Hyperliquid’s Emergency JELLY Delisting Saves $240M but Sparks Centralization Backlash

Hyperliquid, a decentralized exchange (DEX) protocol operating on its proprietary layer one (L1) blockchain, removed the JELLY token from trading on Wednesday after detecting suspicious market activity. The platform’s validator set intervened to force-settle JELLY at $0.0095, significantly below its peak of $0.16004, to mitigate further financial damage.

JELLY, a Solana-based token tied to a video-sharing app, had surged 230% in under an hour, driven by what investigators suspect was coordinated manipulation. The incident began when a trader opened a 430 million JELLY short position, removed their margin, and triggered $4.5 million in liquidations. Hyperliquid’s treasury automatically absorbed the position, resulting in a $10.63 million unrealized loss.

Had JELLY’s price reached $0.17, the protocol would have faced a potential $240 million liquidation, jeopardizing its liquidity pool. Hyperliquid’s 16 validators, responsible for network governance, voted unanimously to delist JELLY and cap reimbursements to non-flagged users. The Hyper Foundation, the platform’s nonprofit arm, will compensate eligible traders based on onchain data, excluding addresses linked to the manipulation.

“After evidence of suspicious market activity, the validator set convened and voted to delist JELLY perps,” Hyperliquid explained on the social media platform X. “All users apart from flagged addresses will be made whole from the Hyper Foundation. This will be done automatically in the coming days based on onchain data. There is no need to open a ticket. Methodology will be shared in detail in a later announcement.”

Flagged users, including the whale’s suspected account, will not receive refunds. The controversy has reignited debates about decentralization in DeFi. Critics, including Bitmex co-founder Arthur Hayes, argue Hyperliquid’s validator actions resemble centralized control, undermining its decentralized ethos. The platform’s HYPE token, already down 40% from its 2024 peak, faces renewed volatility amid the fallout.

Hyperliquid’s liquidity pool reported a $700,000 net gain post-incident, signaling short-term resilience. However, the event highlights vulnerabilities in handling volatile, low-market-cap assets and high-leverage trading. “HYPE can’t handle the JELLY,” Hayes wrote on X. “Let’s stop pretending hyperliquid is decentralised. And then stop pretending traders actually give a fu**. Bet you HYPE is back where is started in short order cause degens gonna degen.”

“Hyperliquid may be on track to become FTX 2.0,” Bitget’s CEO Gracy Chen stressed on X. “The way it handled the JELLY incident was immature, unethical, and unprofessional, triggering user losses and casting serious doubts over its integrity. Despite presenting itself as an innovative decentralized exchange with a bold vision, Hyperliquid operates more like an offshore CEX with no KYC/AML, enabling illicit flows and bad actors.”

Chen added:

The decision to close the JELLY market and force settlement of positions at a favorable price sets a dangerous precedent. Trust—not capital—is the foundation of any exchange (CEX and DEX alike), and once lost, it’s almost impossible to recover.

The JELLY delisting highlights the delicate balance DeFi platforms must strike between user protection and decentralization. While Hyperliquid’s swift response averted a systemic collapse, the incident serves as a cautionary tale for governance and risk management in decentralized finance. Reimbursements are expected to conclude within days.

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