Hyperliquid Hit Hard as Sudden JELLY Surge Sparks Manipulation Fears

Hyperliquid (HYPE), a trading-focused blockchain, has been in a difficult situation. Recently, the platform’s treasury automatically placed a $5 million short position in JELLY, a digital token. 

In crypto, a short position is a bet that a token’s price will drop. However, instead of falling, JELLY’s price shot up to $0.16004 within an hour. This sudden surge caused Hyperliquid to lose over $10 million in its short position.

Notably, if the price had climbed slightly higher to $0.17, the losses could have reached $240 million. The unusual price movement raised concerns about market manipulation, leading Hyperliquid to remove JELLY from its platform.

JELLY’s Price Surge Sparks Manipulation Concerns

JELLY’s sudden price spike did not seem natural. One wallet placed a massive short position of 430 million JELLY tokens on the HyperliquidX platform. Shortly after, the same wallet removed its margin, causing $4.5 million in short positions to be liquidated. Hyperliquid treasury had to cover these losses.

At the same time, another wallet opened a long position, betting that JELLY’s price would rise. This move increased the token’s price, suggesting a possible market manipulation case.

Market manipulation is a big problem in crypto, as bad actors usually exploit loopholes in trading platforms. Enforcement agencies are taking strict action against those involved in such security fraud. 

Last June, a federal judge in Florida sentenced Michael Kane, the former CEO of Hydrogen Technology Corporation, to 45 months in jail for his role in a crypto price manipulation scheme. 

Hyperliquid Takes Quick Action

Hyperliquid had to act quickly to prevent further losses. The exchange’s validator committee decided to delist JELLY from the platform. The token was force-settled at $0.0095, meaning all short positions were closed at that price to contain the damage.

Hyperliquid reassured users that their funds were safe. It also announced that the Hyper Foundation would compensate affected users, except those flagged for suspicious activity.

Hyperliquid’s decision is part of a growing trend where decentralized platforms including Binance exchange delist tokens that seem risky or prone to fraud to maintain stability.

Community Raised Concerns About Hyperliquid’s Decentralization

This incident raised concerns about how decentralized Hyperliquid is. Some experts argued that the platform’s decision to step in and settle trades showed centralized control. 

This led to debates about whether Hyperliquid operates like a traditional exchange rather than a decentralized platform. The event also raised uncertainty about Hyperliquid’s token, HYPE, with some predicting further price drops. This comes as confidence in the platform is already shaken. 

Meanwhile, the full impact of this JELLY’s crisis is still unfolding, and many are watching to see how soon Hyperliquid recovers.