Key Takeaways:
A trader used liquidation mechanics on JELLY to trigger $13.5M in losses for Hyperliquid Vault.
This isn’t the first exploit — similar tactics were used on ETH and LINK, prompting rule changes.
The case raised questions about Hyperliquid’s decentralization and how DEXs handle low-liquidity tokens.
On March 26, a trader executed a complex strategy that triggered losses in the Hyperliquid (HYPE) Vault (HLP), using a leveraged short trade on the low-cap token Jelly-my-Jelly (JELLY).
According to Arkham analysts, the trader used three Hyperliquid accounts and deposited around $7 million within minutes. The trader opened two long positions ($2.15M and $1.9M) and one short position ($4.1M).
To trigger a liquidation, the trader removed margin from the short, pushing it to the Hyperliquid Vault (HLP). Afterward, the token’s price was aggressively pumped, causing JELLY’s price to spike.
Due to its small market cap, JELLY reacted sharply to the activity. Before this, the token showed low volume and minimal chart movement since launch.
Source: GeckoTerminal
As an automated market maker (AMM), the Hyperliquid Vault was drawn into the price action. When JELLY surged, the vault lost $13.5 million. According to Three Sigma, if the token’s market cap had reached $700M, the losses could have been greater.
To stop further losses, Hyperliquid closed the JELLY pool at a price of $0.095.
‘It’s Pure Game Theory’: Is Hyperliquid to Blame for This?
The JELLY exploit has become one of the most discussed events in crypto space in recent days. Among Hyperliquid users, one of the key concerns is the vulnerability of the protocol to such manipulation.
From a technical standpoint, Hyperliquid was not hacked, and no client funds were directly stolen. However, as analysts from Three Sigma noted, the trader found a way to exploit the platform’s liquidation system rather than its code.
What happened with Hyperliquid and JELLY highlights a broader issue: the risks facing decentralized exchanges (DEXs) and low-liquidity tokens. Despite the fact that the trader suffered losses after Hyperliquid manually closed the JELLY market, part of the crypto community criticized the platform.
Some users raised concerns about the lack of decentralization and questioned the legality and transparency of the vault’s intervention.
According to Hyperliquid, its profit and loss (PNL) position has now returned to pre-exploit levels. Traders who interacted with the JELLY pool but were not involved in the exploit will receive their funds back.
Source: Hyperliquid
What this means for the future of decentralized protocols like Hyperliquid is still under discussion. Since Hyperliquid operates as an automated market maker (AMM), one possible solution is to limit trade sizes for tokens with low liquidity, such as JELLY, to prevent similar situations.
Is Hyperliquid a Target for Repeat Exploits?
This is not the first time a similar strategy has been used on the platform. Previously, a trader known as “ETH 50x Big Guy” carried out a comparable scheme with Ethereum (ETH). As a result, the trader earned a $1.8 million profit, while the Hyperliquid Vault recorded a $4 million loss.
After that, the same trader attempted to use a similar approach with Chainlink (LINK). He opened a position with 10x leverage, and the position size was approximately $31 million.
In response to these actions, Hyperliquid introduced new measures aimed at reducing the risk of similar exploits in the future. The platform reduced maximum leverage from 40x to 25x for Bitcoin (BTC) and Ethereum.
However, in the most recent case, the focus shifted to a low-cap token, JELLY, which made the exploit more effective due to low liquidity and increased volatility.
Is Binance Involved in the Hyperliquid–JELLY Case?
The latest twist in the JELLY story involves Binance. After Hyperliquid delisted JELLY, Binance listed the token for perpetual trading with 25x leverage. This sparked speculation about competition between the two platforms.
Researcher ZachXBT stated that the wallet addresses used by the traders involved in the JELLY exploit — including a second trader who tried to replicate the strategy — were most likely sponsored by Binance.
Separately, Binance co-founder Yi He responded to another post discussing Binance’s possible involvement in the case. Her reply was ambiguous but sparked further speculation, as she hinted she “might join this race.”
Hyperliquid not only needs to take urgent action to prevent similar schemes, which traders have been able to carry out without hacking the protocol, but it may also face growing competition from Binance.
At the same time, it’s worth noting that Hyperliquid is also a strong competitor to Binance’s perpetual trading products. According to CryptoRank, over the past 30 days, Hyperliquid ranked third among top projects by revenue, generating nearly $45 million, behind only stablecoin-related platforms.
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