Unknown Quantity of Loss Sustained by Whale After Manipulation of Hyperliquid
A whale exploited a liquidation mechanism on the decentralized exchange Hyperliquid, amassing approximately $900,000 through perpetual contracts on the JELLYJELLY token. The exchange eventually closed the JELLYJELLY market at 0.0095, the price at which the third account initiated short trades, effectively canceling out the floating PnL on the first two accounts. However, if the exploiter manages to withdraw the funds, the total loss will be estimated at around $4,000, according to Arkham experts.
The investor had initially opened two long positions worth $2.15 million and $1.9 million, with a short position of $4.1 million to hedge. A 400% price pump in JELLYJELLY led to the liquidation of the short position, leading to the transfer of assets to the Hyperliquidity Provider Vault. As the trader continued to withdraw collateral from the long positions, unrealized profits of approximately $11 million were accumulated. After validators flagged "suspicious market activity," the exchange suspended trading of JELLYJELLY contracts, allowing the whale to withdraw around $6.2 million.
The controversy surrounding Hyperliquid's handling of the situation has raised concerns about the exchange's practices. Critics, including Bitget CEO Gracy Chen, argue that Hyperliquid's response is "immature, unethical, and unprofessional," as it endangers users and operates more like an offshore CEX without KYC/AML. Chen highlights the potentially dangerous precedent set by forced position closures, the critical flaws in Hyperliquid's product design, and the risks of further manipulation in other altcoins, potentially leading to "the next major disaster."
In 2023, Hyperliquid founder Jeff Yang criticized venture capitalists for supporting "questionable projects" like LUNA and labeled Bitget a potential "next FTX." Despite these concerns, the price of Hyperliquid's token (HYPE) dropped following the incident but later recovered. Users have also responded to the forced liquidations by the exchange through memes.
Previously, allegations related to security concerns surfaced towards the end of 2024, when a security expert raised alarms about wallet activity linked to North Korean hackers probing the platform's vulnerabilities. Although Hyperliquid Labs denied any security breaches and affirmed no exploits had taken place, the incident caused massive user fund withdrawals and a severe drop in the HYPE token price.
These events have led to heightened scrutiny of Hyperliquid despite its rapid growth and large trading volumes. Continued vigilance and transparency are essential as the industry navigates the complexities of decentralized exchanges and the risks they present.
- Despite the controversies surrounding the handling of the JELLYJELLY incident, altcoins like HYPE are still subject to investing, with some users continuing to engage due to the exchange's large trading volumes.
- The incident involving the liquidation of a trader's position on Hyperliquid has raised questions about the exchange's ethics and transparency in the world of decentralized finance, with critics likening its practices to those of a centralized exchange, particularly in terms of forced position closures.
