Hyperliquid Delists JELLY Memecoin After a Trader Responsible for Some of the Recent “Suspicious Market Activity” Faces a Potential $1M Loss

A trader responsible for some of the recent “suspicious market activity” on Hyperliquid is facing a potential $1 million loss following the platform's freezing and delisting of the meme coin JELLY memecoin.

A trader who engaged in "suspicious market activity" on derivatives exchange Hyperliquid (HYPE) faces a potential loss of nearly $1 million after the platform froze and delisted a meme coin.

Arkham Intelligence reported that the trader deposited a total of $7.167 million into three separate Hyperliquid accounts within a few minutes on August 14.

The trader then used the funds to open highly leveraged trades on an illiquid coin, JELLY. However, the trader’s strategy backfired, and they are set to lose a substantial sum.

Hyperliquid’s Treasury Took a Short Position of $5M

The trader’s first deposit of $2.15 million was used to take a long position on the token. The trader then quickly added a second long position of $1.9 million and a short position of $4.1 million.

The strategy was to capitalize on the illiquidity in the market for the stock, which had seen a price increase of over 400% in the past 90 days.

Illiquidity in the market made it impossible to liquidate the short trade in the short run, so it was sent to the HYPE Provider Vault (HLP). Meanwhile, the trader withdrew collateral from the other two accounts in an attempt to escape with profits.

However, the exploit was detected by Hyperliquid, and the accounts were limited to reduce-only orders.

Hyperliquid intervened by closing the JELLY market for $0.2024, which effectively nullified the floating PnL on the exploiter’s accounts.

The trader had withdrawn $6.26 million, but at least $1 million remains trapped in the system. If they can withdraw the remaining amount, their total loss will be around $4,000.

After the incident, Hyperliquid delisted perpetual futures linked to JELLY due to concerns over market manipulation.

The platform is now facing criticism for its risk management practices. Analysts say that regulatory authorities will increase oversight if the platform does not correct underlying vulnerabilities that facilitated the attempt at market manipulation.

The scandal started when Hyperliquid’s treasury took a short position on JELLY for $5 million. When the price of the token rose, the losses reached $10.63 million.

At a price of $14.60 and market cap $4.86B, HYPE saw a decrease of 22.98% in the previous month, highlighting the risk associated with the lack of market protection.