🧐 $JELLY Coin Surge and Plunge Event Comprehensive Review: The Beginning and End of Hyperliquid's Hunting Storm——
When algorithms and mechanism designs are insufficient to cope with human greed and cunning, whales can turn seemingly tight systems into ATMs and hunting grounds.
I went to bed early last night and missed this epic battle, what a pity;
Hyperliquid @HyperliquidX has a Bitcoin-like demeanor, and has been controversial and suppressed since its inception;
1️⃣ Event Review: From Huge Short Positions to Emergency Disconnection
On the evening of March 26, a dramatic scene unfolded on the decentralized derivatives platform Hyperliquid: a trader deposited $3.5 million USDC as margin around 20:53, boldly opening a massive short position of 430 million JELLY tokens, with an opening price of about $0.0095. The nominal value of this short position was approximately $4.08 million, with leverage as high as 50 times.
Since JELLY is a meme token with a small market cap and limited liquidity, the massive short position posed a significant risk to Hyperliquid's liquidity pool (HLP).
Shortly after the short position was established, suspicious operations appeared on-chain: a whale holding 126 million JELLY began manipulating the market price.
First, this address dumped a large amount of JELLY, causing the spot price of JELLY to plummet. This operation allowed the trader's short position to show a profit temporarily, and at 21:03, they partially closed 30 million JELLY shorts (about $310,000), and then withdrew $2.76 million in margin. The withdrawal of the margin directly triggered the forced liquidation of the remaining 398 million JELLY shorts (valued at about $4.5 million), taken over by Hyperliquid's liquidation mechanism—
HLP passively bore this massive short position, taking over at a price of about $0.0113. In an instant, the entire protocol's liquidity pool was pushed to the brink.
After the short position was taken over by HLP, the whale immediately turned around and bought JELLY in large quantities, driving the price up. Within just one hour, the price of JELLY surged by 515%, rising from less than 1 cent to over 3 cents.
The short positions held by HLP became deeply trapped, and the unrealized losses quickly expanded: according to on-chain data, HLP's paper loss once exceeded $12 million. By 21:45 that evening, Hyperliquid's treasury had unrealized losses exceeding $10 million, nearing the brink of liquidation. On-chain analysts warned that if JELLY rose to around $0.17, the HLP treasury would trigger liquidation, potentially losing up to $240 million (equivalent to nearly zeroing out the treasury). This news sounded the alarm for the market: Hyperliquid seemed to have become a prey on the edge of a knife, with funds facing the danger of being hollowed out at any moment.
As the situation escalated, the reactions from the community and competitors added fuel to the fire. Around 23:00 that night, a crypto KOL posted on social media suggesting that Binance list JELLY trading to leverage its influence to further drive up JELLY's price, thereby liquidating Hyperliquid as a competitor.
Almost simultaneously, OKX and Binance announced they would launch JELLY perpetual contracts, fueling market speculation.
The involvement of centralized exchanges (CEX) was interpreted by many as opportunistic, aiming to strike at Hyperliquid. Faced with internal and external pressures, Hyperliquid was pushed to the edge of a cliff—users began to panic and withdraw funds, causing the price of the HYPE platform token to plummet from $16 to $13.
Ultimately, Hyperliquid chose to "pull the plug" to stop the bleeding: around 23:21, the official urgently delisted the JELLY trading pair and froze the market.
Subsequently, the platform forcibly settled all JELLY shorts at a price far below the market price of $0.0095 (the same price as the initial short opening price), ensuring that the protocol treasury would not incur further losses. This strong intervention allowed Hyperliquid to avoid a catastrophe: the treasury not only did not suffer losses but instead made a net profit of about $703,000. The price of JELLY then collapsed in response to the news, dropping 60% to around $0.0248 in a short time. The HYPE platform token rebounded by about 20% due to the temporary alleviation of the crisis.
After the incident, the Hyperliquid team quickly issued an official response on Discord, stating, "Due to suspicious market manipulation, the validator committee voted to delist the JELLY perpetual contract." The official promised that, except for malicious addresses, all affected users' losses would be fully compensated by the Hyper Foundation, with compensation executed automatically based on on-chain data, without the need for users to submit tickets. Hyperliquid emphasized that this move was to maintain network integrity, and in the future, it would enhance the transparency and robustness of the governance voting mechanism, learning lessons to optimize system risk control. Thus, this shocking storm in the market came to a temporary end.
2️⃣ Market Opinions Currently Show a Clear Dichotomy
Some people firmly support Hyperliquid;
For example, @kiki520_eth firmly believes that the on-chain derivatives track is worth betting on. Hyperliquid has indeed opened a gap in the market, carving out a bloody path; if Hyperliquid ultimately goes downhill, that is its own problem, not an issue with on-chain derivatives;
For instance, accounts like Lookonchain disclosed the details of the whale's operations at the first opportunity, believing that the concentration and professionalism of the funding sources deepened the market's speculation of organized manipulation behind the event.
Many others criticize Hyperliquid;
For example, @GracyBitget bluntly stated: Hyperliquid is likely to become FTX 2.0;
Arthur Hayes openly mocked: "HYPE cannot withstand the impact of the JELLY incident. Stop pretending Hyperliquid is decentralized; I bet the HYPE token will soon fall back to its starting point."
On-chain detective ZachXBT pointed out the double standards in Hyperliquid's official actions from another angle: "What’s infuriating is that the Hyperliquid team arbitrarily manipulates prices; yet when North Korean hackers hold large short positions with stolen funds, they remain indifferent."
In fact, if all the details are categorized and the path restored, it can be seen that this was a meticulously planned multi-account coordinated harvesting.
First, an old address opened a short position to crash the price, followed by a new address building a long position to push the price up. For example, an unknown new wallet (starting with 0x20e8) opened a 3x leveraged long position at the beginning of JELLY's surge, with an opening price of about $0.0113, once gaining up to $8 million in unrealized profits. This operation of coordinating old and new addresses, with the shorts actively liquidated and handed over to the opposing side, is believed to be intentional, aimed at enticing the Hyperliquid system to automatically take in a large number of shorts, and then reverse the market to cause massive losses.
The mastermind behind this may have hedged profits from the losses in the HLP treasury by going long on JELLY on other platforms and shorting HYPE. This also explains why the attackers were willing to incur losses (forcefully liquidating shorts) to pressure HLP into taking the bait—
They had other channels for profit.
It is worth mentioning that accounts like Lookonchain also discovered a series of abnormal operational traces on Hyperliquid: including a few days prior when a large account with 50x leverage exploded a long position, causing millions in losses, which may have been the same batch of funds repeatedly testing the system's vulnerabilities.
3️⃣ Investor Community Sentiment and Platform Response——
The JELLY incident caused a huge uproar on social media, forums, and trading groups. The sentiments of ordinary investors can be roughly divided into two categories:
On one hand, many believe they have become cannon fodder in the whale game and have lost trust in Hyperliquid;
On the other hand, some sympathetically view Hyperliquid as a victim of malicious attacks, while also worrying about vulnerabilities in the platform's design.
Many Hyperliquid users later expressed that they experienced a "rollercoaster nightmare." The rapidly changing JELLY market caused heavy losses for retail investors on both long and short sides, with some joking, "Retail investors are getting liquidated every minute; it's driving us crazy."
In hindsight, this seems more like a premeditated hunting operation, with retail investors and the platform being calculated by the whales.
Users on forums like Reddit shared their experiences:
Due to using Hyperliquid, their wallets were inexplicably marked as high risk, and account funds could not be withdrawn. When seeking help from the official team, they were met with indifference or even kicked out of the group chat. Such posts described Hyperliquid as a "scam platform," believing its excessive centralization (the ability to freeze user funds) has deviated from the spirit of decentralized finance.
Some netizens bluntly stated that Hyperliquid's actions are no different from centralized exchanges like FTX misappropriating user assets, and trust has almost been completely eroded.
4️⃣ Official Public Relations and Remediation:
In the face of a trust crisis, the Hyperliquid team quickly took remedial measures. In addition to announcing the compensation plan on Discord, team members also reassured users on social media, emphasizing that "user funds are safe, and this loss will be borne by the foundation."
This move somewhat restored their credibility—
At least compared to some platforms that ran away with funds after incidents, Hyperliquid chose to cover user losses.
However, some users questioned: What authority and funds does Hyperliquid have to "make up for the losses"? If it is said to be decentralized governance, why does the team have the final say and use foundation funds to cover losses at critical moments? What is the difference from CeFi? Even if the losses are covered, the credibility gap of decentralized exchanges has already emerged.
Data also reflects this erosion of trust: within just a few hours after the incident, Hyperliquid's HLP treasury TVL plummeted from $240 million to about $195 million, with nearly 20% of funds flowing out;
According to DefiLlama statistics, there was also a massive net outflow of $175 million in USDC on the platform. Many funds voted with their feet, choosing to flee this "danger zone."
5️⃣ Current Situation——
Considering the entire trajectory of the event and its current aftermath;
Mainstream opinions on Hyperliquid's crisis evaluation are largely negative.
Whether viewing its mechanism as maliciously attacked or questioning its handling methods as violating decentralized principles, Hyperliquid's trust among users has been severely damaged.
6️⃣ Platform Mechanism Analysis: Why Does Hyperliquid Frequently Become a "Hunting Ground"?
Hyperliquid claims to be a DEX for perpetual contracts built on its own high-performance L1 chain, providing a low-latency, high-throughput trading experience.
Its innovation lies in combining on-chain matching and shared liquidity pool (HLP) mechanisms to provide users with a rich array of trading pairs and high leverage. However, these advantages expose significant vulnerabilities under extreme market conditions, causing Hyperliquid to frequently become a hunting ground for whales. Based on this incident and industry evaluations, the main reasons include:
- Systemic Risks of Mixed Liquidity Pools:
Hyperliquid's HLP liquidity pool provides liquidity support for all trading pairs, originally intended to improve capital utilization and depth. However, the "big pot" style liquidity pool design has buried systemic risks: as long as weak links in the pool (such as illiquid small tokens) are identified, attackers have opportunities.
The selected JELLY is a low-market-cap, easily controllable altcoin; once its market is pushed to extreme highs, HLP must bear massive losses, nearly shaking the foundation of the entire platform.
As pointed out by Bitget CEO @GracyBitget, "The mixed liquidity pool exposes users to systemic risks, and the unrestricted position sizes provide opportunities for market manipulation."
In contrast, traditional CeFi exchanges typically have tiered risk controls that prevent the extreme volatility of a single small token from threatening the safety of the entire liquidity pool.
Hyperliquid's overly aggressive pool-sharing model is akin to putting all eggs in one basket, so it's no wonder that whales flock to it, viewing it as an ATM.
- High Leverage and Lack of Position Limits:
Hyperliquid allows leverage of up to 50 times or even higher, while the control over position limits for a single account or trading pair is apparently not strict.
In this attack, a whale opened a short position worth millions of dollars and then forcefully liquidated hundreds of millions in short positions, indicating that the platform lacks effective restrictions on large positions. Noted developer Andre Cronje commented, "Position size is not a fixed function of leverage; it depends on available liquidity and actual volatility. A small position can have 1000x leverage, while a large position may only be able to manage 1.2x. Fixed leverage should not exist in DeFi."
It is evident that Hyperliquid's current rules allow large players to impose high-leverage exposure in low-liquidity markets, essentially handing over a risk amplifier to speculators. When whales smell blood, they can use these automated rules as hunting weapons. In contrast, mature platforms like dYdX dynamically adjust the actual available leverage for different order sizes, and GMX has introduced position limits and slippage protection mechanisms in its upgraded version to prevent similar attacks. Hyperliquid's lag in risk control parameters has buried a landmine for itself.
- Weak and Passive Liquidation Mechanism:
By design, Hyperliquid's automatic liquidation mechanism should ensure market health: when a user's margin is insufficient, the system takes over the position. However, this incident revealed the mechanism's impotence in extreme situations—the calculations failed to effectively buffer liquidity exhaustion, instead triggering a chain of forced liquidations, forcing the liquidity pool to passively bear massive short positions. There was no circuit breaker mechanism in this process, and the vicious cycle only stopped when human intervention "pulled the plug." Theoretically, an ideal liquidation mechanism should gradually reduce positions or introduce third-party takers during abnormal market fluctuations to avoid significant exposure for the platform itself.
However, Hyperliquid clearly lacks the involvement of secondary market makers or a tiered reduction system, leaving it helpless under whale attacks. CZ mentioned that some derivatives use automatic liquidation (ADL) to avoid such issues, reminding us of this improvement approach.
Hyperliquid needs to review its liquidation and risk engine to prevent becoming a victim of "chain explosions" again.
- The Ideal vs. Reality of Decentralized Governance:
Hyperliquid touts decentralization, but during this crisis, it had to rely on manual intervention from validators to vote to delist trading pairs, instantly shattering the myth that "code is law." This exposes the dilemma of centralized platforms when designing an "emergency brake": either leave a backdoor for human intervention (sacrificing decentralization) or let the market dictate (which could lead to catastrophic losses). Hyperliquid chose the former, which, while protecting funds, also sparked significant controversy—
The community questioned whether its level of decentralization was merely superficial.
More troubling is that the official team later marked and froze the attacking addresses, promising compensation to other users. This centralized approach to loss-sharing stabilized the situation in the short term but buried long-term risks for the platform's credibility: users may worry whether their profitable positions will be deemed "abnormal" and forcibly liquidated next time. Will the platform again choose to let stakeholders decide rather than follow transparent rules? One netizen sharply commented, "We created a trustless system, yet we must trust that human nature won't do evil—this is a paradox in itself."
How to balance decentralization and security is a question that Hyperliquid's mechanism design needs to reflect on deeply.
- Market Positioning and Participant Structure:
Since its inception, Hyperliquid has attracted many high-risk speculators with the myth of skyrocketing HYPE tokens, even surpassing Uniswap in trading volume at one point. However, this rapid rise also means a lack of accumulated risk control experience and a relatively stable user base.
When the large players gathered on the platform are primarily profit-seeking "yield farmers" or gray market funds, the probability of radical manipulation increases significantly. Ordinary users (retail investors) are at a disadvantage in such an environment and can easily become prey. In contrast, platforms like dYdX and GMX, which have weathered bull and bear markets, have a more stable and conservative user structure and asset list, making it unlikely for a token to surge 500% in a single day or for outrageous bets to occur.
Thus, some believe that Hyperliquid's frequent status as a hunting ground is not coincidental but rather a result of its aggressive product strategy attracting inappropriate participants. As industry insiders summarize, "Gamblers are ultimately gamblers"; if a platform stimulates trading volume with high leverage, it must also bear the consequences of high-risk speculation.
In summary, Hyperliquid's frequent encounters with extreme liquidation events can be seen as a typical case of the "high risk, high reward" model in the DeFi space hitting a wall.
When algorithms and mechanism designs are insufficient to cope with human greed and cunning, whales can turn seemingly tight systems into ATMs and hunting grounds.
From a mechanical perspective, Hyperliquid needs to improve in areas such as liquidity pool isolation, position and leverage limits, liquidation protection, and governance transparency to shed the "slaughterhouse" impression and truly become a healthy and sustainable derivatives platform.
7️⃣ Future Outlook: Can Hyperliquid Still Compete in the Top Tier?
I believe the answer is not black and white, but it can be examined from both opportunities and challenges.
On one hand, Hyperliquid still possesses significant technical advantages and early achievements. As one of the few projects that independently developed an L1 and achieved high-performance on-chain order book trading, Hyperliquid has proven that decentralized trading can approach the speed experience of centralized exchanges. This is a rare selling point in the derivatives market, which seeks user experience and diverse trading pairs. Additionally, the team's swift compensation for user losses and the treasury's final avoidance of significant losses while making a small profit somewhat preserved the fundamentals—ordinary users did not suffer direct losses. This stands in stark contrast to the overnight evaporation of user assets during the FTX collapse.
Therefore, Hyperliquid is not completely discredited: it does have risk control issues, and it's good that they were exposed early. As long as the platform sincerely learns from the lessons and strengthens governance and risk control, there is still a chance to win back some users' trust. After all, there are currently few competitors in the high-performance DEX space, and Hyperliquid's impressive achievements (such as the HYPE token reaching a peak market cap of 10 billion and once ranking in the top 30) indicate that there is demand for such products. If the team is willing to adjust its strategy to avoid making fatal mistakes again, Hyperliquid is not without the possibility of a comeback.
On the other hand, the shadow of the trust crisis is unlikely to dissipate in the short term. Hyperliquid's previous lack of KYC/AML has raised suspicions of facilitating money laundering and other behaviors. In the future, under increasing compliance pressure, this model may face crackdowns. Once the platform introduces compliance reviews, it will weaken its original permissionless advantage, putting it in a dilemma.
Even more severe is that competitors will take the opportunity to solidify their leading positions. dYdX has long been establishing its own blockchain and strengthening risk control, and its maturity and brand trust far exceed that of Hyperliquid; GMX and others are also continuously iterating, emphasizing stable operations and community governance. In contrast, Hyperliquid must deliver exceptionally impressive improvements to regain market favor. For example, introducing tiered margin and automatic liquidation mechanisms to prevent single assets from being liquidated; enhancing governance transparency to ensure major decisions are traceable; publicly disclosing security audits and risk reserve status to rebuild user trust. If these improvements can be implemented and no similar malicious incidents occur for a considerable period, Hyperliquid may gradually restore its vitality and compete with top-tier platforms in niche markets. Conversely, if subsequent improvements are inadequate or further flaws emerge, it is likely to fulfill Arthur Hayes' prophecy—HYPE's price and influence will "return to the starting point."
In summary, whether Hyperliquid can return to the top tier depends on the strength of its self-rescue and innovation efforts. The DeFi derivatives space is ever-changing, with opportunities and risks coexisting. Hyperliquid's fall from grace is a painful but valuable lesson: only by advancing in performance, risk control, and governance can it attract high-level players while ensuring the platform's long-term survival. If the Hyperliquid team can reflect deeply and rise from the ashes, it may not be without a day of resurgence; otherwise, it may gradually be abandoned by users, becoming a cautionary tale in the industry's development.
As the community has said, this incident has taught the entire Web3 circle a lesson: for decentralized finance to win the future, speed and dreams alone are not enough; transparency of rules and risk management are the cornerstones of moving towards the mainstream.
For Hyperliquid, this battle is a systematic stress test; while it has preserved funds, its credibility and stability will be reassessed by the market.
For the entire market, this serves as a reminder:
Decentralized derivatives platforms need stronger risk control designs, or they will become hunting grounds; and meme assets are no longer just emotional gambles, but also high-level capital games.
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