short traders face tremendous pressure because they no longer have enough collateral to support their positions. In order to avoid greater losses, they had to close their positions by buying back assets, which in turn drove prices up further. This cycle often evolves intoChain clearing (cascade of liquidations): One trader is forced to close his position, pushing up the price, which in turn triggers liquidation by other traders.

Conversely, long traders face similar risks when prices suddenly fall sharply. As the value of collateral shrank, they were forced to sell positions to meet margin requirements, a sell-off that exacerbated the downward trend in prices. The increase in selling pressure further pushed prices lower, triggering more liquidations, and ultimately forming a downward spiral.

It is worth mentioning that GameStop’s short squeeze in early 2021 is a classic case. A joint buying operation launched by retail traders in the Reddit community WallStreetBets unexpectedly sent shares sharply higher. As prices soared, short traders had to buy back shares at higher prices to close their positions, which pushed up shares further.

This feedback loop eventually turned into a historic event: GameStop’s share price surged from about $20 in early January 2021 to an intraday high of $483 at the end of the month. The squeeze resulted in billions of dollars in short losses for institutional investors.

2. API and Clearing

In the history of the cryptocurrency market, there have been many high-profile liquidation incidents. However, the most impressive thing is often“Long squeezes”——That is, the liquidation triggered by the price decline. Such events are often larger in scale and have a more profound impact on traders and markets.

Here are some of the largest liquidation events in cryptocurrency history:

Have you noticed anything unusual? Do you think the impact of the FTX crash or Luna crash will far outweigh the liquidation events that occurred this year? Your instincts are right.

There are three core reasons why people feel that the recent liquidation event is more serious than the FTX or Luna crash:

2.1 Growth in total market value and scale of liquidation

In March 2020, the total market value of the cryptocurrency market peaked at US$266 billion, and by 2025, this figure soared to an all-time high of US$3.71 trillion. In order to more accurately assess the size of liquidation, we need to focus on the liquidation-to-market cap ratio, rather than just the absolute liquidation amount. Relying solely on raw data may make recent liquidations seem larger than they actually are.

2.2 Data limitations for the Centralized Exchange (CEX) WebSocket API

Prior to the second quarter of 2021, most centralized exchanges provided detailed clearing data through their APIs, capable of recording and reporting every clearing. However, starting in 2021, many exchanges have begun to limit clearing data. Regardless of how many clearing actually occur, the API will only report clearing records at most once per second.

The introduction of this data cap has significantly reduced the transparency of liquidation data, making liquidation data after 2021 seem less than previous comprehensive data, and its influence is therefore underestimated.

@K33Research clearly reveals this problem through two charts in its research:

• The first chart shows that since the API change, the number of liquidations has dropped significantly. Even though the total market value of the market has increased significantly after 2021, the number of liquidations has remained at a low level.

• The second chart compares total liquidation volume with the daily change in nominal open interest (notional OI). Normally, sharp fluctuations in nominal open interest contracts will trigger large-scale liquidations, but starting from the second quarter of 2021, even in days when nominal open interest contracts fluctuate violently, there has been no obvious peak in liquidations.

The official reasons given for the API change are to provide a fair trading environment (Bybit, September 2021) and optimize user data flow (Binance, April 2021). However, there is a view that this may be a public relations strategy to avoid triggering excessive panic (FUD) and keep real data within the exchange.

Hyperliquid: A trustworthy transparent trading platform

Hyperliquid is the first perpetual contract decentralized exchange (perpetuals DEX) built based on the Layer 1 blockchain, and its transaction volume has reached a level comparable to centralized exchanges (CEXs). Unlike traditional CEX, Hyperliquid provides completely transparent and unlimited liquidation data reporting. All data is open to the public and can be checked by anyone at any time.

This transparency has brought unique changes to the market:On the one hand, due to limitations in CEX’s reporting mechanism, its liquidation data is usually artificially processed.capped; On the other hand, Hyperliquid’s clearing data is fully public and unrestricted.This difference has led to a significant increase in the reporting volume of overall liquidation data driven by Hyperliquid.

This transparency has profound implications for the entire trading ecosystem. In traditional centralized exchanges, clearing data is often selectively disclosed or aggregated, making it difficult for traders to analyze market dynamics in real time. Hyperliquid’s on-chain liquidation data ensures that every liquidation event is visible to the public, providing traders with more accurate and comprehensive information on leveraged trading.

For traders, this transparency means they can have a clearer understanding of market conditions, such as identifying possible squeeze opportunities, monitoring risk levels or assessing market sentiment. Researchers and analysts also benefit from unfiltered on-chain data, which provides insights into market volatility, risk behavior, and the reaction of liquidations to markets.

This unrestricted access to data not only promotes a fairer and more efficient trading environment, but also ensures that all market participants have equal access to information.

By establishing a new transparency standard for perpetual contract trading, Hyperliquid not only challenges CEX’s data opacity, but also significantly improves the reliability of clearing data, allowing traders to gain deeper market insights based on higher trust.

3. Real clearing data to Hyperliquid ratio

3.1. Calculation of Hyperliquid ratio

Hyperliquid’s transparency and rich indicator system allow us to clearly observe the true dynamics of the market. However, due to API restrictions, CEX’s derivatives trading failed to provide data consistent with the actual situation. Although CEX has much higher open interest and trading volume than decentralized exchanges, it reports unusually low clearing data. This data difference is particularly evident in the chart, which further verifies the limitations of CEX data reporting.

Thanks to Hyperliquid’s transparency, we now have a verifiable and accurate data set that can be used to compare deviations in centralized exchanges (CEXs) clearing reports.

Clearing data cited by traditional media is often based on restricted APIs that cannot capture the full picture of clearing activities, so the numbers provided are often incomplete. Hyperliquid’s unlimited on-chain data reporting provides a transparent and detailed record of all clearing activities, which also proves that CEX’s clearing activities may far exceed its public disclosure level.

It can be intuitively seen from the two charts that there are significant differences between the liquidation data of Hyperliquid and CEX, which reveals a core issue in current liquidation reports. On CEXs such as Binance, Bybit, and OKX, the size of open interests and trading volume is much higher than that of Hyperliquid, but the liquidation ratio is disproportionately low. This apparent contradiction suggests that CEX’s clearing data may be understated or cover-up because they are not consistent with the size of active leveraged transactions on its platform.

In the chart on the left, Hyperliquid has a significantly higher ratio of liquidations to open interest than CEX, which has an abnormally low ratio, even though they have a large derivatives market. Similarly, in the chart on the right, CEX’s clearing as a percentage of trading volume is almost negligible, which is clearly inconsistent with its highly leveraged trading activity.

These charts clearly show that Hyperliquid provides a more realistic and transparent perspective on clearing. Unlike CEX’s practice of restricting public access to complete clearing data, Hyperliquid’s on-chain data reports ensure that every clearing is fully recorded and publicly available, thus truly reflecting clearing activities in the market.

It is worth noting that the low value of the liquidation ratio in the Binance, Bybit and OKX charts does not mean less liquidation activity, but rather reflects the low transparency of CEX liquidation data reporting and potential statistical flaws.

3.2. Adjust CEX clearing data based on Hyperliquid ratios

In order to estimate CEX’s true liquidation data, weCompare Hyperliquid’s Liquidations-to-Volume ratio and liquidations-to-transaction ratioliquidationContract ratio (Liquidations-to-OI) as benchmark

Hyperliquid ratio calculation and CEX clearing data adjustment

• Liquidation/Open Interest Ratio (Liquidation/ OI)

  • December 9: 1.07B / 3.37B 0.3175

  • February 3: 1.42B / 3.08B 0.461

  • Average 0.389 (38.9%)

• Liquidation/Volume ratio

  • December 9: 1.07B / 5.30B 0.2021

  • February 3: 1.42B / 18.0B 0.0789

  • Average 0.14 (14%)

We used the figures of 38.9% and 14% as reference points to speculate on the clearing sizes of other exchanges, assuming they follow ratios similar to Hyperliquid.

Next, we applied these ratios to Binance, Bybit and OKX respectively:

For each centralized exchange (CEX), we calculate two adjusted clearing data:

• A Liquid-based Liquid-to-Volume ratio

• Another Liquid-based Liquid-to-Open Interest ratio (OI).

Finally, we averaged the two adjustments for each date to arrive at a more comprehensive estimate.

As a result, the clearing amounts reported by centralized exchanges (CEX), which are typically hundreds of millions of dollars, are actually well below the billions of dollars estimated based on the Hyperliquid ratio.

answers here’s Comparative chart of reporting liquidation versus adjusted liquidation on December 9 and February 3。Each exchange’s chart contains two sets of bars:Light blue and light green represent the reported liquidation amount, while dark blue and dark green represent the adjusted liquidation amount.

The adjusted liquidation value is based on Liquidation-to-Volume ratio and Liquidation-to-Volume ratio for HyperliquidliquidationAverage of the Liquidation-to-OI ratioCalculated as a benchmark. Although this method can more intuitively reveal potential clearing differences between different exchanges, there may still be some deviations in the adjustment values due to differences in market structure, retail trading ratios and market maker activities among exchanges. For example, some exchanges may report lower clearing data due to higher retail participation, while others may cause clearing amounts to be undervalued due to active market maker behavior.

main findings

• Liquidation amounts for Binance, Bybit and OKX are significantly underestimated: The reported liquidation amount (light blue/light green) is much lower than the adjusted value (dark blue/dark green), indicating that the actual liquidation amount may be much higher than publicly disclosed data.

• Binance’s clearing amounts are particularly different: Based on adjusted data, Binance’s actual liquidation amount on February 3 should have been close to US$17,640 million, rather than the reported US$611 million, highlighting the huge data discrepancy. Similarly, on December 9, Binance’s liquidation amount should have been US$10,020 million, rather than the US$739 million reported.

• Bybit and OKX show similar trends: Bybit’s adjusted liquidation amount on February 3 was estimated at US$8,150 million, compared with a reported value of only US$247 million; on December 9, the adjusted amount was US$4,620 million, compared with a reported value of only US$370 million. The difference was equally significant for OKX, with an adjusted liquidation amount of US$7,390 million on February 3 compared to a reported value of only US$402 million; and on December 9, an adjusted amount of US$3,980 million compared to a reported value of only US$425 million.

3.3. True estimates of major liquidation events

By comparing Hyperliquid’s clearing data with data reported by major centralized exchanges (CEX), we found a huge gap between the two. To quantify this difference, we collected December 9 and February 3 Relevant data from Binance, Bybit and OKX, focusing on analyzing theirLiquidations-to-Volume ratio and Liquidations-to-Volume ratioliquidationContract ratio (Liquidations-to-OI)。

To more accurately estimate the true clearing size of these exchanges, we first calculated Hyperliquid’s average clearing ratio and applied it as a benchmark to CEX data. In the calculation process, we did not directly use a simple average, but used a weighted average method to adjust the clearing ratio of each exchange based on its proportion of trading volume on a specific date. This approach can more comprehensively reflect the level of clearing activity across the market.

When we first calculated the clearing multiplier for each exchange, the results showed Binance was 21.19, Bybit was 22.74, and OKX was 13.87. If a simple average is taken directly, the global clearing coefficient is 19.27 times. However, after adjusting for weighted differences in trading volume between exchanges, a more accurate weighted average is 19.22 times.

This means that the actual clearing size of a centralized exchange (CEX) may be about 19 times higher than officially reported figures, or at least much higher than what is publicly disclosed through its restricted API.

Based on this clearing multiplier of 19.22, we analyzed some of the most important clearing events in cryptocurrency history and tried to estimate the true clearing amounts of these events. If these data were disclosed as transparently as Hyperliquid, the actual liquidation amount could be closer to the adjusted result. The following table shows a comparison between commonly quoted clearing amounts and adjustments using a revised multiplier of 19.22:

“Reports refer to numbers published through data aggregation platforms, social media, or restricted APIs.

• Before the second quarter of 2021, the reliability of clearing data was relatively higher because API restrictions had not yet been implemented at that time.

By comparing real clearing data with a broader market value of cryptocurrencies, we can understand in more detail the impact of each event on market dynamics. This not only reveals the amount of capital consumed in a short period of time, but also reflects the violent fluctuations that may occur in market sentiment during leveraged liquidation.

In many cases, after adjusting for undervalued data, the ratio of liquidation to market value appears even more alarming, suggesting that market participants may already face greater systemic risks than they appear on the surface.

Therefore, analyzing the ratio of liquidation to market value can help us gain a clearer understanding of how market psychology and liquidity conditions can shift significantly during periods of extreme volatility.

3.4. Comparison of liquidation scale and total market value

To gain a more comprehensive understanding of the impact of major liquidation events, we compared the true total liquidation of these events with the total market value of cryptocurrencies at the time. The calculation formula is: liquidation to market value ratio = (liquidation amount/market value) &www.gushiio.coms; 100.

This ratio can help us analyze in more depth the impact of each liquidation event on the market. On the one hand, it shows the size of capital liquidated in the market in a short period of time; on the other hand, it also reflects the dramatic changes in market sentiment when leverage is lifted.

After adjusting for understated data, we found that the ratio of liquidation to market value became more significant. This suggests that market participants may be facing higher systemic risks than previously expected, and these risks may not have been fully perceived when the event occurred.

Therefore, analyzing the ratio of liquidation to market value can help us more clearly understand the psychological changes in the market and the changes in liquidity conditions during periods of extreme volatility.

4. conclusion

Through the above data and comparison, we can clearly see a trend:The liquidation data released by CEX is often significantly lower than the actual liquidation activity.By adjusting the transparency ratios provided to Hyperliquid, events such as the Luna crash and the FTX crash showed market shocks far beyond what official data suggests. This phenomenon further supports the view that CEX may understate liquidation data to reduce market volatility or affect public perception.

This contrast is particularly evident when analyzing historical events. For example, the COVID crash in 2020, although huge at the time, was relatively small compared to now, mainly because there were fewer participants in leveraged trading at the time. With the popularity of leveraged trading, the scale of clearing is increasing significantly in both absolute and relative terms. However, due to restrictions on official data flows, traders and analysts may not be able to fully understand the actual situation of systemic risks.

In addition, exchanges often limit the disclosure of real-time clearing data on grounds such as optimizing data flow or ensuring fair trading conditions, but in practice, this practice may serve broader interests. For example, underreporting clearing data can reduce panic among novice retail investors while also giving exchanges more proprietary insight into overall market exposure.

Despite this, transparency within the industry is gradually improving. For example, Bybit’s Ben recently announced that Bybit has begun to disclose real liquidation data, which may signal a trend towards more transparency in the industry. For more details, please refer to this link.

While Bybit’s move may help close the gap between reporting and actual liquidation activities, the fully on-chain, unrestricted reporting approach provided by Hyperliquid still highlights the importance of transparency. For those who want to gain an in-depth understanding of the complexity of leveraged trading in cryptocurrencies, true transparency is an indispensable tool.

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