Decentralized exchange Hyperliquid narrowly avoided a $12 million loss after a price manipulation incident involving the JELLYJELLY token, which suddenly surged by 500%. The token’s price was artificially inflated through coordinated trading activity, then rapidly dumped.
The Short-Long Manipulation Scheme
The situation began when a trader — who controlled 124.6 million JELLYJELLY tokens valued at around $4.5 million — opened an $8 million short position on Hyperliquid. This action forced the platform’s liquidity mechanisms to hedge the risk.
Almost simultaneously, a second wallet, likely controlled by the same individual, opened a massive long position. This caused the price of JELLYJELLY to skyrocket, leading to mass liquidations and profit for the attacker.
According to blockchain analytics platform Arkham, the strategy was a deliberate attempt to exploit Hyperliquid’s leveraged trading system and drain its liquidity.
However, the plan failed. Hyperliquid restricted the trader’s access, allowing only position closures. In an effort to recover funds, the trader began selling assets, even though their profit was still unrealized.
Manual Liquidation and Price Reset
As the token price surged, the exchange risked complete liquidity depletion. In response, Hyperliquid’s validators manually reset the JELLYJELLY price to $0.0095 — the level where the original short was opened. This allowed the platform to liquidate 392 million tokens and minimize losses.
The exchange then closed all open positions related to JELLYJELLY and delisted the token entirely.
Hyperliquid also promised automatic compensation for affected users — except those whose addresses were suspected of participating in the attack.
Mixed Reaction to Hyperliquid’s Response
The platform’s response drew mixed reactions. Some users praised Hyperliquid for its swift action, while others raised concerns about centralized behavior.
Gracy Chen, CEO of Bitget, criticized the platform’s handling of the situation, warning it resembles the failings of FTX due to similar vulnerabilities and trust issues. Her key points included:
- An immature and unprofessional response that caused user losses.
- Behavior more akin to an offshore centralized exchange (CEX), lacking KYC/AML protocols, exposing it to illicit activity.
- The forced closure of the JELLYJELLY market at a favorable price, setting a dangerous precedent.
- A shared liquidity architecture, introducing systemic risks.
- Lack of position size limits, which enables manipulation.
Chen warned that if these issues aren’t addressed, Hyperliquid could become the next victim of altcoin-based exploits.
Arthur Hayes, co-founder of BitMEX, also criticized Hyperliquid’s actions.
Second Major Incident in Two Weeks
This is the second serious liquidity crisis Hyperliquid has faced in just two weeks. Previously, a $200 million Ethereum long position was liquidated, resulting in $4 million in losses.
The series of incidents has damaged investor trust, leading to a decline in the HYPE token:
- Down 8,67% in 24 hours
- Down 22,39% over the past month
