JELLY Token Delisted: Hyperliquid Averts $12M Liquidation Crisis

The decentralized exchange Hyperliquid has made headlines after delisting the Solana-based meme coin JELLYJELLY (JELLY) following a dramatic price surge that nearly caused a $12 million vault loss. The incident has sparked debates on market manipulation, DeFi governance, and the true nature of decentralization.

A Price Surge That Almost Wiped Out a Vault

The situation unfolded on March 26, when a trader opened a massive $6 million short position on JELLY using 20x leverage. Soon after, the trader bought large amounts of JELLY in the spot market, driving the token’s price up by an astonishing 400–500%. This unexpected rally put Hyperliquid’s Hyperliquidity Provider (HLP) vault at risk, with an unrealized loss climbing close to $12 million. If the price had continued to rise, it could have led to the complete liquidation of the vault, causing significant financial damage to the platform.

Hyperliquid Steps In: Delisting and Force Settlement

To prevent further losses and potential liquidation, Hyperliquid’s validators intervened, voting to delist JELLY perpetual futures contracts. The decision resulted in a force-settlement of JELLY positions at a fixed price of $0.0095 per token. This move neutralized the manipulative strategy and turned what could have been a $10.63 million loss into a net gain of $703,000 for the platform.

While this action saved Hyperliquid from a massive financial hit, it also raised questions about the platform’s governance and decision-making process. Some traders saw the move as necessary risk management, while others criticized it as an overreach that contradicts the principles of decentralization.

Criticism Over Centralization Concerns

Not everyone was pleased with Hyperliquid’s response. Gracy Chen, CEO of cryptocurrency exchange Bitget, slammed the decision as “immature, unethical, and unprofessional.” She warned that Hyperliquid’s actions resemble those of centralized exchanges like FTX before its collapse. Chen’s criticism suggests that while Hyperliquid presents itself as a decentralized platform, its decision-making process indicates otherwise.

Arthur Hayes, co-founder of BitMEX, echoed these concerns, questioning the level of decentralization within Hyperliquid. He pointed out that if validators can step in and force-settle positions at their discretion, the platform may not be as decentralized as it claims.

Market Impact and Lessons for DeFi

Following the incident, Hyperliquid’s native token, HYPE, saw a sharp decline as investors reacted to the controversy. The event underscores the challenges DeFi platforms face in balancing market integrity, risk management, and the principles of decentralization.

This case also highlights the risks of low-liquidity tokens being manipulated through leveraged positions. For DeFi platforms to thrive, they need stronger safeguards against such strategies while maintaining transparency and trust.

As the crypto industry continues to evolve, Hyperliquid’s handling of the JELLY incident serves as a critical case study. Whether this will erode confidence in the platform or push it toward refining its governance remains to be seen. One thing is clear: the fine line between decentralization and intervention in DeFi is becoming more complex than ever.