In the wake of a more than 400% price surge of the JELLY token due to a market manipulation event on Hyperliquid, major exchanges like Binance and OKX acted swiftly to exploit the ensuing volatility by listing JELLY futures. Meanwhile, Hyperliquid faced criticism and opted to delist the token’s perpetual contracts, raising concerns about centralization.
Following the market manipulation incident involving JELLY on Hyperliquid, the derivatives exchange chose to remove JELLY from its platform and refund affected users. Shortly thereafter, Binance announced the listing of JELLY futures, with OKX following suit soon after.
This strategic move appeared to be a response to the significant price fluctuations, which made JELLY a prime target for speculative trading. On March 26, the JELLY price rocketed from around $0.0095, where the manipulator held a short position, to a high of approximately $0.050, representing a staggering increase of about 426%. High volatility typically boosts trading activity, so both exchanges are likely to benefit heavily from the transaction fees generated by JELLY perpetual contracts.
However, some speculate that the actions of Binance and OKX are not solely profit-driven but may also involve tactics to undermine a competitor. One user even described it as a “pure move to try and bury a competitor,” suggesting parallels to Binance’s alleged involvement in the downfall of FTX and implying that it “rewrites the history of what transpired with FTX.”
Blockchain analyst ZachXBT also noted that the two wallets involved in the manipulation, identified as 0x20e8 and 0x67f, had funding traced back to Binance.
At present, the price of JELLY has fallen back to $0.020, as reported by CoinGecko.
Overview of the Manipulation Incident
Reports suggest that the trader responsible for the incident managed three accounts—two with long positions valued at $2.15 million and $1.9 million, respectively, and a third with a short position worth $4.1 million, effectively hedging the long investments. The total volume amounted to $7.17 million.
The trader then proceeded to make aggressive buys of JELLY on decentralized exchanges. The limited liquidity on these platforms meant that their purchasing actions rapidly escalated JELLY’s price. After the token’s value soared over 400%, the $4.1 million short position faced liquidation. However, due to the scale of the liquidation, it could not be executed immediately and was instead sent to Hyperliquid’s automated market-making vault, the Hyperliquidity Provider. Concurrently, the trader managed to quickly withdraw funds from their other two accounts, benefiting from the unrealized profits of the massive JELLY price surge. Reports state that they successfully withdrew $6.26 million, leaving approximately $900K in the remaining accounts.
Recognizing the manipulation, Hyperliquid restricted the trader’s accounts to a reduce-only mode, stopping any further withdrawals. With their withdrawal options frozen, the trader opted to sell JELLY in the market.
This selling helped recover some funds, but it didn’t fully mitigate their losses as Hyperliquid subsequently halted trading at $0.0095, the same point at which the short position had been initiated. Consequently, all unrealized profits on the initial two accounts were obliterated.
According to Abhi, founder of a Web3 company, if Hyperliquid hadn’t intervened and closed the position, a complete liquidation would have occurred if JELLY reached a market cap of $150 million.
In the aftermath of the event, Hyperliquid opted to delist JELLY perpetuals, a decision made through a consensus among its validators. This action provoked significant outrage within the crypto community due to fears of centralization. One prominent figure stated that Hyperliquid demonstrated its inability to appropriately manage the JELLY situation and argued it’s time to abandon the facade that Hyperliquid operates as a decentralized platform.
In a similar vein, the CEO of a competing platform expressed that the decision to shut down the JELLY market and enforce position settlements at a favorable price sets a concerning precedent. They emphasized that trust, rather than merely capital, is the bedrock of any exchange and underscored the difficulty of regaining that trust once it’s lost.