A recent incident on the decentralized exchange Hyperliquid has raised concerns about the security of meme coins. A crypto entity manipulated the price of Jelly my Jelly (JELLY) on Hyperliquid, exploiting the platform's liquidation mechanism to make a significant profit.
The trader opened three large positions within five minutes: two long positions worth $2.15 million and $1.9 million, and a $4.1 million short position. When JELLY's price surged by 400%, the short position should have been liquidated, but its size prevented an immediate sell-off.
Instead, it was absorbed by the Hyperliquidity Provider Vault (HLP), allowing the entity to escape the liquidation process while profiting from the price increase. The exchange later froze and delisted JELLY due to suspicious trading activity, citing 'evidence of suspicious market activity'.
The incident has sparked debate over the level of centralized control in decentralized finance, with some questioning whether Hyperliquid's decision to freeze JELLY trading and delist the token was sufficient to prevent further losses. The platform has announced changes to its liquidation system, including stricter caps on the Liquidator vault and adjustments to the open interest cap formula.