Hyperliquid Avoids $12M Loss, Profits $700K

Hyperliquid successfully navigated a complex market manipulation scheme involving the JELLYJELLY token, ultimately avoiding a potential $12 million loss and turning a $700,000 profit. This incident highlights critical vulnerabilities in decentralized exchange (DEX) security and the potential for significant losses due to sophisticated manipulation.

Key Takeaways

• Hyperliquid averted a $12 million loss from a suspected JELLYJELLY token manipulation scheme.
• Concerns regarding Hyperliquid's liquidation mechanism and inherent risks have been raised.

The incident began when a trader opened a $8 million short position on JELLYJELLY, a low-cap token with an initial market cap of approximately $20 million. This trader then allegedly manipulated the market by removing margin, forcing Hyperliquid's liquidity vault (HLP) to absorb and auto-liquidate the large short position. The trader simultaneously purchased JELLYJELLY tokens elsewhere, artificially inflating the price and triggering the liquidation.

Hyperliquid's HLP vault absorbed the short position, which represented an unrealized loss of approximately $12 million as the JELLYJELLY price continued to rise. The token's market cap peaked at around $50 million before Hyperliquid delisted it.

Capitalizing on the manipulated short squeeze and forced liquidations, a new wallet opened a long position, profiting over $8 million as the price surged. The situation escalated when Binance and OKX announced plans to list JELLYJELLY futures, raising concerns about a potential $150 million market cap and the complete liquidation of Hyperliquid's HLP vault.

In response, Hyperliquid halted JELLYJELLY trading and subsequently confirmed its delisting. Hyperliquid ultimately settled 392 million JELLY tokens at $0.0095, resulting in a net profit of $703,000. This outcome, while positive for Hyperliquid, underscores the need for robust security measures and advanced market surveillance to mitigate similar events in the future.

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