TLDR
- The vast wealth of a single whale led to drastic fluctuations in JELLY's price on Hyperliquid, leaving a staggering $12 million dent in the liquidity vault.
- Hyperliquid took the drastic measure of removing JELLY futures and shutting down all related trade positions, staving off financial wreckage, although it fanned fears about centralization.
- Some industry observers, including Bitget's CEO Gracy Chen, likened Hyperliquid's response to a rerun of the ill-fated FTX due to their handling of the situation.
- In the aftermath of this drama, the HYPE token experienced a concerning near 10% dip in its value.
- Post-manipulation, Hyperliquid's liquidity reservoir value nosedived sharply from an impressive $283 million to a worrying $190 million.
Come March 26, 2025, Hyperliquid, an eminent name amongst decentralized exchanges for derivatives, got embroiled in dispute following rapid delisting of JELLY token futures amid orchestrated price manipulation. This saga reignited debates on the authenticity of decentralization in the cryptocurrency arena and sent HYPE token valuations southwards.
Disturbances initiated when an influential whale, aligning with wallet 0xde95, took an enormous $8 million shortened wager against JELLY through Hyperliquid. This stake, equating to 126 million JELLY tokens, marked a conspicuous slice of the small market cap, tottering between $10 to $20 million.
In a strategic retreat, the trader withdrew the collateral underpinning the position. As a domino effect, the automatic liquidation protocol was launched, obligating Hyperliquid's liquidity vault (HLP) to shoulder the gigantic short.
Armed with foresight, this whale astutely started purchasing JELLY in the spot realm, inciting a dramatic upward push in price that buoyed the market cap from $10 million to north of $50 million, all in a fleeting moment.
With JELLY's price mounting, Hyperliquid's HLP vault bore an unmade loss, spiraling to a whopping $12 million. Analyst Abhi postulated that at a $150 million threshold, Hyperliquid could face potential fiscal ruin.
NEW 🚨
Chaos and conflict engulfing Hyperliquid! $JELLY 👇
1.A trader opened a massive $6M short position on JellyJelly (a small coin, $20M mcap at the time).
You see, the trader orchestrated a self-initiated liquidation, inspiring a meteoric pump in JellyJelly's on-chain value, effectively coercing... pic.twitter.com/AI01q7KnZR
— Abhi (@0xAbhiP) March 26, 2025
Fueling the turmoil further, a newly emerged wallet (0x20e8) took a substantial long position on Hyperliquid midst the price crescendo. This account quickly acquired an eye-popping unrealized clinch of $8.2 million as JELLY's value soared.
Prominent centralized houses like Binance and OKX stirred the pot by mounting perpetual futures for JELLY amidst volatility's peak. Certain onlookers, such as investigator ZachXBT, speculated wallet connections to these platforms, though confirmations remain pending.
With the storm intensifying, Hyperliquid's validator nucleus called a crisis meet. They resolved to withdraw JELLY perpetual futures, lower JELLY's oracle value to a mere $0.0095, and close off all bound positions.
These nimble actions didn't just save Hyperliquid from catastrophic losses; they maneuvered a net gain of $700,000 from the turmoil. The Hyper Foundation rolled out plans to reimburse impacted users, albeit exempting wallets suspected in manipulation.
The Decentralization Debate
While some lauded Hyperliquid’s aptitude to shield the platform and its constituents, others loudly questioned the integrity of its 'decentralized' narrative. The audacity of a constrained validator group to delist and force-close positions undercuts the heart of decentralized finance.
In perhaps her harshest commentary, Bitget's chief executive Gracy Chen lambasted Hyperliquid as reminiscent of the tainted FTX — spotlighting Sam Bankman-Fried's notorious exchange.
#Hyperliquid may be on track to become #FTX 2.0.
The way it handled the $JELLY Immature, unethical, and unprofessional behavior led to user frustrations and questioned the platform's moral character. Despite branding itself as a frontier decentralized entity with a radical vision...
— Gracy Chen @Bitget (@GracyBitget) March 26, 2025
“Even while portraying itself as an avant-garde decentralized venture, Hyperliquid’s modus operandi aligns it more with overseas centralized exchanges”, asserted Chen. “Unilateral closing of the $JELLY market and hasty settlement of positions at selective rates panders to perilous precedents.”
Chen underscored that “in exchange habitats, trust trumps capital,” asserting its loss renders recovery herculean. She termed Hyperliquid's reaction as “hasty, nesoteric, and unprofessional.”
Arthur Hayes, who established BitMEX, put forth a dour perspective. “Let’s drop the façade of Hyperliquid’s decentralization. And then pretend traders genuinely care,” Hayes tweeted on X. He foresaw a hasty rebound for HYPE citing, “degens will degenerate.”
Market tremors were stark and swift. The aftermath saw Hyperliquid’s HYPE plunge nearly 10% within a day, trading beneath $15. Alarmingly, the pre-attack $283 million locked value in HLP tumbled to $190 million.
This turbulent phase ain't new. On earlier occasions, more precisely March 12, the platform combated a parallel saga involving an intentional $200 million Ether position liquidation by a whale, wringing a $4 million loss on HLP depositors.
Following such tribulations, Hyperliquid tightened its collateral norms for open positions, aspiring to “decrease systematic repercussions of sizable stances impacting hypothetical markets upon closure.”
The volatile JELLY saga: Brainchild of Venmo's co-founder Iqram Magdon-Ismail, presented under the Web3 social project JellyJelly, initially peaked to a $250 million market cap, only to collapse into singular digits soon thereafter.
Governance concerns cast long shadows over Hyperliquid. As per L2Beat, Hyperliquid features merely two principal validator divisions, each having quartet validators. A stark contrast to peers Solana and Ethereum boasting thousands of validators.
This limited validator construct renders Hyperliquid prone to centralized governance fears. Crypto purists argue complements buffet against an oligarchy tampering with decentralized architectures.
Hyperliquid defended its prompt actions, citing the validator’s duty toward system fortitude but noted the importance of a transparent voting framework.
Despite the fervor, Hyperliquid clutches the zenith among leveraged perpetual trading contingents, commanding circa 70% of market dominion per a January reveal by asset overseer VanEck.
As tales from this debacle recede, Hyperliquid shoulders the burden of reestablishing trust amid preventing further manipulative or orchestrated incursions. The balancing act between safeguarding users and preserving cherished decentralized ethos persists.
JELLY token’s tale underscores flaws resident in decentralized finance, especially with low-liquidity tokens. For Hyperliquid and the wider DeFi scope, this incident emphasizes the persistent tug-of-war between bona fide decentralization and astute risk mitigation.
