Hyperliquid’s Handling of the JELLY Token Incident

Hyperliquid’s handling of the JELLY token incident has drawn sharp criticism from Gracy Chen, the CEO of Bitget.

After Hyperliquid (HYPE) removed JELLY amid an estimated $10.6 million loss and a looming liquidation threat to its treasury, Chen labeled the decentralized exchange’s actions as “immature, unethical, and unprofessional.”

Hyperliquid delisted the token with a promise to compensate impacted users. However, Chen argued that the losses and how the situation was handled raise questions about the exchange’s integrity. She criticized the team for operating the DEX “like an offshore centralized exchange with no know-your-customer or anti-money-laundering checks.”

Chen pointed this out in a post on X, noting:
> “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.”

As such, Chen opined that Hyperliquid’s behavior may point towards an “FTX 2.0,” a reference to the collapsed crypto exchange FTX, which imploded in 2022 with millions of users impacted.

Arthur Hayes, the founder and former CEO of derivatives exchange BitMEX, also shared a similar view via X:
> $HYPE can’t handle the $JELLY
> Let’s stop pretending hyperliquid is decentralized
> And then stop pretending traders actually give a fuck
> Bet you $HYPE is back where it started in short order cause degens gonna degen

Hyperliquid halted the jellyjelly market after a $5 million short bet by a trader got liquidated, throwing the platform into controversy amid a seemingly coordinated pump scheme.

The sharp surge in JELLY price, a staggering 230% within an hour, left the Hyperliquid liquidity pool with a $10.6 million loss. A further spike would have exploded this to over $240 million. Hyperliquid’s validator set chose to delist the token before this, citing “suspicious market activity.”

Chen commented:
> “The decision to close the $JELLY market and force settlement of positions at a favorable price sets a dangerous precedent. Trust—not capital—is the foundation of any exchange (CEX and DEX alike), and once lost, it’s almost impossible to recover.”

More than criticizing the delisting, Chen pointed out what she called “alarming flaws” in the DEX’s design. Among these are systemic risks to users as a result of mixed vaults, and unrestricted position sizes, which she said have opened it up to manipulation.

> “Unless these issues are addressed,” she noted, “more altcoins may be weaponized against Hyperliquid—putting it at risk of becoming the next catastrophic failure in crypto.”

Earlier this month, blockchain sleuth ZachXBT disclosed that a Hyperliquid whale who made huge high-leverage short bets on the DEX was indeed a cybercriminal using stolen funds.

The HYPE token plunged double digits in the aftermath of the incident.