Hyperliquid Delists JELLYJELLY Amid Liquidation Concerns
Hyperliquid, a decentralized exchange, made the significant decision to delist perpetual futures for the Solana-based meme coin JELLYJELLY on Wednesday. The exchange characterized this action as crucial for maintaining the integrity of its network, particularly in light of an impending liquidation crisis. Hyperliquid operates on its proprietary high-speed blockchain that is built on the Ethereum layer-2 solution, Arbitrum. In a statement shared on X (formerly Twitter), the project indicated that its validators convened to take “decisive action.”
The move followed an incident where a Hyperliquid user initiated a $6 million short position on JELLYJELLY, leveraging it 20 times. As the price of the meme coin unexpectedly increased, the situation escalated into a toxic scenario for the trader. Observers speculated on social media that the user’s actions might have been an intentional effort to force a liquidation, which ultimately compelled the decentralized exchange to intervene. In response to indications of suspicious trading patterns, the validators convened and voted to remove JELLYJELLY futures from the platform. Users, except for those with flagged accounts, will be compensated by the Hyper Foundation, with the process set to occur automatically in the coming days based on on-chain data.
Price Surge for JELLYJELLY Following Delisting
On Thursday, the price of JELLYJELLY experienced a notable surge, reaching as high as $0.043, according to data from CoinGecko. By approximately 2:30 PM Eastern Time, the coin was trading around $0.023, reflecting a remarkable 73% increase in value over a single day.
Despite Hyperliquid’s assertion that the decision to delist JELLYJELLY was a collective one, the action received pushback from traders and industry analysts who argued it contradicted the principles of decentralized finance (DeFi). Arthur Hayes, co-founder and former CEO of BitMEX, expressed his criticism on X, suggesting that Hyperliquid’s actions were not representative of a genuinely decentralized platform.
Those who held positions in JELLYJELLY on Hyperliquid will be compensated by the Hyperliquid Foundation in the near future, as stated in the exchange’s announcement. The Hyperliquid Foundation serves as a separate entity that oversees the strategic direction of the project.
Impact on Hyperliquidity Provider Vault
As Hyperliquid navigated the fallout from the toxic JELLYJELLY position, a community-managed vault known as the Hyperliquidity Provider (HLP) experienced some temporary setbacks. The HLP, which allows users to pool resources and earn returns through trading strategies and platform fees, reportedly saw its all-time profits decline by $11 million, although these losses were later recuperated.
Nonetheless, this turmoil had a negative effect on the HYPE market. The cryptocurrency, which serves as Hyperliquid’s native token, suffered a nearly 14% drop, trading at $13.85 at the time of reporting. The events surrounding Hyperliquid on Thursday mirrored a previous incident earlier in the month when the HLP incurred a $4 million loss after a user liquidated themselves, leaving the HLP to absorb the negative outcome.
In leveraged trading, investors borrow funds to amplify their positions beyond their initial capital, often secured by collateral. If the value of a leveraged position deteriorates past a certain threshold, exchanges can automatically liquidate that collateral to cover the losses.
Earlier this month, Hyperliquid announced plans to reduce the leverage available for trading Bitcoin and Ethereum, as well as to increase maintenance margin requirements for positions nearing liquidation. When the validators voted to delist JELLYJELLY on Thursday, $3.7 million in positions were settled at a price of $0.0095 per token.
Doug Colkitt, founder of the decentralized trading protocol Ambient Finance, noted on X that altering JELLYJELLY’s oracle price ultimately limited the attacker’s losses.
New Futures Contracts for JELLYJELLY on Other Exchanges
On the same day, major exchanges Binance and OKX introduced perpetual futures contracts for JELLYJELLY, enabling users to speculate on the meme coin that was launched as a promotional initiative for a podcast application months earlier.
Meme coins often experience price volatility based on market sentiment, and listings by exchanges can lead to significant price increases. Some users on X speculated, without providing evidence, that these exchanges might have been trying to undermine a competitor amid the ongoing liquidation crisis.
Concerns around the centralization of Hyperliquid’s network were amplified following reports that wallets linked to North Korea began using the platform in December, at which time the network had only four validators. Binance and OKX did not provide immediate comments regarding the situation.
