Source: Cointelegraph Original: "{title}"
Suspicious trading activity has led to the delisting of the Jelly-my-Jelly (JELLY) memecoin from the decentralized exchange Hyperliquid, with details of the exploit gradually emerging over the past few days.
In 2025, the decentralized finance sector has already witnessed historic exploits, as it struggles to address oversight and security issues. In the Bybit hacking incident, North Korean hackers stole $1.4 billion just in February.
In the JELLY incident, a whale exploited Hyperliquid's liquidation parameters, siphoning off millions of dollars, marking just the latest exploit to shock the entire industry.
Observers have harshly criticized Hyperliquid's response to the short squeeze, with some even comparing it to the troubled FTX. Let's take a look at the developments of the incident.
Venmo co-founder Iqram Magdon-Ismail launched the JELLY token as part of the JellyJelly Web3 social media project. After its release on January 30, the token's price plummeted from $0.21 to about $0.01 approximately ten days later.
The token price of Jelly-my-Jelly lost most of its value during the first two weeks of trading. Source: CoinMarketCap
While the coin's initial market cap was close to $2.5 billion, by March 26, its market cap was only about $25 million.
The short squeeze of the JellyJelly token occurred within just a few hours on March 26. According to a post-mortem investigation by Arkham Intelligence, here's how it unfolded:
The exploiter deposited $7 million across three separate Hyperliquid accounts, leveraging the illiquid JELLY token.
Two accounts held long positions of $2.15 million and $1.9 million in JELLY, while another account held a short position of $4.1 million to offset the short positions of the other accounts.
As the JELLYJELLY price rose, the short positions were liquidated, but due to the large volume, they could not be closed normally.
The short positions were transferred to the Hyperliquid Provider (HLP).
Meanwhile, the miners were able to extract seven-figure PnL from it. At this point, the price of JELLY had risen by 400%.
The exploiters began to withdraw funds, but Hyperliquid quickly restricted their accounts. They did not continue to withdraw but instead started selling their JELLY positions.
When traders began to sell the remaining JELLY positions, Hyperliquid shut down the token market. According to Arkham, the exchange closed the Jelly market at a price of $0.0095, which was also the price at which the third account was shorting.
Hyperliquid announced on X that it would delist the perpetual futures trading of the JELLY token, citing "evidence of suspicious market activity."
Related: A detailed explanation of cryptocurrency long and short positions
The exchange stated, "All users, except for the marked addresses, will be compensated by the Hyper Foundation. This will be automatically completed in the coming days based on on-chain data."
The company further acknowledged that the HLP was hit while carrying long positions but stated that in the past 24 hours, the HLP had a positive net income of $700,000: "We will make technical improvements, learn lessons, and strengthen the network."
Some market observers were unimpressed with Hyperliquid's handling of the situation. Bitget CEO Gracy Chen wrote, "Its handling of the $JELLY incident is immature, unethical, and unprofessional, causing user losses and raising serious doubts about its integrity."
She stated that the exchange "may be becoming FTX 2.0," and the decision to close the JELLY market and settle positions at favorable prices "sets a dangerous precedent."
Bitget Wallet COO Alvin Kan told Cointelegraph that the Jelly collapse is just another example of how speculative price behavior can be so capricious.
"He said, "The JELLY incident clearly reminds us that speculation without fundamentals will not last […] In DeFi, momentum can drive short-term attention but cannot build a sustainable platform."
He concluded that the market will continue to expose projects built on speculation rather than practicality.
BitMEX founder Arthur Hayes seemed to suggest that the reaction to the JELLY incident was overblown, writing on X, "Let's stop pretending that super liquidity is decentralized. And let's not pretend that traders really care."
Source: Arthur Hayes
Earlier in March, the exchange had already taken action on leveraged trading, raising margin requirements for traders after its HLP lost millions in a massive Ethereum liquidation.
Related report: Hyperliquid raised margin requirements after a $4 million liquidation loss
However, Hayes may be right—those "degen" traders who are calm about DeFi risks may just consider themselves unlucky and move on. Additionally, a clear legal framework for DeFi does not seem to be forthcoming, at least not in the U.S. Aside from user reactions, there may not be any pressure or oversight to prompt "decentralized exchanges" to change course.
The real irony of this exploit is that it seems everyone has suffered significant losses—the exchange, traders, and even the exploiters.
Traders deposited a total of $7.17 million into their accounts but could only withdraw $6.26 million, leaving about $900,000 remaining in Hyperliquid accounts. If they can recover their funds, this exploit will cost them about $4,000; if not, they could lose nearly $1 million.
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