- Hyperliquid was exploited via manipulation of the illiquid JELLY token, leading to over $12M in losses for the Hyperliquidity Provider (HLP) and a $5M short exposure
- HYPE token dropped 14% at its lowest during the aftermath, now trading at $14.23, as Hyperliquid pledged to reimburse affected users except flagged accounts via the Hyper Foundation
- The exploit involved a trader depositing $7.167M across accounts, using leveraged trades to manipulate JELLY prices, and exposing HLP to substantial losses
Decentralized exchange “Hyperliquid” recently faced a significant exploit, involving the Jelly Token. The incident unfolded when a trader artificially manipulated the token’s price, leading to a substantial loss for Hyperliquid’s liquidity vault, Hyperliquidt Provider (HLP).
The exploit caused an estimated loss of over $12 million for the HLP vault. The incident quickly sparked concern for the safety of investors, particularly regarding Hyperliquid’s risk management and security measures.
HYPE Token Takes a Dip
HYPE Token Takes a Dip Hyperliquid’s native token, HYPE, also took a hit, dropping over 14% at its lowest point as news of the exploit spread. At the time of writing, the token is trading at $14.23, down 11.95% over the last 24 hours.
In a Twitter post, Hyperliquid publicly addressed the issue, confirming that all users affected by the exploit—excluding flagged accounts—will be reimbursed through the Hyper Foundation. The platform reassured users that this process would be automatic, based on on-chain data, with no need for manual ticket submissions.
Hyperliquid also shared that their validator set took decisive action to delist JELLY perpetual contracts to ensure the network’s integrity.
As part of their response, Hyperliquid acknowledged the need for improvements in the robustness and transparency of their validator voting system. They also reported that HLP’s 24-hour profit and loss stood at approximately 700k USDC, indicating some resilience amid the disruption.
How the Exploit Happened
According to a detailed analysis by Arkham Intelligence, the exploit began when a trader deposited $7.167 million across three separate Hyperliquid accounts within a span of five minutes. The trader then used these funds to execute leveraged trades on JELLY, a highly illiquid token. By manipulating the token’s price, the trader forced the HLP vault into a vulnerable position.
The manipulation involved a classic “short squeeze” strategy. By that we mean that the trader initially dumped a large amount of JELLY to crash its price, creating a passive short position for the HLP vault. Then, by aggressively buying back the token, the trader drove its price up, causing the vault to incur losses as it struggled to cover the short position.
Interestingly, despite orchestrating the exploit, the trader ended up losing nearly $1 million due to the high costs of executing the trades. Unless Hyperliquid allows the trader to withdraw funds, they remain at a net loss.
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