Hyperliquid JELLY exploiter faces $1M loss

Blockchain analytics firm Arkham Intelligence reported that the trader behind Hyperliquid’s (CRYPTO:HYPE) JELLY token manipulation incident could be down nearly $1 million, despite withdrawing $6.26 million from the platform.

The exploiter allegedly attempted to drain Hyperliquid’s liquidity pool by coordinating large positions and withdrawing collateral before liquidation protocols activated.

Arkham’s post-mortem revealed the trader opened three accounts within minutes, including a $4.1 million short position against $2.15 million and $1.9 million long positions.

When JELLY’s price surged over 400%, the short entered liquidation but bypassed Hyperliquid’s system, forcing the Hyperliquidity Provider Vault (HLP) to absorb losses.

The exploiter withdrew collateral from two accounts while restricted to “reduce-only” orders, selling tokens to recoup funds.

Hyperliquid later froze the JELLY market at 0.0095, erasing unrealised gains and leaving at least $1 million stranded.

“Assuming he can withdraw this at some point in the future, his actions on Hyperliquid have cost him a total of $4,000. If he is unable to, he faces a loss of almost $1 million,” Arkham noted.

The incident follows Hyperliquid’s March 14 margin requirement hike after a $200 million ETH liquidation cost HLP $4 million.

Traders have since targeted large positions, creating a “democratised” liquidation dynamic.

Hyperliquid delisted JELLY perpetual futures, citing “suspicious activity,” and reimbursed users via its nonprofit arm.

Critics argue the platform’s small validator set (eight total) and centralised decision-making exacerbate risks, though Hyperliquid maintains audits and transparency measures.

The case highlights systemic vulnerabilities in leveraged trading platforms.

While Hyperliquid’s liquidity pool reported a $700,000 net income post-incident, recurring exploits underscore the need for robust safeguards against coordinated attacks.

Arkham’s findings emphasise the risks of over-leveraged strategies in volatile markets.

Whether the exploiter recovers the remaining funds remains uncertain, but the incident serves as a cautionary tale for traders and platforms alike.

Hyperliquid’s response—delisting tokens and tightening rules—reflects broader sector efforts to balance innovation with risk management.

However, critics like Bitget CEO Gracy Chen warn such measures risk centralisation, echoing debates about DeFi’s governance trade-offs.

At the time of reporting, the Hyperliquid (HYPE) price was $14.72.