Original Article Title: "To Offset Over $200 Million in Losses, Hyperliquid Resorted to 'Pull-the-Plug' Forced Settlement, Sparking Controversy"

Original Article Author: Asher, Odaily Planet Daily

Don't pretend to be decentralized, and don't pretend that traders really care about that.

After experiencing the "Hyperliquid 50x Leverage Whale" long position unwinding event (related content can be found here: Why Did the Hyperliquid Whale Self-Liquidate? Who Is Bearing the Loss of Millions of Dollars?), Hyperliquid encountered a similar crisis again last night. This time, the attacker was more precise, choosing the low-cap, more easily manipulated meme coin JELLY as the point of entry.

In a short period of time, the price of JELLY experienced drastic fluctuations, with the 15-minute candlestick chart showing gains of over 100% and drops of over 50%, plunging the market into extreme conditions. Day traders exclaimed, "It's a nerve-wracking situation, and retail traders are liquidated within minutes." How did this hunting operation unfold? Odaily Planet Daily will thoroughly review the full picture of the event.

JELLY 15-Minute Candlestick Chart

Event Recap: Hyperliquid Treasury Takes Over JELLY Short Position, From Near Liquidation to "Forced" Lossless Closing

A Trader Opens a Massive JELLY Short Position

At 8:53 PM yesterday, a trader (opening address link: https://hypurrscan.io/address/0xde9593fe5cdc5cb0917f5d5618a111f1174f5c91) deposited 3.5 million USDC into Hyperliquid as collateral and opened a 430 million JELLY short position (worth approximately $4.08 million) on the platform at a price of $0.0095.

Hyperliquid Treasury Receives Massive Short Position Due to Trader's Auto-Liquidation

A wallet manipulating the JELLY price (price manipulation address link: https://intel.arkm.com/explorer/address/Hc8gNSMaQiahiRiGjUfTaW8AXudRJHeGoeGpAn8WRcwq) coordinated with the dumping of spot prices after the short was opened to suppress the price, creating a profit margin for the short position. At 9:03 PM yesterday, the trader closed 30 million JELLY of the short position at a price of $0.0103 (worth approximately $310,000), withdrew the collateral of $2.76 million, and caused the liquidation of the remaining 398 million JELLY short position (worth approximately $4.5 million) at $0.0113, taken over by Hyperliquid's liquidation address.

JELLY Price Rises Rapidly, Hyperliquid Treasury Once Faced Over $10 Million Unrealized Loss

At 9:45 PM yesterday, intense buying activities by the price-manipulating address further exacerbated the treasury's unrealized loss, with the Hyperliquid Treasury once facing over $10 million in unrealized loss. According to on-chain analyst @ai_9684_xtpa's monitoring, if the market were to push the price to around $0.17, the treasury would face liquidation and lose the current holdings of $240 million. Based on the treasury's deposit and withdrawal records at that time, some of the treasury funds were seen fleeing, but in small amounts, possibly retail-driven.

Hyperliquid Treasury Under Attack

Hyperliquid Delists JELLY as OKX and Binance Successively Launch JELLY Perpetual Contract Trading

As per the description by KOL Wang Xiaoer (@brc20niubi) on Platform X (also commented by CZ), minutes before OKX and Binance announced the launch of JELLY perpetual contract trading, Hyperliquid had already prepared to throw in the towel and delisted JELLY trading completely. The following images showcase Wang Xiaoer's review of Hyperliquid's actions during this incident and CZ's comments.

KOL Wang Xiaoer's Review of Hyperliquid Incident Actions

Final Move of "Pulling the Plug": Settling JELLY at $0.0095 Price Resulted in Profit Instead of Loss

"I heard you wanted to liquidate me, so I just settled my position directly." After Hyperliquid delisted JELLY, it settled at a price of $0.0095 (the entry price of the JELLY short trader) for a position involving 392 million JELLY tokens. In the end, instead of facing a loss, they actually made a profit of $703,000.

Profit of $700,000 Instead of Loss

Official Response: Validator Vote to Delist JELLY, User Losses to Be Covered by Hyper Foundation

In response to the "Hyperliquid delisting of JELLY and settlement at a favorable price of $0.0095" in such a "centralized" action, the official team also provided a positive response to the event, as follows:

Due to abnormal market activity, validators voted to delist the JELLY perpetual contract. After a collective discussion among validators, a final decision was made to remove the JELLY trading pair to maintain market fairness. Apart from flagged addresses, all user losses will be compensated by the Hyper Foundation. The compensation will be automatically executed based on on-chain data, and users do not need to submit a support ticket. The specific calculation method will be detailed in a subsequent announcement;

The validator collective decision-making mechanism helps maintain network stability. Like other blockchains, validators sometimes need to make coordinated decisions to address emergencies and safeguard network integrity. Currently, the transparency of the system and the robustness of the voting mechanism will be a focus for improvement to enhance governance effectiveness;

The current 24-hour profit of HLP is approximately 700,000 USDC, and technical improvements are underway. Through this event, the team will optimize the system, enhance risk resistance, and make the network more robust after learning from the experience. More detailed information will be announced later.

Official Response to "Settlement of JELLY at a Favorable Price"

While the official response emphasizes that the removal of the JELLY trading pair was the result of validator collective discussion, as a decentralized exchange, Hyperliquid's "pull the plug" action inevitably raises more questions of centralization. Odaily Star Daily has compiled industry opinions on this event.

Industry Discussion on Hyperliquid JELLY Liquidation Event: Centralized Control, Trust Crisis, and Systemic Risk

Arthur Hayes: Stop Pretending to Be Decentralized; HYPE Will Go Back to Square One

BitMEX co-founder Arthur Hayes posted on Platform X sharply criticizing the "Hyperliquid JELLY Liquidation Event," stating, "HYPE cannot handle the impact of the JELLY event. Let's stop pretending that Hyperliquid is decentralized; and then, let's not pretend that traders really care; I bet HYPE will soon go back to square one because gamblers are ultimately gamblers."

ZachXBT: Hyperliquid Official Unfazed by North Korean Hackers Stealing Funds to Short, But Manipulates Market Price

On-chain detective ZachXBT criticized Hyperliquid in a post on Platform X, stating: "What is infuriating is that the Hyperliquid team can freely draw lines to manipulate the price, but they remain unfazed when North Korean hackers use Radiant to steal funds and hold a significant short position on the platform."

Bitget CEO: Hyperliquid Might Be Heading Towards the Path of FTX 2.0

Bitget CEO Gracy Chen expressed in a post on Platform X that Hyperliquid's handling of the JELLY incident was both immature and unethical, lacking professionalism, leading to user losses and severely damaging its reputation. Despite the platform claiming to be an innovative decentralized exchange with a bold vision, its actual operation resembles more of an offshore centralized exchange with no KYC/AML mechanism, fostering illicit fund flows and bad behavior. The decision to close the JELLY market and forcefully settle positions at a favorable price has set a dangerous precedent. For any exchange (CEX or DEX), trust is more important than funds, and once lost, it is nearly irrecoverable.

Furthermore, the platform's product design has serious flaws: the mixed liquidity pool exposes users to systemic risks, and unrestricted position sizes provide opportunities for market manipulation. If these issues are not addressed, more meme coins may be used to attack Hyperliquid, putting it at risk of becoming the next major collapse in the crypto industry.

Andre Cronje: Position Size Is Not a Fixed Function of Leverage, DeFi Should Not Have Fixed Value Leverage

In response to the Hyperliquid Treasury facing liquidation and losses, Sonic Labs co-founder Andre Cronje posted on Platform X stating: Position size is not a fixed function of leverage but depends on available liquidity and realized volatility, where a small position can have 1000x leverage, and a large position only has 1.2x leverage. In DeFi, there should be no fixed value.

CZ Refers to Old Post Saying DEX Is Inferior to CEX, Emphasizes Unrelated to Hyperliquid Liquidation Event

Additionally, CZ referenced a previous tweet on Platform X, stating: "I know I'm not that smart. When I don't understand, I admit it, and I often think those who are amazing must know some trick that I don't know to do what I can't. But occasionally, I find that the most basic rules still apply." It is worth noting that CZ specifically explained that, to avoid confusion, this tweet is unrelated to today's Hyperliquid liquidation event but rather his past experience trying AstherusHub on the BSC chain, a project in the Labs investment portfolio. They do not display liquidation prices and utilize an automatic deleveraging mechanism (ADL), so similar issues to today would not occur.

Impact on Hyperliquid: Significant TVL Decrease, Noticeable USDC Outflow

Several hours have passed since the event, and on the surface, the turmoil seems to have subsided. However, its impact on Hyperliquid remains profound and "weighty." According to data from the Hyperliquid official website, HLP's TVL was as high as $240 million before the event, but has now dropped significantly to $195 million, with nearly 20% of funds lost in a short period. This drastic fluctuation reflects a wavering of market trust in the platform, indicating that investor confidence has not yet recovered.

HLP TVL on Hyperliquid

Additionally, according to DefiLlama data, following the Hyperliquid liquidation event, there was a significant outflow of USDC funds from the platform, with a net outflow totaling $175 million. The total USDC holdings dropped from $2.217 billion before the event to $2.004 billion.

USDC Net Outflow Data on Hyperliquid

Conclusion

The recent Hyperliquid hunt event has brought the governance and transparency issues of decentralized perpetual contract exchanges into the spotlight. Although the official reason given was that validators voted to delist the trading pair, the final direct "pulling of the plug" forced liquidation has raised questions about how decentralized DeFi exchanges truly are.

This incident also serves as a reminder to all DeFi projects that merely relying on the "decentralized" label is far from sufficient. When facing extreme market conditions, the key question is whether the platform can maintain stability under the premise of fairness and transparency. In the future, for on-chain DeFi projects to earn market trust, they must find a better balance between transparency, governance mechanisms, and risk control. Otherwise, similar crises are likely not to be the last.

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