A whale who exploited the liquidation mechanism on the decentralized exchange Hyperliquid through perpetual contracts on the JELLYJELLY token now holds approximately $900,000 on the platform.

Hyperliquid eventually closed the JELLYJELLY market at 0.0095, the price at which the third account had entered its short trades.

This zeroed out all floating PnL on the first two exploiter accounts. pic.twitter.com/GHenMKQ547
— Arkham (@arkham) March 26, 2025

Even if they manage to withdraw the funds, the total loss would be around $4,000, according to Arkham experts.

The investor opened two long positions in the token worth $2.15 million and $1.9 million, while hedging with a short position of $4.1 million. A 400% price pump in JELLYJELLY led to the liquidation of the short position. However, due to its large volume, the assets were transferred to the Hyperliquidity Provider Vault.

Meanwhile, the trader continued withdrawing collateral from the long positions, accumulating an unrealized profit of approximately $11 million. The exchange suspended trading of JELLYJELLY contracts after validators flagged “suspicious market activity,” allowing the whale to withdraw around $6.2 million.

Doubts About Hyperliquid’s Decentralization

The community raised concerns about the exchange’s practices. Bitget CEO Gracy Chen criticized Hyperliquid’s response as “immature, unethical, and unprofessional,” arguing that its approach endangers users. In her view, the platform operates more like an offshore CEX without KYC/AML, which poses risks to the industry.

She also highlighted:

— Forced position closures set a dangerous precedent,
— Hyperliquid’s product design has critical flaws, such as mixed liquidity pools and no limits, exposing users to systemic risks,
— The platform could face further manipulations in other altcoins, potentially leading to “the next major disaster.”
“Hyperliquid could become the next FTX,” Chen concluded.

#Hyperliquid may be on track to become #FTX 2.0.

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…
— Gracy Chen @Bitget (@GracyBitget) March 26, 2025

In 2023, Hyperliquid founder Jeff Yang criticized venture capitalists for supporting “questionable projects” like LUNA and labeled Bitget a potential “next FTX.”

1/ Huge respect for Dragonfly continuing to invest in the bear market.

But I'm morally obliged to call out sketchy projects gaining momentum.

As a community we must preempt large scale implosions like #FTX or #LUNA that set the industry back years

Bitget may be the next FTX 🧵 https://t.co/R6JkTstXpV
— jeff.hl (@chameleon_jeff) April 5, 2023

Market Reaction

The price of Hyperliquid’s token (HYPE) dropped from $16.3 to $13.5 following the incident but later recovered to around $14.4 (CoinGecko).

BitMEX co-founder Arthur Hayes commented, “Let’s stop pretending Hyperliquid is decentralized. And then let’s stop pretending that traders care. I bet HYPE will soon return to its original price because degens will degen.”

Current state of Hyperliquid pic.twitter.com/IOSiisfACW
— MoneyPrinterGoBrrr (@printer_brrr) March 26, 2025

Users also responded to the forced liquidations by the exchange, creating memes to mock the situation.

Previously, 10x Research experts pointed out that the platform’s transparency enables a “public hunt” for high-leverage whales to liquidate their positions.