Hyperliquid Exploits Its Own Liquidation Mechanism to Delist $JELLY Token, Forcing the Protocol to Choose Between Taking a Massive $10 million Loss or Exposing its Centralized "Emergency Brake" Mechanism.

This article reflects the author's personal views and does not necessarily represent the views of Wu Shuo. A trader just used Hyperliquid's own liquidation mechanism against the protocol itself, forcing the protocol to choose between taking a massive $12 million loss or exposing its centralized "emergency brake" mechanism.

A trader just used Hyperliquid’s own liquidation mechanism against the protocol itself, forcing the protocol to choose between taking a massive $12 million loss or exposing its centralized “emergency brake” mechanism.

In just two minutes, a small group of validators quickly reached a "consensus", overriding the market price and forcibly delisting the $JELLY token, which had skyrocketed 429% in one hour.

Meanwhile, Binance and OKX launched perpetual contracts in a timely manner, while BitGet’s CEO said Hyperliquid is “on the path to becoming FTX 2.0.”

In addition, ZachXBT also questioned why Hyperliquid took decisive action against market manipulators but turned a blind eye to North Korean hackers who used stolen funds.

When exchanges are waging war over token listings, and validators are voting faster than you can shout “decentralize,” who is fighting crime with crime, and who is simply covering up disastrous risk management?

We’ve previously warned of Hyperliquid’s security issues when North Korean hackers were probing its defenses.

The situation has not improved today. Despite claims of scaling to 16 validators and promises of enhanced security, the same fatal vulnerabilities remain.

Usually traders always try to avoid liquidation, but the traders in this incident took the initiative to create liquidation, turning Hyperliquid’s liquidation mechanism into a time bomb.

The target is JellyJelly ($JELLY), a niche token with a market cap of just $20 million that is highly susceptible to manipulation.

The strategy is full of predatory wisdom: buying large amounts of spot longs on multiple chains, while simultaneously laying out a huge short position of $6 million.

After the layout is completed, the second stage begins: deliberately raising the spot price in various exchanges to force one's short position to explode.

As the price of $JELLY soared 429% in one hour, Hyperliquid’s liquidity pool (HLP) automatically took over this toxic short and losses soared rapidly.

This is not just a transaction, but a carefully designed financial decapitation operation that forces Hyperliquid into a desperate situation: if $JELLY is allowed to continue to rise, its entire $230 million pool of funds may face liquidation or expose the emergency intervention mechanism hidden under the veneer of decentralization.

The attack precisely exploited four major vulnerabilities: real position limits without liquid assets, weak oracle manipulation protection, automatic inheritance of toxic positions, and lack of circuit breakers.

As Hyperliquid’s losses approached $12 million, the protocol finally pulled its trump card: an emergency validator vote to forcibly delist $JELLY.

The consensus reached in two minutes revealed who really held power.

The final insult: settlement at $0.0095, while the market price was still around $0.50, turned a potentially huge loss into a $700,000 profit in an instant.

When a crisis occurs, crypto protocols reveal the truth faster than a chain of liquidations. When you can quickly rewrite market prices, is it still an oracle or just an Excel spreadsheet with some advanced steps?

As Hyperliquid struggled to cope with the losses, Binance and OKX seemed to smell blood and launched the $JELLY perpetual contract at the right time, further exacerbating the situation.

The timing is suspicious. ZachXBT pointed out that two $JELLY manipulators (0x20e8 and 0x67f) received funds from Binance just before the attack.

Coincidence, or a carefully planned market assassination?

The user pointed out that Binance co-founder He Yi allegedly responded to a specific request for Hyperliquid, saying: "OK, got it."

BitGet CEO Gracy Chen publicly criticized Hyperliquid’s handling of the matter as “immature, unethical, and unprofessional,” and said that “Hyperliquid may be becoming the next FTX.”

Wazz pointed out: "Two exchanges just teamed up to publicly attack another exchange, and you still think this market is not PvP?"

For Hyperliquid, the question was no longer decentralization vs. centralization, but losing $12 million or reputation. They chose the latter, but the market has seen through it.

ZachXBT added: “It’s annoying that they’re only doing this now, having stood by and watched as North Korean hackers opened positions with stolen Radiant funds.”

Selective enforcement makes principle seem like pure self-protection.

“Democracy dies in darkness,” but for Hyperliquid, democracy never existed.

The so-called “validators gathering and voting” sounds reasonable, but in reality it is just a show.

Just a handful of validators, two minutes, unanimous decision, no discussion.

The validators’ holdings reveal the truth — — 81% of HYPE tokens are firmly held by the foundation’s nodes, which is in stark contrast to the promised decentralized utopia.

ValiaDAO, the so-called independent