On the evening of May 28, a severe flash crash occurred on Hyperliquid in the SPACEX - USDH perpetual contract. The price plummeted from a high of $2277 to a low of $1254 within 30 minutes, representing a nearly 45% drop, before rebounding to around $2169.
This crash led to the liquidation of 405 users and 1393 positions, with a total liquidated amount of $1.51 million.
Data shows that the total trading volume of the contract in the past 24 hours was only about $4.87 million, with open interest of less than $2.9 million and extremely low market depth. A large sell order nearly instantly wiped out liquidity, triggering a cascading sell-off. The liquidated users were mainly retail investors, with a median margin of only about $31 and an average leverage of approximately 3x.
Following the event, Hyperliquid's ecosystem perpetual contract platform Ventuals issued a tweet acknowledging the flash crash incident in the SPACEX market. The cause of the event was attributed to erroneous data returned by an off-chain data provider, which is one of the price oracle components, leading to a sharp fluctuation in the market's oracle price and mark price, subsequently triggering the liquidation of some user positions.
The team has now taken measures to prevent a similar incident from happening again. Furthermore, they are assessing the impact of this event on affected users to devise an appropriate compensation plan. Affected users will receive compensation within the next 48 hours.
A Fragile Pricing Chain
SPACEX - USDH is a Hyperliquid-launched "SpaceX Valuation" crypto perpetual contract that allows users to speculate on the pre-IPO market valuation of SpaceX. It does not represent actual stocks and does not confer any shareholder rights.
On Ventuals, 1 SPACEX represents a $10 billion valuation of SpaceX. If the SPACEX price is $420.69, it means the market values SpaceX at $420.69 billion.
The key challenge of such contracts is how to price a privately held company?
Ventuals' solution is to split the pricing into two parts, with one-third of the weight coming from the off-chain private market data provider Notice. Its pricing model integrates funding rounds, 409A valuations, mutual fund marks, secondary market trades and quotes, and comparable public company data.
Two-thirds of the weighting comes from the exponential moving average of the contract's own past two-hour mark price. Notice data is polled at least once per minute, with the oracle price updating every 3 seconds.
This design is intended to balance external information and on-chain price discovery in an ideal state, but it has a fatal single point of failure. If the data returned by Notice is incorrect, one-third of the external anchor points become a force pulling the price in the wrong direction.
Additionally, the two-thirds on-chain average can hedge against this error when liquidity is sufficient. However, on the SPACEX contract with a daily trading volume of only $4.87 million, the on-chain price itself is fragile. When two fragile components are combined, the result is a price flash crash.
Zero Arbitrage, Fragmentation, and Low Liquidity
The SPACEX flash crash exposed not just Ventuals' issue. The entire pre-IPO synthetic product category faces the same dilemma in pricing mechanisms, lacking a unified spot market and cross-platform arbitrage channels.
In traditional finance, the price difference of the same stock on the NYSE and Nasdaq is almost non-existent due to high-frequency market makers engaging in millisecond arbitrage. However, in the pre-IPO synthetic product market, this arbitrage is structurally impossible because each platform's contracts are based on its own rules for issuing assets or derivatives, preventing cross-platform hedging.
SPACEX on Hyperliquid and SPCX on Binance track the same company, but there is no mechanism to ensure price consistency between them. As a result, each platform forms a closed pricing pool, and liquidity is dispersed across multiple disconnected venues, each pool being much shallower than the overall market.
Ventuals' SPACEX has a daily trading volume of $4.87 million. If existing platform liquidity were consolidated, the depth would be entirely different. However, fragmentation exposes each platform to the risk of low liquidity.
The essence of pre-IPO synthetic products is that a group of people bet against each other around a number without a public price benchmark. The price discovery on each platform only reflects the consensus of a small group of traders on that platform, with no rigid connection to the company's true valuation.
Similar to Notice, data sources are from private market information, with low update frequency, limited coverage, and opacity. No one truly knows how much SpaceX is worth. The valuation distribution of the SpaceX IPO on Polymarket is similarly dispersed, with a 45% probability range above $2.4 trillion and a 31% probability range above $2.6 trillion.
The Answer Is Coming
SpaceX submitted a confidential S-1 filing to the SEC on April 1, aiming to price on Nasdaq on June 11 and start trading on June 12, with a valuation range of $1.75 trillion to $2 trillion.
The Ventuals document outlined the settlement mechanism for the contract. After the IPO's opening day, the funding rate goes to zero, the oracle price is locked to the mark price, and a real-time stock price-based valuation is introduced as an external price constraint. After market close, the mark price is overridden by the closing price-based valuation, and all open positions are forcibly settled at this price.
This means that on the IPO day, all SpaceX contract holders will be settled at the actual stock price. If there is a significant gap between the on-chain price and Nasdaq pricing, the settlement moment will be a large-scale one-way liquidation event.
Analysts estimate that the current gap is about 60%, and the convergence is unlikely to proceed smoothly because there is no way to hedge on-chain positions with real SpaceX shares before the IPO, breaking the arbitrage mechanism structurally. Convergence is likely to occur sharply in the final 72 hours.
The flash crash in this pricing comes from an oracle data error, while the convergence on the IPO day in June comes from the calibration to the real price, with the impact depending on the total open contract size across multiple platforms at that time. The closer SpaceX is to the IPO, the more speculative capital flows in, and fragmented liquidity and distorted pricing will inflate simultaneously.
The user group with a $31 median margin will not disappear; they will return, with more $31.
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