The decentralized exchange (DEX) Hyperliquid has found itself embroiled in controversy following its handling of the JELLY token incident, prompting sharp criticism from Gracy Chen, CEO of crypto exchange Bitget. Hyperliquid’s response to the $10.6 million loss, as well as the decision to delist the JELLY token amid market manipulation allegations, has raised concerns regarding the integrity and practices of the exchange.
Hyperliquid’s Response to JELLY Token Incident
The incident unfolded when the price of JELLY surged by an extraordinary 230% within an hour, creating significant losses for Hyperliquid’s liquidity pool. A $5 million short bet by a trader was liquidated, leading to a growing sense of market manipulation. The exchange moved quickly to delist the token, citing “suspicious market activity” and the need to prevent further damage. However, this decision did not sit well with critics.
In response, Hyperliquid pledged to compensate affected users, promising refunds to those impacted by the delisting. Despite this, the situation has led to broader concerns about the platform’s integrity, particularly after its failure to implement anti-money laundering (AML) and know-your-customer (KYC) checks, which are commonly used by centralized exchanges (CEX).
Bitget CEO Labels Actions as “Immature” and “Unethical”
Gracy Chen, CEO of Bitget, expressed strong disapproval of how Hyperliquid handled the JELLY incident. On social media, she labeled the exchange’s actions as “immature, unethical, and unprofessional,” highlighting the lack of regulatory safeguards like KYC and AML protocols. Chen pointed out that although Hyperliquid markets itself as a decentralized exchange with an innovative vision, its operations more closely resemble those of an offshore centralized exchange (CEX), enabling illicit activity and manipulation.
Chen took to X (formerly Twitter) to voice her concerns, stating:
“Despite presenting itself as an innovative decentralized exchange with a bold vision, Hyperliquid operates more like an offshore CEX with no KYC/AML, enabling illicit flows and bad actors.”
Chen further warned that the mishandling of the JELLY token situation could point toward the rise of what she referred to as “FTX 2.0.” The reference to FTX, the crypto exchange that collapsed in 2022 amid allegations of fraud and mismanagement, highlights the potential dangers of exchanges that lack transparency and regulatory oversight.
Hyperliquid’s Design Flaws Under Scrutiny
Chen also expressed concern about the systemic flaws within Hyperliquid’s platform that contributed to the incident. Specifically, she pointed to the exchange’s mixed vaults, unrestricted position sizes, and a lack of safeguards to prevent market manipulation. These design flaws, according to Chen, expose users to significant risk, particularly in volatile market conditions.
“The decision to close the $JELLY market and force settlement of positions at a favorable price sets a dangerous precedent,” she remarked. “Trust—not capital—is the foundation of any exchange (CEX and DEX alike), and once lost, it’s almost impossible to recover.”
Furthermore, Chen highlighted the potential for future problems if these issues are not addressed. She warned that the platform could become increasingly vulnerable to manipulation by malicious actors, putting it at risk of becoming another catastrophic failure in the crypto space.
Arthur Hayes Echoes Concerns
Arthur Hayes, the founder and former CEO of BitMEX, echoed Chen’s sentiments, criticizing Hyperliquid’s decentralized claims. Hayes took to X, remarking that Hyperliquid was, in fact, operating like a centralized exchange and that the platform’s handling of the incident was far from decentralized in nature. He commented:
“$HYPE can’t handle the $JELLY. Let’s stop pretending Hyperliquid is decentralized.”
Hayes suggested that the exchange would soon return to square one, as traders continued to engage in high-risk, short-term strategies, further amplifying the platform’s exposure to risk.
Allegations of Cybercriminal Involvement
The controversy surrounding Hyperliquid deepened earlier this month when blockchain investigator ZachXBT revealed that a whale who made significant high-leverage short bets on the exchange was linked to stolen funds. The discovery of cybercriminal activity has cast further doubt on the security and oversight measures of the platform. In the wake of this revelation, the value of Hyperliquid’s native HYPE token took a sharp dive, with prices plummeting by double digits.
A Potential Turning Point for Hyperliquid?
The JELLY token incident has undoubtedly raised questions about Hyperliquid’s ability to navigate the complex and often turbulent world of decentralized finance (DeFi). With major players like Gracy Chen and Arthur Hayes weighing in on the situation, Hyperliquid faces mounting pressure to reassess its operations and address the systemic flaws in its platform.
The aftermath of the JELLY incident serves as a stark reminder of the risks associated with poorly managed DEX platforms, and the crypto community will be watching closely to see how Hyperliquid responds. If the platform fails to regain user trust and improve its internal safeguards, it may find itself facing a similar fate to that of FTX, a cautionary tale of the dangers of unchecked power in the crypto space.
