- Whale manipulation on Hyperliquid triggered a $12M loss prompting JELLYJELLY delisting.
- The listing of JELLYJELLY futures on Binance and OKX increased risks for Hyperliquid’s vault.
- Hyperliquid’s HLP vault inherited $12M in losses after a short-squeeze on JELLYJELLY.
Hyperliquid, a decentralized trading platform specializing in perpetual futures contracts, experienced a crisis on March 26 when it was forced to delist Solana-based memecoin JELLYJELLY because a whale manipulated its price. The manipulation caused nearly $12m in unrealized losses on Hyperliquid’s HLP(Hyperliquid Pool) vault exposing flaws in the automated trading system.
A trader initiated an 8 million dollar short position on JELLYJELLY before buying token quantities from different exchanges to inflate its market price. When the price increased, Hyperliquid’s liquidity vault received a huge short position following its responsibility to handle trades. The vault sustained severe losses because of JELLYJELLY’s skyrocketing price. The manipulation remained undetected until the token reached a $50 million market capitalization point and then market officials executed delisting.
Centralized Exchanges Join the Fray Amid Crisis
Amid the turmoil centralized exchanges Binance and OKX listed perpetual futures for JELLYJELLY. The exchange listing of JELLYJELLY futures contracts intensified the trading frenzy that brought the risk of vault depletion at the platform. The rising pressure on Hyperliquid compelled them to suspend JELLYJELLY trading while conducting additional research, which led to the full removal of JELLYJELLY futures contracts from their platform.
The platform announced the exchange delisting due to market irregularities which promised repayment except to addresses that triggered alert systems. The protocol declared plans to introduce technical enhancements to prevent such occurrences from repeating. The incident highlighted issues with risk management systems at the protocol as it failed to adequately address whale manipulation alongside liquidity vulnerabilities despite its resolution efforts.
Concerns Grow Over Hyperliquid’s Centralization
A whale previously manipulated Ether futures trading on the platform, leading to a total loss of $4 million from the platform. The centralization of the platform’s network has become a concern for industry observers after two recent incidents that occurred due to its validator set. While the platforms markets itself as a decentralized exchange, its limited number of validators has raised red flags regarding the platform’s susceptibility to manipulation by a small group of insiders.
Bitget CEO Gracy Chen and other industry figures criticized the platform because they believe the platform’s actions will damage their reputation while souring DeFi’s trust. Several traders doubted the lasting effects because HYPE tokens demonstrated a minor market rebound following the incident.