An apparent multi-million dollar trade gone wrong on the Hyperliquid derivatives exchange saw a JELLYJELLY memecoin trader lose millions

An apparent multi-million dollar trade gone wrong on the Hyperliquid derivatives exchange saw a JELLYJELLY memecoin trader lose millions, gain it all back

A multi-million dollar trade went awry on the Hyperliquid derivatives exchange as one JELLYJELLY memecoin trader lost millions, gained it all back, and then had it all given away again.

Onlookers to the topsy-turvy David v Goliath battle with the exchange’s liquidity provider were enthralled as the trader opened a leveraged position and removed liquidity from its own account in order to increase its leverage ratio even higher.

With margin reaching nose-bleeding territory, even the smallest fluctuation in price would force a liquidation. It duly did.

After a slight wick in price, the trader’s memecoin was transferred to an experienced Hyperliquid market-maker, a so-called Hyperliquidity Provider (HLP).

Seemingly down millions of dollars, the trader then executed the next leg of the trade. Knowing that JELLYJELLY was a particularly small and thinly traded memecoin, and armed with the ability to arbitrage its price cross-exchange via a newly-announced 25X perpetuals contract on Binance, the trader began building a position to take back its ostensibly forfeited property.

At this point, the trader began to build an even larger position against the HLP. Funded and protected with arbitrage funds on the third-party Binance, the trader began squeezing Hyperliquid’s HLP toward its pre-programmed loss limit.

Although rare, individual traders can actually liquidate market-makers if collateral ratios fall below specified thresholds designed to protect the Hyperliquid exchange itself.

Read more: HyperLiquid lets influencers experience blowing up a fund

Gone too far: Hyperliquid went on to make users whole for the HLP’s losses.

Before this leg of the trade could reach its dramatic climax, however, Hyperliquid insiders began to take notice. In an act of dramatic betrayal, someone at the exchange force-closed the JELLYJELLY market — including a brazen override of the oracle price.

Although a normal oracle had been attesting to the price of JELLYJELLY near $0.50 just moments prior, the trade actually settled at $0.0095. That difficult-to-believe price left the trader with a small loss despite all of its efforts.

At one of its worst points, the market-making HLP could have lost as much as $6.5 million. Meanwhile, the trader’s unrealized gains briefly neared an ulcer-inducing $8.2 million.

Delisting a coin that Binance just listed at 25X

As of a midday update, Hyperliquid itself has delisted the obviously problematic JELLYJELLY. Binance, meanwhile, listed JELLYJELLY perpetual contracts with up to 25X leverage.

Binance’s new listing could have been coincidental, but many social media speculators were understandably skeptical of the timing of the announcement.

Several people speculated that Binance could have encouraged the liquidation of Hyperliquid itself, noting that Binance has used vengeful tactics against its competitors before. Famously, founder Changpeng Zhao used a series of expertly-crafted tweets and allegations to nudge FTX a bit more off the cliff.

A post-mortem statement by Hyperliquid stated that the HLP relevant to this trade had an overall 24-hour profit of just 700,000 USDC. Hyperliquid promised to make all users whole using funds from the Hyper Foundation, excepting certain misbehaving users that it flagged.

It also promised to make technical improvements to reduce the risk of such an incident happening again.