Once again at the center of controversy, will "on-chain Binance" HyperLiquid collapse?

Author: Scof, ChainCatcher

Editor: TB, ChainCatcher

After being attacked by a mechanism vulnerability exploited by a 50x leveraged whale, HyperLiquid has encountered another incident.

The method is the same as before, with operations being open and transparent, but this time the target has changed to the meme coin $JELLYJELLY, which has far less liquidity than ETH.

Although the platform adjusted its mechanisms after the last incident, the results show that the protection remains weak. HyperLiquid ultimately paid the price for its negligence and arrogance.

Event Overview

Last night, the decentralized contract platform HyperLiquid faced a meticulously planned on-chain hunt. Surrounding the $JELLYJELLY token, someone opened a short position, manipulated the coin price, and lured the system into liquidation, collectively targeting the platform's treasury, which drew widespread attention.

The incident was triggered by a massive short position: address 0xde9…f5c91 opened a $4.08 million short position on $JELLYJELLY at a price of $0.0095, putting in $3.5 million USDC as margin, effectively serving as "bait" to lure the system into taking over the position.

Subsequently, another address Hc8gN…WRcwq dumped on the spot market, creating unrealized profits for the shorts. The short position holders took the opportunity to withdraw most of the margin, causing the platform to automatically take over the positions, shifting the risk to the treasury.

（For more on HyperLiquid's mechanisms, see: 《When it gets tough, even exchanges get cut! A deep dive into how HyperLiquid lost $1.8 million》）

The operators then reversed and pumped the price, buying large amounts of $JELLYJELLY to drive up the coin price, resulting in massive losses for the system's short positions. At this point, retail investors began to withdraw their funds, putting immense pressure on the treasury, and the liquidation price continued to drop. By the peak, the treasury's unrealized losses exceeded $10 million, and the TVL decreased by about $20 million. Meanwhile, according to crypto KOL @ai_9684xtpa's analysis, if the coin price rises to $0.17, the treasury could face forced liquidation, with potential losses of up to $240 million.

Monitoring indicated that the pump address previously held 120 million $JELLYJELLY (about $5 million), making it the largest on-chain holder. The funds of that address appeared to be exhausted, leading to severe price fluctuations.

Community Reaction

Such a thrilling event quickly sparked widespread discussion on Twitter.

Crypto KOL @thecryptoskanda was the first to speak out, calling for "Binance to list $JELLYJELLY." Shortly after, Binance co-founder He Yi retweeted in agreement. Minutes later, Binance officially announced that it would launch $JELLYJELLY perpetual contracts the next day.

Meanwhile, HyperLiquid's official team chose to "pull the plug," directly delisting $JELLYJELLY and profiting $703,000 from liquidating the short positions before the delisting. Although they stated that this was a decision made by the committee, this move sparked further controversy.

BitMEX founder Arthur Hayes immediately stated, "HyperLiquid is no longer decentralized," predicting that HYPE would continue to weaken and eventually return to square one.

Sonic Labs co-founder Andre Cronje also criticized HyperLiquid's leverage mechanism on the X platform. He argued that leverage should not be a fixed function but should be dynamically adjusted based on available liquidity and actual volatility. For example, small positions could allow for 1000x leverage, while large positions should be limited to 1.2x. In DeFi, fixed leverage is an extremely dangerous design.

On-chain detective ZachXBT expressed his anger, criticizing HyperLiquid for price manipulation and for being blind to hackers opening positions on the platform to launder money without taking action.

After the incident, according to information from HyperLiquid's official website, its HLP TVL briefly plummeted to $197 million. It was reported that the HLP TVL had previously reached as high as $240 million.

In an instant, public opinion completely reversed, and HyperLiquid, once hailed by its followers as the "on-chain Binance," is rapidly losing market trust.

A CEX in DEX Clothing?

Although this hunting incident ended with HyperLiquid pulling $JELLYJELLY and temporarily stopping the bleeding, the community has achieved a "real-world test" of the mechanism vulnerabilities in a short period, but the underlying issues remain unanswered.

For instance, after the first mechanism was attacked, did the platform truly assess the risks of imbalance between leverage and liquidity? This time, facing a liquidation crisis, why did it choose to stop losses through delisting trading pairs in such a centralized manner instead of relying on preset risk control mechanisms?

From another perspective, if the platform claims to uphold decentralization, then why can it "turn off the network" with a single click at a critical moment? If it chooses "survival first," how much of a fundamental difference remains between HyperLiquid and a CEX?

These unanswered questions point to a deeper dilemma: when decentralized platforms face extreme market shocks, should the code speak for itself, or should the backend team make the decisions?

As users, we believe that on-chain trading will ultimately be the future, but whether HyperLiquid can reach that point is still far from certain. Perhaps it is an experiment, or perhaps it will survive to become a new standard. But today, its narrative of decentralization stands on the edge of a cliff.