The gap in CEX liquidation data is too large, and the real market situation may be worse?

Original title:Liquidations, liquidations everywhere!
Original author: threesigmaxyz

Original translation: zhouzhou, BlockBeats

Editor 's note: This article explores the huge gap between the liquidation data reported by CEX and the actual liquidation activity, and by comparing Hyperliquid's transparent clearance data with CEX's reported data, it is revealed that CEX may underreport liquidation data to mask market volatility or manage public perception. The article also emphasized the importance of transparency in understanding market risks and systemic risks, and pointed out that exchanges such as Bybit are taking more open clearing data release measures to promote the industry to develop towards higher transparency.

The following is the original content (to facilitate reading comprehension, the original content has been compiled):

Traders exploded their positions, and billions of dollars evaporated. But what if the real number of liquidated stocks is 19 times higher than reported? We pulled the data and the result was worse than you thought.

1. Explosive position

The world of trading is becoming increasingly accessible to ordinary people, whether through the gorgeous courses of so-called "mentors" or as an alternative to traditional work, trading offers the temptation to potentially earn a considerable income from one's own home, through a computer.

However, this is far from easy, and if it is so simple, everyone will succeed. In fact, most people who enter the transaction end up losing money and eventually bursting their accounts. So, what causes these losses? Often, all of this comes down to a decisive event that every trader fears: a liquidation.

Filing positions is a key mechanism in leveraged trading. Filing positions will occur when the trader's margin is not enough to cover the losses of open positions. In this case, the exchange will intervene and automatically close the position, ensuring that the trader or platform will no longer bear further losses.

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

·Some positions are broken: involves reducing some of the traders' positions, and the remaining part is still active. This allows traders to stay in the market while reducing the associated risks.

· Complete liquidation: The entire position is closed, completely eliminating the risk of exposure to traders. Complete liquidation is more common in a high leverage environment, because in this environment, slight price fluctuations can completely clear the trader's margin.

The key factors behind the liquidation

There are many reasons for a liquidation, all of which revolve around a delicate balance between risk and margin:

·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 a position breakdown. For example, when using 50 times leverage, the price needs to fluctuate by only 2% against the trend, which will lead to 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 positions open, and this maintenance margin acts as a safe buffer. When margin falls below this threshold due to losses, the exchange closes positions to prevent further losses. If these requirements are ignored or failed to monitor, traders will soon face forced closing.

· Market Volatility: Sudden extreme price volatility is the biggest enemy of traders, especially in highly leveraged positions. Volatility can quickly deplete available margins, giving traders little time to react. In addition, high volatility periods often lead to chain reaction-type liquidation, in which one liquidation triggers a series of other liquidations, further pushing the price to move in the wrong direction.

extrusion

Squeezing is one of the most intense and rapid triggers to a liquidation, usually happening when prices fluctuate sharply, forcing reverse traders in the market to close their positions. Such events are usually driven by high leverage and low liquidity, forming a snowball effect that accelerates price volatility and intensifies market volatility.

When prices rise rapidly, traders holding short positions will find themselves in trouble because their margin is not enough to support the trade. To avoid further losses, they were forced to close their positions by repurchasing assets, which brought more upward pressure to the price. This dynamic usually rapidly evolves into a series of liquidated positions, where a trader's closing position drives price up, forcing others to close positions as well.

On the contrary, when prices suddenly fall, traders holding long positions face the same risks. As their margin shrinks, they are forced to sell positions to meet the maintenance margin requirements, further intensifying the downward action energy. This selling pressure amplifies the price decline, triggering more liquidation events, forming a downward spiral.

However, the coordinated buying of retail traders, especially the push from the WallStreetBets community like Reddit, has caused stock prices to soar unexpectedly. As prices rise, short sellers are forced to buy back their stocks, and prices continue to rise, further driving the price rise.

This feedback loop eventually turned into a historic event, with GameStop's stock soaring from about $20 in early January 2021 to an intraday high of $483 at the end of the month. The squeeze has caused many institutional investors to fall into short positions to lose billions.

2. API and Explosion

In the cryptocurrency field, there have been many liquidation incidents worthy of attention in history. However, the most memorable and influential thing is often the "fly squeeze" that occurs in the downward market. These events are larger in scale and have a more profound impact on traders and markets.

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

Have you discovered something unusual, anonymous? Do you think the FTX crash or the Luna crash has caused more damage than the liquidation incidents we have seen this year? Well, you are right.

There are three key factors behind the recent collapse of liquidation events than the FTX or Luna:

Total market value

In March 2020, the market value of the entire market reached US$266 billion, and by 2025, the peak market value had reached US$3.71 trillion. To truly understand the scale of these liquidated stocks, we should consider the ratio of liquidated stocks to market value, rather than just looking at the absolute number of liquidated stocks. Simple numbers may make the recent liquidation look more serious than the actual situation.

This chart allows us to see more clearly the scale and impact of the liquidation, but there are still some data that are not true; this is the second problem.

CEX WebSocket

API Limitations Until the second quarter of 2021, most CEXs provide accurate data on liquidation through APIs, reporting every liquidation. However, starting from 2021, they have introduced restrictions that limit the liquidation data to one liquidation per second, regardless of how many liquidation actually occurs.

This change significantly reduces the reported liquidation figures, making the late 2021 data look smaller and less impact than before 2021.

@K33Research wrote a research article explaining the situation and demonstrated through two simple but powerful charts:

In the first chart, you can see that after the API changes, the number of liquidated positions has slowed down significantly, and even if the total market value far exceeds that of 2021, the liquidated position data remains low.

In the second chart, the author compares the total liquidation with changes in the daily nominal open contract (OI).

The huge intraday fluctuations in nominal open contracts usually trigger a large number of positions, but as we see in the chart, there was no significant surge in positions after the second quarter of 2021 during such large OI fluctuations.

The official reasons behind these API changes are: "To provide a "fair trading environment" (Bybit, September 2021) and "optimize user data flow" (Binance, April 2021)," but some people believe that this is actually only for PR reasons to avoid excessive panic, and also to keep real data for themselves.

Hyperliquid as a real platform

Hyperliquid is the first Layer 1 blockchain perpetual DEX to reach enough transaction volume to compete with CEX. Unlike CEX, Hyperliquid provides a completely transparent and unlimited report of all liquidation events because its data is public.

This creates a unique environment where on the one hand, the CEX's liquidation data is restricted (due to reporting restrictions), and on the other hand, the Hyperliquid's data is not restricted. As a result, the total reported liquidation data increased significantly, thanks to the transparency of Hyperliquid.

This transparency has a significant impact on the broader trading ecosystem, where in traditional centralized exchanges, liquidated data are often selectively reported or aggregated, limiting traders’ ability to analyze market dynamics in real time. Hyperliquid ensures that every liquidation event is publicly visible, thus providing a more accurate and comprehensive understanding of leveraged trading activities.

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

This unlimited access to data promotes a more equitable and efficient transaction environment in which all participants have equal access to information. By setting new transparency standards for perpetual trading, Hyperliquid not only challenges the secrets of CEX, but also enhances the overall reliability of liquidated data, allowing traders to operate with greater trust and richer market insights.

3. Real filing data

3.1 Calculate the Hyperliquid ratio

Hyperliquid's transparency and extensive metrics allow us to see what's happening over a long period of time, while CEX's derivatives fail to report numbers aligned with reality due to API restrictions. The data differences seen in the chart further confirm this problem, and although CEX's open contracts and trading volumes are much larger than Hyperliquid, the number of liquidations they report is still impractically low.

得益于Hyperliquid，我们现在拥有一个可验证且准确的数据集，可以比较CEX 爆仓报告的失真程度。

The data provided to the media usually presents an incomplete picture because they are based on limited APIs and fail to capture the full situation of a liquidation. By contrast, Hyperliquid’s unlimited report provides a transparent and detailed record of all liquidation events, proving that CEX’s liquidation activity may be much higher than the publicly disclosed figures.

3.2 Adjust the CEX filing data using Hyperliquid ratio

To estimate the “real” liquidation figures of CEX, we use Hyperliquid’s liquidation/trading volume ratio and liquidation/open contract ratio as the benchmark. We then compared these ratios with data reported by CEX on two specific dates (December 9 and February 3) to obtain an adjustment factor.

Calculate the average ratio of Hyperliquid:

Investor/Open contract (Hyperliquid)
December 9: 1.07B / 3.37B ≈ 0.3175
February 3: 1.42B / 3.08B ≈ 0.461
Average ≈ 0.389 (38.9%)

Investing/Trading Volume (Hyperliquid)
December 9: 1.07B / 5.30B ≈ 0.2021
February 3: 1.42B / 18.0B ≈ 0.0789
Average ≈ 0.14 (14%)

We use these numbers (38.9% and 14%) as reference points to evaluate what the liquidation data might look like if other exchanges follow similar proportions to Hyperliquid.

Apply these ratios to Binance, Bybit, and OKX:

For each CEX, we calculate two "adjusted" liquidation data:

Filing/Trading Volume Ratio using Hyperliquid

Filing/opening contract ratio using Hyperliquid

We then take the average of these two adjustment results for each date.

Therefore, the filing data reported by CEX (usually in hundreds of millions of dollars) is much lower than the multi-billion dollar range implied by the Hyperliquid ratio.

The following are reports and adjusted filing data charts for December 9 and February 3. Each exchange has two bar charts, with light blue and light green representing reported liquidated data, and dark blue and dark green representing adjusted liquidated data.

The adjusted value is calculated by using the average of Hyperliquid's liquid/trading volume ratio and the liquid/open contract ratio as the benchmark. Although this provides a clearer perspective for potential differences in liquidated data, there may still be some changes due to differences in market structure, retail participation and market maker activities of different exchanges.

Key Comments:

Binance, Bybit and OKX have severely underreported liquidation data: reported liquidation data (light blue/light green) is much lower than adjusted data (dark blue/dark green), indicating that the actual liquidation data may be much higher than the publicly disclosed figures.

Binance should report about 17,640M of liquidated data: Adjusted data suggests that Binance’s true liquidated data on February 3 should be close to 17,640M, rather than the reported 611M, highlighting a huge difference. On December 9, Binance should report 10,020M, not 739M.

Bybit and OKX follow the same pattern: Bybit's adjusted liquidation data on February 3 was 8,150M, instead of the reported 247M, and on December 9 it was 4,620M, instead of 370M. OKX also showed significant differences, with the adjusted liquidation data on February 3 at 7,390M and December 9 at 3,980M, while its reported 402M and 425M respectively.

3.3 Major liquidation events and their "real" estimates

We found significant differences after comparing Hyperliquid's filing data with limited data reported by major CEXs. To quantify this difference, we collected data from Binance, Bybit and OKX on December 9 and February 3, and specifically analyzed their liquid/trade volume and liquid/open contract ratios.

To estimate the real liquidation data, we calculated the average ratio of liquidation/trading volume for Hyperliquid and then applied these ratios to the CEX data. Instead of using simple arithmetic averaging, we calculated the firing ratio based on the proportional weighting of the trading volume on each date. This approach provides a more accurate reflection of the overall market liquidation activities.

When we first calculate the adjusted multiple of each exchange (Binance: 21.19, Bybit: 22.74, OKX: 13.87), the simple average resulted in a global adjusted multiple of 19.27 times. However, after taking into account the weighted differences in trading volumes across exchanges, the more accurate weighted average is 19.22 times.

This suggests that the true liquidation data for CEX may be about 19 times higher than the official reports, or at least 19 times higher than the data disclosed through its restrictive API.

With this 19.22x adjustment multiple, we analyzed some important clearing events in the encryption history to estimate what their real clearing data might be if they had the same transparency as Hyperliquid. The following table compares common liquidation amounts with the adjusted 19.22 times value:

"Reported" 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 figure highlights, many of the liquidation figures derived from data sources reported by CEX after 2021 may significantly underestimate the actual situation. By applying the multiplier derived from the full transparency of Hyperliquid, the liquidation scale of these events is much larger than the official figures assume.

3.4. Comparison of liquidation with total market value

To provide more context, we compare the total "real" liquidation of these events with the total market value at that time. The ratio calculation formula is: (liquidation amount/market value) × 100.

By comparing “real” clearing data with a wider cryptocurrency market capitalization, we are able to gain a more detailed understanding of the impact of each event on market dynamics. This not only shows the scale of capital that disappears in a short period of time, but also reflects how market sentiment changes drastically when the leverage effect is lifted.

In many cases, the ratio was more significant after adjustment, indicating that participants may be exposed to greater systemic risks than initially displayed. Therefore, understanding these liquidation to market capitalization ratios can provide a clearer perspective and help us understand the changes in market psychology and liquidity conditions during periods of extreme volatility.

4. Conclusion

From all the data and comparisons above, a pattern can be clearly seen: CEX publicly reported numbers are generally much lower than “real” liquidation activities. When adjusted to match the ratio of Hyperliquid transparency, events like the Luna and FTX crash revealed a greater impact than the official data showed, further strengthening the view that CEX may underreport liquidation data to mask volatility or manage public perception.

This contrast is more evident when considering historical events: the COVID crash in 2020, although it was a major market event at the time, now looks relatively small, precisely because there were fewer leverage participants at the time. With the popularity of leverage, the absolute and relative scale of liquidation continues to grow, but the limitations of official data flows may give traders and analysts a distorted perception of systemic risks.

In addition, exchanges often make the case for "optimizing data flow" or "ensure fair trading conditions", but it is not difficult to see that restricting the release of real-time cleared data can serve a broader interest. Underreporting clearing data can reduce the fear of new retail investors, while also allowing exchanges to gain deeper exclusive insights into overall market risk exposure.

While these moves may help close the gap between reporting data and actual liquidation activity, Hyperliquid’s entirely on-chain, unlimited reporting still underscores how important true transparency is for anyone looking to navigate a leveraged crypto transaction.