Hyperliquid Delisted $JELLYJELLY after Facing $12M Loss Due to Price Manipulation Attack

By CryptoDavid

Translated & Edited by Cheryl L.

Quick Take:

• On March 26, 2025, Hyperliquid's HLP vault faced $12 million in unrealized losses due to price manipulation involving memecoin $JELLYJELLY.

• Binance and OKX listed $JELLYJELLY perpetual contracts, driving up trading volumes and exacerbating Hyperliquid's financial risks.

• Hyperliquid delisted $JELLYJELLY contracts and liquidated holdings at $0.0095, securing a $703,000 profit and avoiding further losses. Affected users will be compensated by the Hyper Foundation.

• The incident revealed vulnerabilities in Hyperliquid’s governance and liquidity risks, raising doubts of community about its decentralization and future stability.

On March 26, 2025, decentralized trading platform Hyperliquid faced unrealized losses of up to $12 million in its HLP vault due to price manipulation involving memecoin $JELLYJELLY. The situation escalated when major centralized exchanges (CEX), including Binance and OKX, announced the listing of $JELLYJELLY perpetual contracts, further exacerbating HLP's losses and pushing the treasury to the brink of a $240 million liquidation risk.

In response, Hyperliquid swiftly delisted the $JELLYJELLY contract through a validator vote and liquidated its holdings at a low price of $0.0095. Ultimately, Hyperliquid secured a profit of $703,000 without incurring any losses, while announcing that affected users would be fully compensated by the Hyper Foundation. This article will provide a step-by-step breakdown of the incident.

Background: What is Hyperliquid?

Hyperliquid is a decentralized trading platform built on its proprietary Layer 1 blockchain, offering perpetual contract trading. Its vault, known as HLP, is a community-owned protocol vault responsible for market-making and liquidation processes. Users can deposit funds into HLP to share in profits and losses, with deposits subject to a four-day lock period to support platform liquidity.

The Attack Breakdown: Step-by-Step

1. Opening Short Positions: According to data monitored by @ai_9684xtpa, an attacker used the wallet address "0xde9" to open a $JELLYJELLY short position worth $4.08 million at a price of $0.0095, backed by a $3.5 million USDC margin.

2. Price Suppression: The attacker used another address "Hc8gN" to sell $JELLYJELLY tokens in the spot market, pushing the price lower. This created unrealized profits for the short position, allowing the attacker to withdraw $2.76 million in margin funds and trigger liquidation.

3. Price Surge: After liquidation, the attacker aggressively bought $JELLYJELLY tokens, causing the price to spike by 230% in a short period. This exacerbated losses for the treasury, which had taken over the short position.

4. CEX Intervention: Binance and OKX listed $JELLYJELLY perpetual contracts, attracting significant trading volume and further driving up the token's price. This indirectly worsened the treasury's losses.

5. Escalating Risks: After this attack, the vault faced unrealized losses of $10.63 million, with its total value locked (TVL) dropping by $20 million to $231 million. If the token's price reached $0.17, the vault could face liquidation, risking a loss of $240 million.

6. Mitigation Measures: Hyperliquid responded by delisting $JELLYJELLY perpetual contracts and liquidating its holdings at $0.0095, resulting in a $703,000 profit and avoiding any losses. The platform also announced that all affected users would be fully compensated by the Hyper Foundation.

Price Manipulation and CEX's Role

The attack leveraged the interplay between short positions and spot market activities, coupled with CEX intervention:

• Short and Spot Coordination: The attacker opened short positions while suppressing spot prices, triggering liquidation mechanisms. Once the vault took over the short positions, the attacker inflated the token's price, magnifying losses.

• CEX "Assistance": By listing $JELLYJELLY perpetual contracts, CEX platforms attracted speculative traders, driving up the token's price further. This move, while commercially beneficial for CEX, indirectly jeopardized Hyperliquid's vault.

Community Concerns and Future Implications

Although Hyperliquid successfully mitigated the immediate crisis, the incident exposed critical vulnerabilities in DeFi platforms:

1. Transparency and Governance: The community questioned the platform's decision-making transparency, particularly its ability to delist tokens. Concerns arose about whether Hyperliquid truly operates under decentralized governance.

2. Liquidity Risks: The top 10 deposit addresses account for 15.9% of the treasury's funds. If these whales withdraw, it could trigger a "bank run," further destabilizing the platform.

3. Reputation Damage: While financial losses were avoided, the platform's reputation suffered, raising doubts about its ability to handle future crises.

Gracy Chen, the CEO of leading CEX Bitget, has issued a scathing critique of Hyperliquid following its handling of the recent $JELLYJELLY incident. In her remarks, Chen described Hyperliquid's actions as "immature, unethical, and unprofessional," accusing the platform of triggering user losses and raising serious concerns about its integrity. "

Gracy Chen commented:"Hyperliquid may be on track to become FTX 2.0."

A Complex Game of Motives

This incident underscores the intricate dynamics between attackers, DeFi platforms, and CEX:

• Attackers: Exploiting low-liquidity memecoins like $JELLYJELLY for profit through price manipulation.

• Hyperliquid: Struggling to safeguard community funds while maintaining operational stability.

• CEX: Using token listings to attract traders and indirectly intensify competition with DeFi platforms.

The interplay between these actors creates a multi-layered ecosystem where motives constantly shift, leading to complex outcomes.

A Test of Decentralization

For Hyperliquid, this event serves as both a financial challenge and a test of trust.

While the platform avoided losses this time, its governance model and risk management mechanisms remain under scrutiny. The incident also highlights the ongoing tension between the ideals of decentralization and the realities of market dynamics.

This is not the first time the Hyperliquid vault has suffered an attack. Previously, the notorious "50x Leverage Whale" caused a $4 million loss to Hyperliquid's liquidity pool within 24 hours. The attacker achieved this by withdrawing margin funds and intentionally triggering liquidation. In response, Hyperliquid announced adjustments to its leverage limits, reducing the maximum leverage for BTC and ETH to 40x and 25x, respectively.

As DeFi platforms continue to evolve, striking a balance between efficiency and decentralization will be critical in preventing similar crises in the future.