- Whale manipulation forced Hyperliquid to absorb significant losses during the market spike.
- Hyperliquid faces criticism over centralized control and handling of liquidity risks.
Whale Manipulation Causes $12M Loss for Hyperliquid, Sparking Decentralization Fears
The crypto market recently saw one of its biggest occurrences, which has sparked debate in the communities about transparency and security in decentralized exchanges (DEXs). One of the bigger whales was allegedly involved in price manipulation of the JELLYJELLY token, which resulted in Hyperliquid’s liquidity vault sustaining a huge loss of $12 million. This has created fear about the integrity of decentralized trading platforms and their capacity to deal with such market abnormalities.
Whale Manipulation of JELLYJELLY
As per on-chain analytics firm Lookonchain, a whale with a 124.6 million JELLYJELLY tokens worth $4.85 million was at the center of price manipulation for the token. The whale shorted the token strategically on Hyperliquid, sending its price into freefall. The price drop left the liquidity vault for Hyperliquid, referred to as the Hyperliquidity Provider, with an $15.3 million unhedged short position, placing the platform at risk.
Later, the whale turned the tables by buying JELLYJELLY tokens from alternative markets, hiking the price and initiating a short squeeze. Due to this, Hyperliquid’s short positions were compelled to close, resulting in the platform posting almost $12 million in unrealized losses. The market capitalization of the token skyrocketed to around $50 million before Hyperliquid announced that it was delisting the token.
Hyperliquid’s Response and Market Impact
In response to the market manipulation, Hyperliquid delisted the JELLYJELLY perpetual contracts, effectively stopping further trading of the token. The exchange also indicated plans to compensate affected users affected by the drastic price movements. Its move to forcibly close open positions, however, has raised concerns regarding centralization, prompting criticism from industry players like Bitget CEO Gracy Chen. Chen noted that Hyperliquid’s practice was more similar to centralized exchange (CEX) practice than to that which would be expected from a DEX.
As the price surge peaked, JELLYJELLY went up more than 230%, threatening to entirely liquidate Hyperliquid’s liquidity vault—a move that would have left the latter with a devastating $240 million loss. The exchange was able to cushion the risk by closing positions at $0.0095.
Controversy and Regulatory Scrutiny
In spite of the efforts by Hyperliquid to contain damage, controversy over how it managed the event continues to attract debate. The exchange’s capability to restore trust among users is now being questioned by analysts, with fears of its risk management system increasing in intensity.
Adding to the scandal, blockchain researcher ZachXBT discovered that the trader who earned $20 million in profit from the ordeal, William Parker, is a serial scammer. According to reports, Parker invested illegally acquired funds from phishing scams and casino attacks to make high-leverage trades on Hyperliquid and GMX, making the situation even more complicated.
Current Market Conditions
JELLYJELLY is currently priced at $0.020995, up by 58.67% from its current low of $0.008160. The token’s price range was from $0.008160 to $0.061299, while the trading volume was 282.79 million JELLYJELLY tokens.
The Relative Strength Index (RSI) is at 51.79, signifying neutral market conditions, both not overbought and not oversold.
Conclusion
This episode highlights the risks inherent in decentralized trading platforms and points to the necessity of stronger risk management tools. As the crypto space evolves further, having transparent and secure trading environments will be instrumental in ensuring investor confidence. Whether or not Hyperliquid will be able to bounce back from this hiccup and regain its reputation is yet to be determined.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. CoinCryptoNewz is not responsible for any losses incurred. Readers should do their own research before making financial decisions.
