Hyperliquid: the tedious task of having a decentralized exchange
- Trader forces liquidation
- Hyperliquid delists Jelly token
- Our view on Hyperliquid and these developments
Hyperliquid is a decentralized exchange designed for trading perpetual futures, enabling users to open or short positions without a fixed settlement date, provided they maintain sufficient margin in their accounts. While centralized exchanges also offer this product, regulatory restrictions prevent some users from accessing these financial instruments.
To address this, Hyperliquid provides a platform that mirrors the experience of a centralized exchange (CEX) while maintaining transparency, a no-KYC policy, and decentralized user control. These unique features have attracted thousands of users and hundreds of millions in capital. The platform gained further momentum after a highly publicized airdrop, distributing over $1.2 billion worth of HYPE tokens to users. As the token surged from $3.90 to over $14 in the following days, its market capitalization ballooned to more than $7 billion.
However, the past few weeks have not been without challenges, as Hyperliquid has encountered two significant malfunctions, raising concerns about the platform’s stability.
Trader forces liquidation
On March 12th, a user on Hyperliquid opened a highly leveraged 50x long ETH position worth approximately $300 million. As the market moved in their favor, profits surged, fueled by copy traders joining in and short sellers closing their positions. However, instead of closing the trade, the user strategically withdrew collateral, raising the liquidation price and increasing the risk of forced liquidation. Ultimately, the position was liquidated at $1,915, securing the trader a profit of $1.86 million.
To facilitate the liquidation, ownership of the position was transferred to the Hyperliquidity Provider (HLP) vault. Given the sheer size of the trade, the slippage incurred during the process resulted in $4 million in losses for the HLP vault.
While the incident initially appeared to be an exploit, the Hyperliquid team clarified that no hack or manipulation occurred. According to the team, the trader used an unrealized PnL withdrawal strategy, which ultimately led to liquidation as their margin level dropped significantly.
Hyperliquid delists Jelly token
On March 26th, a user holding over 124.6 million JELLY tokens—worth $1.2 million—exploited the Hyperliquid platform by manipulating the token’s price to take advantage of the HLP. While the amount may seem modest, it represented nearly 10% of the total supply.
The user first sold off all their tokens, causing a sharp price drop and forcing HLP into a significant short position. They then repurchased the tokens, driving the price back up and triggering nearly $12 million in losses for HLP.
In response, Hyperliquid was forced to delist the JELLY token, as unchecked losses could have escalated to as much as $230 million.
The sudden delisting of the token, coupled with calls for centralized oversight to detect and restrict malicious behavior by key Hyperliquid participants, has severely impacted investor confidence. This move directly contradicts the core principles of DeFi, leading to a 20% decline in the HYPE token's value.
Our view on Hyperliquid and these developments
Although recent events have negatively impacted Hyperliquid’s ecosystem, its trading platform remains the largest and most advanced in the decentralized market. While its native token, HYPE, saw a sharp decline following these incidents, we anticipate a recovery later this year—though this will depend on broader market stability amid ongoing macroeconomic uncertainty.
A key concern is the significant drop in the total value locked (TVL) of Hyperliquid’s HLP. Before March 12th, it had amassed over $500 million in assets, but by April 1st, this had declined to $177 million—a 65% decrease. This sharp decline is largely driven by weakened investor confidence and concerns over security vulnerabilities. To regain trust and attract capital, Hyperliquid must address these issues and reinforce its security measures.
Nevertheless, as Bitcoin recovers, investor appetite for perpetual futures is likely to grow. For those seeking exposure in a decentralized environment, Hyperliquid remains a strong contender in the space.