Hyperliquidity Provider (HLP) Loses Big on JELLY Token Manipulation

Hyperliquidity Provider (HLP), a market-making vault at the derivatives exchange HyperLiquid, faced significant losses after a trader allegedly manipulated the price of the JELLY token.

HLP’s unrealized PNL temporarily dipped to a negative $13.5 million, resulting in a 20% drop of HyperLiquid’s native token (HYPE).

According to Lookonchain, the trader, holding $4.85 million of JELLY, combined a short position on HyperLiquid with on-chain spot purchases, causing liquidation of that position and giving HLP a short position.

HLP, which operates as an automated market-making bot linked to the exchange’s liquidation engine, saw its unrealized loss balloon after the trader aggressively bought JELLY on spot exchanges. This trading strategy efficiently pushed the price up in a market known for minimal liquidity, leading to the significant loss.

To mitigate the losses, HyperLiquid forced the closing of the JELLY market, settling it at $0.0095 instead of $0.50, which was reported to oracles via decentralized exchanges.

In response to the suspicious market activities, HyperLiquid announced on X that the validator set voted to delist JELLY perpetual contracts. They stated that all users, except flagged addresses, would be compensated by the Hyper Foundation, with processes automated based on on-chain data.

Newfound Research CEO Corey Hoffstein raised concerns about the legality of HyperLiquid’s actions, amid social media uproar, with the manipulating trader ending up with a nominal loss.

HyperLiquid’s delisting presented an opening for Binance, the world’s largest cryptocurrency exchange by trading volume, which announced the listing of JELLY-related futures. This decision caused spot prices to surge by 560%.

The incident parallels a 2022 exploit on Mango Markets, where trader Avraham Eisenberg utilized oracle price manipulation to secure substantial gains in derivative markets.