Hyperliquid Struck Again by a Lightning Attack
In the dark hours of the cryptocurrency market, a precise strike against the decentralized derivatives exchange Hyperliquid unfolded quietly. On March 26, a trader opened a massive short position of 430 million JELLYJELLY tokens, plunging Hyperliquid into a liquidity crisis and liquidation risk.
As the price of JELLYJELLY soared by 560% and major exchanges rushed to launch contracts, Hyperliquid was forced to make a life-or-death decision between decentralization principles and user asset safety. This offensive and defensive battle, lasting only 2.5 hours, not only exposed the governance paradox of decentralized exchanges but also became a textbook case of capital hunting in the crypto world.
Surprise Short Attack: A Carefully Planned Targeted Strike
Following the previous incident involving a 50x leverage whale, Hyperliquid was again targeted by a malicious team. On the night of March 26, a trader opened a short position of 430 million JELLYJELLY tokens (worth 4.08 million USD) on Hyperliquid. After a slight price increase, this user actively closed part of the orders and withdrew the margin. Due to insufficient counterparties, the remaining 398 million JELLYJELLY shorts had to be taken over by Hyperliquid.
Subsequently, as the price of JELLYJELLY continued to rise, Hyperliquid’s short position sustained ongoing losses, peaking at 11.45 million USD. On-chain analyst @ai_9684xtpa stated on social media that if the price of JELLYJELLY rose to 0.17 USD, the vault would liquidate and lose the current 240 million USD held (Note: This is a calculation error by @ai_9684xtpa; the actual liquidation price is 0.1479 USD, and Hyperliquid adopts a risk segmentation mechanism, where a single order will not lead to total liquidation losses).
It seemed that a deliberate short squeeze operation targeting Hyperliquid’s vault was about to unfold. If Hyperliquid chose to intervene, it would face community doubts about its identity as a decentralized exchange. If it ignored the orders, a large number of users who deposited funds in Hyperliquid’s vault would suffer significant losses. The sophistication of this malicious strategy is akin to the contemporary “two peaches kill three scholars.”
Next, the price fluctuations of JELLYJELLY continuously teased Hyperliquid’s life-and-death line.
Major Exchanges Launch Contracts on the Fly, Hyperliquid Hits the Brakes
Bloggers like @off_thetarget revealed on X that someone had contacted him on March 24 to help push for JELLYJELLY’s listing on Binance. @off_thetarget believed that for the operating team behind the JELLYJELLY event, successfully listing on Binance would yield substantial profits through spot purchases. If the listing on Binance failed, they could still gain profits by holding short positions.
As developments unfolded, the question of whether Binance would list JELLYJELLY at this critical moment became a sword hanging over Hyperliquid’s head, and discussions about JELLYJELLY on social media continued to heat up.
At 11:10 PM, OKX announced that it would officially launch the JELLYJELLY perpetual contract trading pair at 11:30 PM. Minutes later, Binance also announced the launch of the JELLYJELLY perpetual contract.
In response to this news, many users rushed to join the long side, and the price of JELLYJELLY surged rapidly, rising from the initial 0.0095 USD where the trader opened the position on Hyperliquid to a high of 0.06276 USD, an increase of 560%, just about 135% away from triggering Hyperliquid’s liquidation price of 0.1479 USD.
On the brink of life and death, Hyperliquid began to act. At 11:21 PM, users noticed that the price curve for JELLYJELLY on Hyperliquid had stopped updating, and the order book displayed as blank. Meanwhile, the previously large losses on the JELLYJELLY position became invisible. The community speculated that Hyperliquid had delisted the JELLYJELLY token to control losses. (Some community users reported that Hyperliquid actually delisted the JELLY contract before Binance’s announcement, right after OKX announced the launch of contracts.)
Minutes later, in the settlement history order book of Hyperliquid’s vault, people discovered the settlement record for the JELLYJELLY short position. The settlement price was 0.0095 USD, the same as the attacker’s opening price for the short position. This meant that Hyperliquid did not incur any losses on this order.
However, at the time of settlement, the spot price of JELLYJELLY in the market should have been around 0.05 USD, a difference of over five times. Such operations clearly defy logic. It seemed that Hyperliquid, through human intervention, simply shut down this losing order brutally.
At 11:44 PM, after remaining silent throughout this process, Hyperliquid’s official account finally explained on Discord: “Upon discovering evidence of suspicious market activity, the validators convened a meeting and voted to remove the violators of JELLY. All users except for the marked addresses will receive full compensation from the Hyper Foundation. This will be automatically completed in the coming days based on on-chain data. No tickets are required. The method will be detailed in a later announcement. Like other chains, validators typically need to gather everyone to take decisive action to ensure the integrity of the network. Enhancing the robustness and transparency of the voting system is a priority. Please note that as of the time of writing, the 24-hour profit and loss of HLP is approximately 700,000 USDC. We will implement technical improvements and learn lessons to make the network stronger. More details will be shared soon.”
This announcement contained several core elements:
- The operation was a voting decision (maintaining the mechanism of decentralized governance).
- Compensation will be provided for users who incurred losses after opening positions in JELLYJELLY on Hyperliquid (but violators, i.e., those who initiated this attack, were excluded).
- In this practice, the vault did not incur losses, maintaining a profit of 700,000 USD within 24 hours (boosting user confidence in the vault’s profitability).
With Hyperliquid forcibly closing the orders, this targeted attack against Hyperliquid was declared a failure. The price of JELLYJELLY began to plummet, crashing 67% within 13 minutes. Perhaps realizing that the market’s volatility could affect the listing effect, OKX subsequently announced a delay in the listing time for JELLYJELLY.
The Dual Inquiry of Liquidity Traps and Vault Design
At this point, the targeted explosion against Hyperliquid seemed to have come to an end. The entire event lasted only 2.5 hours, but in this short period, a decentralized derivatives exchange with a market value of approximately 5 billion USD became the focus of criticism. The issues exposed during this process and the struggle among various forces can be considered a classic case of capital hunting in the crypto world. Several questions remain worth interpreting.
Firstly, what was the logic behind the initial trader completing such an operation? What design flaws of Hyperliquid does this reveal?
The first exposed issue is Hyperliquid’s trading liquidity problem. Unlike the previous incident where a 50x leveraged whale chose Ethereum as the trading currency, this trader opted for a relatively niche token like JELLYJELLY. Data shows that trading activity for Hyperliquid’s JELLYJELLY contracts is sluggish, with trading volumes typically only amounting to tens of thousands of dollars per minute. Therefore, when traders attempt to close large short positions, if there is insufficient liquidity on the order book, Hyperliquid will intervene to provide liquidity.
The second issue raised is the drawback of Hyperliquid’s vault acting as a counterparty. In comparison to Hyperliquid’s situation, centralized exchanges (CEX) rely more on market makers and centralized order book management when handling large orders, rather than depending on liquidity pools provided by the community (like GLP or HLP).
Behind the Zero-Sum Game: No Winners Among Benefactors
It seems that Hyperliquid preserved its reputation for decentralized governance through voting. However, subsequent revelations from @spreekaway indicated that Hyperliquid’s voting validators were all votes from the Hyper Foundation. This was criticized by the community, as this vote still did not represent a resolution achieved by the entire community but was instead a decision made by Hyperliquid’s officials. Although the urgency of the situation required a swift response, from this perspective, Hyperliquid’s decentralized governance was merely a façade.
Moreover, Hyperliquid’s user trust also suffered a tangible blow. During the holding of short positions, PANews found that many funds on-chain opted to withdraw from the vault to avoid potential losses in the event of liquidation. Although Hyperliquid’s vault’s yield was ultimately brought back to normal levels, the deposit amount dropped by 90 million USD in a short period, a decrease of 30%. From this perspective, Hyperliquid seemingly avoided vault losses but suffered significant damage in the process.
The growth of the vault over the past three months was wiped out overnight.
Additionally, the trader who initiated this event seemed unable to capitalize on the situation. Since Hyperliquid chose to exclude violators from the compensation list, this trading team would incur losses from price movements on the long and spot orders opened on Hyperliquid and would not gain the expected profits. Their positions opened on other platforms might also suffer losses due to the market’s violent fluctuations.
For the other exchanges that quickly listed during this process, the popularity of JELLYJELLY may quickly dissipate post-event, and they may not be able to attract many users thereafter. Instead, they sparked much user resentment on social media due to this seemingly malicious operation. Notably, within the Hyperliquid community, many users expressed their condemnation of Binance’s actions.
The initiators of this event have also become a focal point of discussion on social media. According to revelations from @off_thetarget, it seems that the JELLYJELLY-related team attempted to exploit this loophole for profit.
Many users also believe that this was a deliberate attack on Hyperliquid by other centralized exchanges. According to monitoring by Lookonchain, the funds used to attack Hyperliquid and open positions were withdrawn from Binance and OKX.
Furthermore, during this process, several KOLs participated in discussions, further fueling the situation.
Retail Investors Pay the Price for the Farce
In fact, during this event, retail investors who followed the trend to buy or go long became the biggest victims. According to coinglass data, in just four hours, the liquidation amount for JELLYJELLY reached 12.2685 million USD (with JELLYJELLY’s market cap being only 23 million USD), ranking third across the network, only behind Bitcoin and Ethereum.
As the price surged from 0.0082 USD to 0.0627 USD within two hours, then dropped from the peak to 0.021 USD, the maximum increase reached 665%, while the maximum drop hit 67%. How many retail investors lost sleep over this operation?
When the JELLY price ultimately settled at 0.021 USD, this thrilling sniper battle appeared to end with Hyperliquid’s “defensive victory,” but the battlefield left deeper industry inquiries: Who truly holds the governance rights of decentralized exchanges—the community or the foundation? Can liquidity dilemmas be avoided from becoming a gap for capital hunting? And are retail investors destined to become sacrificial victims of malicious schemes amid KOL misguidance, exchange games, and price manipulation? The event may pause, but the road to rebuilding trust in the crypto world is far longer than a thrilling liquidation operation. As the community puts it: This is not the first time, nor will it be the last—under the guise of decentralization, the game of power has never left the stage.
This article is a collaborative reprint from: PANews