Chinese Law Enforcement Agencies Uncover Money Laundering Cases Utilizing Hyperliquid’s High-Leverage Mechanism, Highlighting Challenges in DeFi Regulation and Risk Management
(Background: James Wynn failed to hold his contract for 2 hours! He opened a 40x BTC long position and begged the community for margin.)
(Supplementary background: Over $60 million lost in a week. Whale James Wynn: I am still richer than you, with a passive income exceeding your annual earnings.)
Recently, Chinese law enforcement agencies have revealed multiple cases of cryptocurrency money laundering conducted through the decentralized trading platform Hyperliquid. Since March 2025, at least three such cases have been uncovered, where criminals cleverly utilized the high leverage and forced liquidation mechanisms provided by the platform to “cleanse” illegal funds by creating false trading losses.
Analysis of Money Laundering Methods: Fund Transfers Under High Leverage
According to Mirror Tang, co-founder of Web3 security company Salus, these money laundering operations primarily involve deliberately triggering high-leverage liquidation losses on the Hyperliquid platform, while simultaneously establishing reverse positions on centralized exchanges to realize profits, thus completing the money laundering process. Mirror Tang stated:
“Since March this year, Chinese law enforcement has uncovered three cases of cryptocurrency money laundering using Hyperliquid. The operational method involves utilizing Hyperliquid’s high-leverage liquidation mechanism to hedge and cleanse illegal earnings: creating liquidation losses on HL, and establishing reverse positions for profit on centralized exchanges to complete the fund laundering.”
Specifically, money launderers initially open high-leverage contracts with illegal funds on Hyperliquid and intentionally manipulate the positions to trigger forced liquidations, ostensibly resulting in massive investment losses. However, they have already established opposite positions on other centralized trading platforms. When the Hyperliquid positions are liquidated, the reverse positions on the centralized platform will profit, allowing illegal funds to re-enter the financial system in the guise of seemingly legitimate trading profits.
Similarity of Trading Strategies with Notable Traders
It is noteworthy that Mirror Tang observed a high degree of similarity between the structure of these money laundering strategies and certain trading paths employed by renowned cryptocurrency trader James Wynn. He neither accuses Wynn of being involved in money laundering activities nor suggests any direct connection but points out significant similarities in methods. For instance, James Wynn is known for using leverage of 10 to 40 times in the cryptocurrency market for short-term trades, focusing on capturing trading opportunities generated by extreme market sentiment fluctuations.
In response to these illegal activities exploiting the platform’s mechanisms, Mirror Tang directly urged the founders of Hyperliquid via his tweets to take these matters seriously and strengthen the platform’s risk management measures. He warned that if Hyperliquid fails to effectively address the current shortcomings in risk management, the platform will face a significantly heightened risk of regulatory intervention in the future.
With the rapid development and popularization of decentralized finance (DeFi) platforms, effectively preventing these platforms from being used for money laundering and other financial crimes while encouraging technological innovation and maintaining market vitality has become a major challenge for global regulatory bodies and DeFi platforms themselves. The exposure of cases related to Hyperliquid once again underscores the continuous evolution of financial crime methods and the urgent need to enhance the transparency and compliance of DeFi platforms to address increasingly complex illegal fund flows.
Related Reports
Did James Wynn’s performance as a “crypto gambler” serve as a show for Hyperliquid?
Whale James Wynn declares “I’ve lost everything”: I give up on contracts; I want to leave this fallen place.
Whale James Wynn shorts and claims “Bitcoin will surge to $120,000”: Should invest 99% in BTC and 1% in meme coins.