Hyperliquid Removes JELLYJELLY Contract After Exploiting Incident

Following the incident, Hyperliquid's network validators voted to remove the JELLYJELLY contract. The exchange announced that most users, except for flagged addresses, would be reimbursed by the Hyper Foundation.

Hyperliquid, a decentralized exchange, is dealing with the aftermath of a user managing to accumulate a massive $289 million JELLYJELLY token position and draining the DEX of nearly all its remaining liquidity, leaving it with only $17 million in USDC.

The incident, which occurred on March 14, led to network validators voting to remove the JELLYJELLY contract from the exchange. Hyperliquid is reimbursing most users for their losses, with payments being processed automatically based on blockchain data. However, flagged addresses will not be included in the reimbursement program.

This marks the second major loss for Hyperliquid’s HLP in March. Earlier, a whale liquidated a $200 million ETH long position, resulting in a $4 million loss for the exchange.

Meanwhile, Binance and OKX have listed JELLYJELLY perpetual futures, prompting speculation that the centralized exchanges are capitalizing on Hyperliquid’s struggles by attempting to increase trading volume for the token. In response to the unfolding events, Hyperliquid has raised maintenance margin requirements to 20% for certain leveraged positions to mitigate further risks.

The situation unfolding at Hyperliquid closely follows an incident on March 12, where a whale managed to build a $306 million ETH long position, withdraw $17 million USDC, and personally net a profit of $1.86 million.

While rumors of an exploit emerged, Hyperliquid quickly denied them, explaining that its trading engine could not handle such a large position and that the user closed and liquidated their own position.

As Hyperliquid works to stabilize its operations following this series of events, its native token, HYPE, dropped as low as 22% before recovering slightly to trade at about a 10% lower increment.

In an effort to prevent similar market manipulation incidents in the future, Hyperliquid is rolling out technical improvements and plans to introduce new types of limit orders to enhance liquidity management.