Hyperliquid To Compensate Users With JELLY Long Positions And Strengthen Risk Management Following Whale Manipulation Incident
In Brief
Hyperliquid will refund users with JELLY long positions at a favorable settlement price and enhance risk management measures, including refining the Liquidator vault under HLP and adjusting open interest caps.
Decentralized exchange (DEX) operating on its own Layer 1 blockchain, Hyperliquid shared an update on the social media platform X. The announcement clarified that users who held JELLY long positions at the time of settlement will receive a refund from the Hyper Foundation, with their positions being settled as if the price were 0.037555. This ensures that all JELLY traders benefit from a favorable settlement price, with the exception of flagged addresses.
Furthermore, the project shared that it is enhancing risk management measures on Hyperliquid in several ways. For instance, the Liquidator vault under Hyperliquidity Provider (HLP) will now have a cap that represents a smaller portion of the total HLP account value. This cap will be rebalanced less frequently, and more advanced logic will be applied to manage backstop liquidations. If the Liquidator incurs losses beyond a certain threshold, the ADL (Automatic Deleveraging) mechanism will be triggered, instead of automatically moving collateral from other vaults. It’s important to note that ADL is not anticipated to be triggered by normal market activity. Additionally, the project plans to refine open interest caps, making them dynamic in relation to market cap. Lastly, validators will vote on-chain to remove assets that fall below specific thresholds.
Hyperliquid Faces Whale Manipulation, Delists JELLYJELLY
The announcement followed the event where Hyperliquid experienced a whale manipulation, occurring on Wednesday. A user took a short position on the Solana memecoin JELLYJELLY on the DEX, leading to substantial losses for the protocol soon after.
The wallet address “0xde96” initiated a short position on JELLYJELLY while a whale sold off the memecoin across DEXs, causing a sharp decline in the token’s price. This price drop led to Hyperliquid’s HLP vault stepping in to take over the initial short position. Subsequently, a newly created wallet, “0x20e8,” took a long position on the token. As a result, this strategy increased HLP’s unrealized losses, reaching approximately $12 million, according to data from Lookonchain.
As explained by Hyperliquid, a trader executed a self-trade involving a 4M USDC JELLY position at a price of 0.0095. Following this, the price of JELLY surged more than fourfold, causing the HLP backstop to liquidate the 4M position. This short position resulted in a loss for HLP’s account. The Open Interest (OI) cap formula is designed to be dynamic, factoring in global liquidity and OI on other platforms, including major centralized exchanges (CEXs). Although the 4M USDC position fell within the acceptable limits, the system prevented any additional open interest from being established beyond the triggered cap. The key issue, however, arose when HLP took over the position, which then shared collateral with other component vaults in the strategy. This action prevented the automatic triggering of the ADL mechanism.
While Hyperliquid worked to address the situation, some users on social media speculated that CEXs competing with Hyperliquid could list JELLYJELLY futures contracts to stimulate more trading, potentially damaging the rival exchange. Shortly after, both Binance and OKX began offering perpetual futures trading for JELLYJELLY. However, Hyperliquid responded by halting JELLYJELLY trading and freezing the contract. “After evidence of suspicious market activity, the validator set convened and voted to delist JELLY perps,” the protocol announced.
JELLYJELLY is a memecoin created by Iqram Magdon-Ismail, co-founder of Venmo, and Sam Lessin, an early investor in Venmo.
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About The Author
Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
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Alisa, a dedicated journalist at the MPost, specializes in cryptocurrency, zero-knowledge proofs, investments, and the expansive realm of Web3. With a keen eye for emerging trends and technologies, she delivers comprehensive coverage to inform and engage readers in the ever-evolving landscape of digital finance.
