On-Chain: Crypto Whales Play a 'Low-Leverage' Game on PUMP

The launch of the PUMP perpetual contract on the decentralized exchange Hyperliquid has quickly attracted the attention of traders. However, on-chain data reveals that 'whales' (large investors) are participating in the game with a very unusual strategy, hinting at calculations more complex than simple buying or selling.

According to an analysis on July 10th by on-chain analyst Aunt Ai (@ai_9684xtpa), most of the whales trading the PUMP contract are using a common strategy: depositing millions of dollars in margin but only using extremely low leverage, some as low as 1x. Theoretically, using 1x leverage in the derivatives market is capital-inefficient if the goal is to bet on price direction.

For this reason, Aunt Ai hypothesizes that these whales are not actually betting on whether the price of PUMP will go up or down. Instead, they are likely pursuing two other objectives:

1. Arbitrage: It's highly likely they are executing an arbitrage strategy, seeking to profit from the price difference between the perpetual contract and the expected price in the upcoming public offering on the 12th.

2. Funding Rate Farming: Another possibility is that they are shorting PUMP with low leverage to collect the funding rate from those who are betting on a price increase, in the event that the funding rate is positive for shorts.

On-chain data strongly supports this hypothesis. The analysis points to three whale addresses that have deposited a total of 11 million USDC in margin into Hyperliquid, yet the total value of the short positions they have opened is only $2.394 million. Using such a large amount of collateral for a relatively small position shows that they do not want to take on liquidation risk from price volatility, but are instead focused on maintaining the positions to execute more complex strategies.

Hidden Risks and a Case Study

The analyst also warns of the risks of trading contracts like PUMP at this stage. Because there is no reliable mark price from a spot index, the price of the PUMP perpetual contract on Hyperliquid is highly susceptible to manipulation by large orders. A sudden price spike to $0.015 (as happened this morning) could easily cause a forced liquidation of even a 1x short position if the margin is not large enough to cover the temporary loss.

A prime example is the wallet address 0xAc7...D53ce, one of the most active participants. This whale deposited 4 million USDC in margin but opened only a 2x leveraged short position worth $1.074 million. With an entry price of $0.00504, their liquidation price is $0.02138.

Overall, this analysis is a reminder that the world of DeFi and crypto is always filled with complex strategies. The actions of whales do not always reflect a simple view on price but are often carefully calculated moves that retail investors need to be aware of to avoid risk.