Hyperliquid, a Decentralized Trading Platform Specializing in Perpetual Futures Contracts, Experienced a Crisis

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

Decentralized trading platform Hyperliquid, which specializes in perpetual futures contracts, encountered an issue on March 26 when it was forced to delist Solana-based memecoin JELLYJELLY after a whale manipulated its price.

The manipulation resulted in 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.

As the price went up, Hyperliquid’s liquidity vault, responsible for handling trades, received a huge short position. The vault sustained severe losses because of JELLYJELLY’s skyrocketing price. The manipulation went undetected until the token reached a $50 million market capitalization point, at which time 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 further intensified the trading frenzy, which brought the risk of vault depletion at the platform closer.

With the rising pressure, Hyperliquid announced the suspension of JELLYJELLY trading as they planned to conduct additional research. Subsequently, they fully removed 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 the 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.

#Hyperliquid may be on track to become #FTX 2.0.The way it handled the $JELLY incident was immature, unethical, and unprofessional, triggering user losses and casting serious doubts over its integrity. Despite presenting itself as an innovative decentralized exchange with a…

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.