30-minute flash crash of 45%, SpaceX not even public yet but retail investors already dealt a blow

Original Author: ChandlerZ, Foresight News

On the evening of May 28, the SPACEX-USDH perpetual contract on Hyperliquid experienced a severe flash crash, with the price falling from $2,277 to a low of $1,254 within 30 minutes, a decline of nearly 45%, before rebounding to around $2,169.

This crash led to the liquidation of 405 users and 1,393 positions, with total liquidations amounting to $1.51 million.

Data shows that the total trading volume for this contract over the past 24 hours was only about $4.87 million, with open interest below $2.9 million, indicating extremely low market depth. A single large sell order nearly punched through the liquidity, triggering a cascading sell-off. The liquidated users were primarily retail investors, with a median margin of only about $31, typically using around 3x leverage.

Ventuals, the perpetual contract platform within the Hyperliquid ecosystem, responded in a post after the incident, stating that the team had taken note of the flash crash event in the SPACEX market. The cause was an error in data returned by an off-chain data provider, which served as one component of the oracle price. This led to severe fluctuations in the oracle price and mark price for this market, subsequently triggering the forced liquidation of some user positions.

The team has now implemented measures to prevent similar occurrences in the future. Additionally, the team is evaluating the impact of this event on affected users to formulate an appropriate compensation plan. Affected users will receive compensation within the next 48 hours.

A Fragile Pricing Chain

SPACEX-USDH is a crypto perpetual contract launched by Hyperliquid that allows users to bet on changes in SpaceX's market valuation before its IPO. It does not represent actual stock nor confer any shareholder rights.

On Ventuals, 1 SPACEX represents a $1 billion valuation of SpaceX. If the SPACEX price is $420.69, it implies the market values SpaceX at $420.69 billion.

The core challenge for this type of contract is: how do you price a company that doesn't trade publicly?

Ventuals' solution is to split the pricing into two parts. One-third of the weight comes from Notice, an off-chain private market data provider. Its pricing model incorporates funding rounds, 409A valuations, mutual fund marks, secondary market trades and quotes, and comparable public companies.

Two-thirds of the weight comes from the exponentially weighted moving average of the contract's own mark price over the past 2 hours. Notice data is polled at least once per minute, and the oracle price is updated every 3 seconds.

This design ideally balances external information with on-chain price discovery, but it has a critical single point of failure. If the data returned by Notice itself is wrong, the one-third external anchor becomes a force pulling the price in the wrong direction.

The other two-thirds, the on-chain moving average, could 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 very fragile. Combining two fragile components results in a price flash crash.

Low Liquidity from Zero Arbitrage and Fragmentation

The SPACEX flash crash highlights not just Ventuals' own problem, but a common dilemma for the entire pre-IPO synthetic product category in terms of pricing mechanisms: there is no unified spot market and no cross-platform arbitrage channel.

In traditional finance, price differences for the same stock between the NYSE and NASDAQ are practically non-existent, as high-frequency market makers arbitrage in milliseconds. But in the pre-IPO synthetic product market, this kind of arbitrage is structurally impossible. The reason is that contracts on each platform are assets or derivatives issued according to their own rules, which cannot be hedged across platforms.

SPACEX on Hyperliquid and SPCX on Binance track the same company, but there is no mechanism to ensure their prices are aligned. The result is that each platform forms its own closed pricing pond. Liquidity is fragmented across multiple unconnected venues, making each pond much shallower than the whole.

Ventuals' SPACEX has a daily trading volume of $4.87 million. If the liquidity from existing platforms were concentrated in one place, depth would be completely different. But fragmentation leaves every platform exposed to the risk of low liquidity.

The essence of pre-IPO synthetic products is a group of people betting on a number without a public price benchmark. Price discovery on each platform only reflects the consensus of the small group of traders on that platform, with no rigid link to the company's actual valuation.

Data sources like Notice are private market information, updated infrequently, with narrow coverage and opacity. No one truly knows what SpaceX is worth. On Polymarket, the probability distribution for SpaceX's IPO valuation is also scattered, with a 45% probability for the range above $2.4 trillion and a 31% probability for the range above $2.6 trillion.

The Answer Will Soon Be Revealed

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.

Ventuals' documentation describes the contract's settlement mechanism. It states that on the first day of the IPO, funding rates will be set to zero, the oracle price will lock in the mark price, and a valuation based on the real-time stock price will be introduced as an external price constraint. After market close, the mark price will be overwritten with the valuation based on the closing price, and all open positions will be forcibly settled at this price.

This means that on the IPO day, all holders of SPACEX contracts will be settled based on the actual stock price. If there is a significant gap between the on-chain price and the Nasdaq pricing, the settlement moment will result in a large-scale, one-sided liquidation.

Analysts estimate this gap is currently around 60%, and the convergence will likely not be smooth. Because there is no way to hedge on-chain positions with actual SpaceX stock before the IPO, the arbitrage mechanism is structurally broken. The convergence will likely occur violently within the final 72 hours.

This flash crash in price originated from an oracle data error, whereas the convergence on the IPO day in June stems from a calibration to the real price. The scope of impact will depend on the total size of open interest across multiple platforms at that time. The closer SpaceX gets to its IPO, the more speculative capital will flow in, and fragmented liquidity and distorted pricing will inflate simultaneously.

The user base with a median margin of $31 will not disappear. They will return, bringing more $31 with them.

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