Hyperliquid was sniped by lightning again, 2 hours of life and death thrilling plot, no winner in the hunting of the top exchange

Author: Frank, PANews

In the late night when the cryptocurrency market was surging, a precise sniper targeting the decentralized derivatives exchange Hyperliquid was quietly staged. On March 26, a trader pushed Hyperliquid into the abyss of liquidity crisis and liquidation risks through huge short orders of 430 million JELLYJELLY tokens. With JELLYJELLY's price soaring by 560% and the top exchanges launched contracts quickly, Hyperliquid was forced to make a life-and-death decision between the decentralization principle and the security of user assets. This offensive and defensive battle, which lasted only 2.5 hours, not only exposed the governance paradox of decentralized exchanges, but also became a textbook-level case of encrypting the world's capital hunting.

Short-sell raid, a carefully planned targeted explosion

Following the previous 50x leverage giant whale incident , Hyperliquid was once again targeted by a team with ulterior motives. On the evening of March 26, a trader issued a short order of 430 million JELLYJELLY tokens (worth $4.08 million) on Hyperliquid. After the price rose slightly, the user voluntarily closed some orders and withdrew his margin. Due to the lack of opponents' handicap, the remaining 398 million JELLY JELLY short orders can only be taken over again by Hyperliquid.

Since then, as JELLYJELLY's price has been rising, Hyperliquid's short orders continued to lose, with the maximum floating loss reaching US$11.45 million. On-chain analyst @ai_9684xtpa said on social media that if the price of JELLYJELLY token rises to $0.17, the vault will liquidate and lose the current holdings of $240 million (Note: Here is an error in the calculation, the actual liquidation price is $0.1479, and Hyperliquid adopts a split-position mechanism, and a single order will not cause a full-position loss).

It seems that a short squeeze operation deliberately targeting the Hyperliquid vault is about to take place. If Hyperliquid chooses to intervene in person, it will face the community's doubts about its decentralized exchange. If orders are left unchecked, a large number of users who choose to store funds in the Hyperliquid vault will suffer huge losses. The exquisiteness of this open strategy design can be called the contemporary "two peaches kill three soldiers".

Next, JELLYJELLY's price fluctuations repeatedly teased the life and death line of Hyperliquid.

Leading exchange contracts are launched lightning, Hyperliquid emergency

brakes

@off_thetarget's blogger revealed on X that someone contacted him on March 24 to help promote JELLYJELLY's launch of Binance. @off_thetarget believes that for the operation team of the JELLYJELLY incident, if Binance is successfully launched, it can obtain a lot of profits through spot purchases. If Binance fails to go online, you can also get a profit by holding short orders.

As things have developed, the discussion on JELLYJELLY on social media continues to rise on whether Binance will launch at this critical moment.

At 23:10, OKX Exchange announced that it will officially launch the JELLYJELLY perpetual contract trading pair at 23:30. A few minutes later, Binance Exchange also announced the launch of the JELLYJELLY perpetual contract.

Affected by this news, many users flocked to the long-term team, and JELLYJELLY price also rose rapidly, rising from the highest $0.0095 when traders initially opened orders on Hyperliquid to $0.06276, an increase of 560%. It only needs to rise another 135% before triggering the Hyperliquid clearing price of $0.1479.

Between the line of life and death, Hyperliquid began to take action. At 23:21, the user found that the price curve of JELLYJELLY of the Hyperliquid platform stopped being updated, and the entrusted order also showed blank. The JELLY JELLY position, which has been in huge losses, is also not visible. The community speculates that Hyperliquid has removed the JELLYJELLY token and controls losses in this way. (There are also feedback from the community users that Hyperliquid actually removed the JELLY contract before Binance went online after OKX announced its launch.)

A few minutes later, in the settlement history of the Hyperliquid vault, people discovered the settlement records of JELLYJELLY short orders. The settlement price is $0.0095, the same as the attacker's opening price for the initial short order. This also means that Hyperliquid did not suffer any losses in this order.

However, at the time of settlement, the spot price of JELLYJELLY should be around US$0.05, a difference of more than 5 times. This operation is obviously not in line with common sense. It seems that Hyperliquid just roughly closed this loss order through artificial intervention.

At 23:44, the official Hyperliquid, who has been silent during the process, finally explained at Discord: "After the discovery of evidence of suspicious market activity, the validator group convened a meeting and voted to remove JELLY violators. All users will receive full compensation from the Hyper Foundation except for the tagged address. This will be automatically completed in the next few days based on on-chain data. No invoice is required. The method will be shared in detail in a later announcement. Like other chains, validators usually need to call everyone to take decisive action to ensure the integrity of the network. Enhancing the robustness and transparency of the voting system is a priority. Note that as of this writing, HLP's 24-hour profit and loss was approximately USDC 700,000 as of the time of writing. We will make technical improvements and learn lessons to make the network stronger. More details will be shared soon."

In this announcement, there are several core elements: 1. Operation is voting decision (maintaining the mechanism of decentralized governance). 2. Those users who open positions on Hyperliquid JELLY will be compensated for losses (but the violators are excluded, that is, the address where the attack was initiated). 3. During this practice, the vault did not suffer any losses, and the profit of US$700,000 was maintained within 24 hours (boosting users' confidence in the profitability of the vault).

As Hyperliquid forced the order to close the order, this targeted attack against Hyperliquid also declared a failure. JELLYJELLY price began to plummet, plummeting 67% in 13 minutes. Perhaps because he noticed that the market's violent fluctuations may affect the effect of listing, OKX immediately announced that it would postpone the listing time of JELLYJELLY.

The double question of liquidity trap and vault design

At this point, this directional blast against Hyperliquid seems to have come to an end. Although the entire incident lasted only 2.5 hours, in this short period of time, a decentralized derivatives exchange leader with a market value of about US$5 billion became the target of public criticism. The problems exposed and the various struggles between various forces can be regarded as classic cases of encrypting the world's open conspiracy. There are still some questions worth interpreting.

First of all, what is the logic behind the trader who opened a position in the first place to complete such an operation? Which design vulnerabilities in Hyperliquid are shown?

The first problem exposed is Hyperliquid's trading liquidity problem. Unlike the previous 50-fold leverage giant whale chose Ethereum as the trading currency, this time the trader chose a relatively niche token like JELLYJELLY. Data shows that Hyperliquid's JELLY JELLY contract trading is sluggish, and the trading volume per minute is usually only tens of thousands of dollars. Therefore, when a trader tries to close large short orders, if there is not enough liquidity on the order book, Hyperliquid will step in to provide liquidity.

Second, it leads to the disadvantage of Hyperliquid vault acting as a competitor. Compared with Hyperliquid's case, CEX relies more on the centralized management of market makers and order books when handling large orders, rather than on the liquidity pool provided by the community (such as GLP or HLP).

Behind the zero-sum game: There are no winners for fueling the fire

It seems that Hyperliquid has preserved the title of decentralized governance through voting. But then according to @spreekaway's revelations, Hyperliquid's voting validators were all voted by Hyper Foundation. This has also been criticized by the community. This vote is still not a resolution reached by the entire community, but an official decision by Hyperliquid. Although an emergency occurred, from this perspective, Hyperliquid's decentralized governance has been pulled apart.

In addition, Hyperliquid's user trust has also suffered a real blow. During the short order holding process, PANews found that many funds on the chain chose to withdraw funds from the vault to avoid joint losses once liquidation occurs. Although the yield of the Hyperliquid vault was eventually pulled back to normal levels, the deposit amount was reduced by $90 million in a short period of time, a 30% decrease. From this perspective, Hyperliquid seems to have avoided the loss of the vault, but it has also suffered a heavy blow.

The growth of the vault in the past three months has been wiped out overnight.

In addition, the trader, who was the initiator, seemed to have failed to make a profit through this incident. Since Hyperliquid chose to exclude violators from the compensation list, the long and spot orders issued by the trading team on Hyperliquid will suffer losses from price changes and will not obtain the imagined benefits. Its opening positions on other platforms may also suffer losses due to severe market fluctuations.

For several other exchanges that chose to quickly list coins in this process, JELLYJELLY's popularity has come and gone, and since this incident, it may not attract many users. Instead, this suspected operation on social media has aroused the disgust of many users. Especially in the Hyperliquid community, we can see that many users are condemning Binance's operations.

The initiator of this incident is also one of the key points of discussion on social media. According to @off_thetarget's revelation, it seems that the JELLYJELLY related team is trying to make a profit through this loophole.

Many users also believe that this is an attack deliberately launched by other centralized exchanges against Hyperliquid. According to Lookonchain monitoring, funds used to attack Hyperliquid and open positions are withdrawn from Binance and OKX exchanges.

In addition, during this process, many KOLs also participated in the discussion, which fueled the fire.

Retail investors pay for the farce

In fact, in this incident, retail investors who follow the trend and buy or go long have become the biggest victims. According to coinglass data, within 4 hours, JELLYJELLY's liquidated amount reached US$12.2685 million (JELLY's market value was only US$23 million), ranking third in the network, second only to Bitcoin and Ethereum.

As the price rose from $0.0082 to $0.0627 within 2 hours, it fell from its high to $0.021. The maximum increase reached 665%, and the maximum decrease reached 67%. In this operation, how many retail investors will have trouble sleeping overnight.

When the price of JELLY was finally frozen at $0.021, this thrilling sniper battle seemed to end with Hyperliquid's "defensive victory", but what the battlefield left behind was a deeper industry question: Does the governance rights of decentralized exchanges belong to the community or the foundation? Can the liquidity dilemma avoid becoming a gap in capital hunting? Are retail investors destined to become open-minded sacrifices in KOL misleading, exchange game and price manipulation? The incident may be temporarily suspended, but the road to trust reconstruction in the crypto world is much longer than a thrilling closing operation. As the community said: This is not the first time, nor will it be the last time - under the cloak of decentralization, Game of Thrones has never left. ****