HyperFund

On March 26, the crypto world was rocked when a trader executed a sophisticated strategy that led to Hyperliquid Vault (HLP) losing $13.5 million. This exploit involved Jelly-my-Jelly (JELLY), a low-cap token, and highlighted the vulnerabilities in decentralized exchange protocols. According to analysts at Arkham, the trader used three Hyperliquid accounts and deposited $7 million in quick succession. Positions worth $2.15M, $1.9M (longs), and $4.1M (short) were opened. By removing the margin from the short, the trader triggered a liquidation, which exposed the Hyperliquid Vault to the token's price surge. The sudden spike in JELLY’s price—facilitated by its low liquidity—was enough to cause the AMM-powered vault to incur heavy losses. Hyperliquid eventually closed the JELLY pool at $0.095 to stop further damage.
Exploit Raises AMM and Decentralization Concerns
From a technical perspective, Hyperliquid was not hacked; the trader exploited the platform’s liquidation mechanism. While no client funds were directly stolen, the event raised questions about the transparency and decentralization of Hyperliquid’s interventions.
Three Sigma analysts pointed out that low-liquidity tokens like JELLY are particularly prone to manipulation. To prevent similar incidents, Hyperliquid is now exploring restricting trade sizes for such tokens.
Traders who interacted with the JELLY pool but were not part of the exploit will be reimbursed. Hyperliquid also reported that its profit and loss (PNL) position has been restored to pre-exploit levels.
Similar Exploits on Hyperliquid: A Growing Pattern
This isn’t the first time Hyperliquid has faced such issues. A trader known as “ETH 50x Big Guy” used a similar strategy in previous exploits involving Ethereum (ETH) and Chainlink (LINK). These exploits caused significant losses to the vault, prompting Hyperliquid to introduce stricter leverage limits—reducing maximum leverage on Bitcoin and Ethereum from 40x to 25x.
However, the recent focus on a low-cap token like JELLY showed how vulnerabilities persist, particularly when volatility and low liquidity intersect.
Binance’s Role in the JELLY Case
Adding another twist to the narrative, Binance listed JELLY for perpetual trading with 25x leverage after Hyperliquid delisted it. This move sparked speculation about competition between the two platforms.
Researcher ZachXBT linked wallet addresses involved in the JELLY exploit to Binance, suggesting potential sponsorship. Binance co-founder Yi He fueled speculation by hinting at the platform’s competitive positioning in the perpetual trading market.
What’s Next for Hyperliquid?
Hyperliquid’s $13.5M loss underscores the risks AMM platforms face from traders exploiting protocol mechanisms. As Hyperliquid ranks third among crypto platforms by revenue, its success could make it a target for more exploits and competition from giants like Binance.
To secure its future, Hyperliquid must strengthen safeguards against such strategies while addressing the community’s concerns about decentralization and transparency.
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