- Hyperliquid suffered over $12M in losses and $5M in short exposure after price manipulation of low-liquidity Jelly token on their decentralized exchange
- A whale dumped 126M JELLY, crashing its price, before buying back and inflating its value 500%, leaving Hyperliquid’s liquidity vault with unrealized losses of $12.3M
- Listing volatile, low-liquidity tokens like JELLY exposed Hyperliquid to risks that could have been mitigated by stricter safeguards and improved risk assessment protocols
Hyperliquid, a decentralized exchange, recently fell victim to a major exploit involving the Jelly My Jelly token (JELLYJELLY). The price manipulation led to over $12M in losses and a $5M short exposure. You can read more about this story here.
What is The JELLYJELLY Token?
The Jelly-My-Jelly token (JELLYJELLY) is a relatively new cryptocurrency launched in January of this year. The project debuted on the Solana blockchain as part of a Web3 social platform initiative. Moreover, the founders of the project happen to be two very influential figures in the financial sector: Venmo co-creator Iqram Magdon-Ismail and tech entrepreneur Sam Lessin.
JELLYJELLY’s performance after its market debut quickly drew notoriety from investors. Its market capitalization soared to $250 million shortly after ICO — prompting exchanges to list the token on its platform.
In the case of Hyperliquid, the exchange listed $JELLYJELLY on January 30, only a few days after its debut. While newer tokens may be exciting as they do have room for growth and adoption, the low liquidity and high volatility inherited from these types of tokens may pave the way for exploits like the one we’ve seen.
How Was the Jelly Token Exploited?
Low-liquidity tokens like JELLY are particularly prone to price manipulation, and this was a key factor in the Hyperliquid exploit. Low liquidity means the token’s price can be drastically affected by relatively small trades, making it an attractive target for bad actors.
In this case, a trader deposited $7.16 million across three Hyperliquid accounts and orchestrated leveraged trades on the token. The whale also contributed to the chaos by first dumping 126 million JELLY tokens, pushing prices down and exposing Hyperliquid’s liquidity vault to a $15.3 million short position.
The whale then bought back JELLY, inflating its price by over 500% in just an hour, leaving HLP with unrealized losses of $12.3 million.
Is the Jelly Token Safe?
The safety of the Jelly token has been called into question following the exploit. While JELLYJELLY itself isn’t inherently unsafe, its low liquidity and high volatility make it vulnerable to price manipulation.
In fact, the JELLYJELLY token is hardly to blame for the exploit. In this sense, the fault relies more on the provider — Hyperliquid — who could have mitigated these risks by implementing precautionary measures like risk assessments before listing JELLY and enforcing minimum liquidity thresholds.
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