Hyperliquidate II

Galaxy brain or pure evil?

A trader just weaponized Hyperliquid's own liquidation mechanics against itself, forcing the protocol to choose between a $12M bleeding wound or revealing its centralized kill switch.

A small set of validators reached "quorum" in two minutes, overriding market prices and forcibly delisting $JELLY after it pumped 429% in a single hour.

Binance and OKX swooped in with perfectly-timed perpetual contracts, while BitGet's CEO declared Hyperliquid "on track to become FTX 2.0."

Meanwhile, ZachXBT questioned why Hyperliquid draws the line at market manipulators but not North Korean hackers using stolen funds.

When exchanges wage war through token listings and validators vote faster than you can say "decentralization," who's fighting crime with crime and who's just covering for catastrophic risk management?

Financial warfare has a new playbook.

We first warned you about Hyperliquid's shaky security when DPRK hackers were spotted probing its defenses.

Fast forward, and things aren’t looking any better. Despite claims of expansion to 16 validators and promises of hardening security, the same glaring vulnerabilities remain.

While traders typically aim to avoid liquidation, our mastermind deliberately engineered one - transforming Hyperliquid's liquidation engine into a ticking time bomb.

The target? JellyJelly ($JELLY) - an obscure $20M market cap token perfect for manipulation.

The strategy? Pure predatory genius: open a massive $6M perp short position while simultaneously accumulating spot longs across multiple chains.

With positions secured, phase two began: deliberately pump spot prices across exchanges, forcing liquidation of their own short position.

As JELLY's price rocketed 429% within a single hour, Hyperliquid's HLP (Hyperliquid Liquidity Pool) automatically inherited the toxic short - now bleeding millions as funding rates skyrocketed.

This wasn't just a trade. It was a financial guillotine designed to force Hyperliquid into an impossible choice: watch their entire $230M vault face potential liquidation if $JELLY continued its ascent, or reveal the emergency powers lurking beneath their decentralization theater.

The mechanics exploited four critical vulnerabilities: no real position limits on illiquid assets, weak oracle manipulation protection, automated position inheritance, and the absence of circuit breakers.

A perfect storm of systemic weaknesses identified with surgical precision.

When Hyperliquid's paper losses approached $12M with no ceiling in sight, the protocol finally played its trump card: emergency validator voting to forcibly delist $JELLY entirely.

Swift consensus in two minutes revealed who truly holds the power.

The final insult? Settlement at $0.0095 when market price hovered around $0.50 - converting a potential eight-figure loss into a $700k profit with the stroke of a keyboard.

Democratic consensus at the speed of centralization.

When crisis strikes, crypto protocols reveal their true colors faster than a liquidation cascade.

When you can rewrite market prices faster than a Discord moderator bans a FUDster, is it still called an oracle or just a Google Sheet with extra steps?

Exchange Warfare

While Hyperliquid scrambled to contain the bleeding, Binance and OKX may have spotted blood in the water.

Their response? Launch $JELLY perpetual contracts at the perfect moment to maximize the carnage.

Suspicious timing doesn't begin to describe it. As ZachXBT noted, both JELLY manipulators (0x20e8 and 0x67f) were freshly funded via Binance on Arbitrum just before the attack.

Coincidence, or calculated market assassination?

Users pointed to Binance Co-Founder Yi He allegedly responded "Ok, received/got it" to a request targeting Hyperliquid.

The suggestion? List JELLY specifically to take down a rising competitor.

BitGet's CEO Gracy Chen didn't mince words, declaring "Hyperliquid may be on track to become FTX 2.0" while blasting their "immature, unethical, and unprofessional" handling of the incident. The crypto world's most transparent friendships are its rivalries.

All this theater obscures the alleged exchange warfare playing out in plain sight.

As Wazz noted: "Two exchanges just tag teamed to rape another exchange publicly and you still think this market is not PvP."

For Hyperliquid, the choice wasn't between decentralization and centralization - it was between losing $12M or their reputation. They chose the latter, and the market noticed.

ZachXBT delivered the final burn: "Kind of annoying if they draw the line here but not when DPRK had reasonably sized positions open with funds from the Radiant hack."

Selective enforcement makes even the most principled stand look like pure self-preservation.

From SBF's "$8 billion oopsie" to Terra's "$40 billion algorithmic implosion," Hyperliquid's emergency powers and Binance's convenient listings are just new acts in crypto's oldest show: centralization theater with decentralized marketing.

When every major crypto catastrophe has "unprecedented emergency powers" in the director's notes, at what point do we admit the emergency is the system itself?

Quorum in 2 Minutes?

Democracy dies in darkness. Or in Hyperliquid's case, it never existed at all.

"The validator set convened and voted" sounds legitimate until you peek behind the curtain.

A small set of validators. Two minutes. One outcome. Zero debate.

The validator math tells the real story - 81% of Hyperliquid's 404 million staked HYPE tokens nestled comfortably with foundation nodes.

Not exactly the decentralized utopia promised in the marketing slides.

ValiaDAO, supposedly an independent validator, tweeted the party line: "we voted to delist JELLY perps at the price where market manipulation happened."

No explanation of the process. No justification for the 98% price haircut. Just digital yes-men clicking approve.

To paraphrase the question by Twitter user Lucas that nobody at Hyperliquid wanted to hear: "Did HL validators secretly add the power to override market prices, or was that kill switch always hiding in plain sight?"

The answer? Inaction screamed louder than any words could.

Lucas cut to the heart of the charade: "HL can clear up all FUD by publishing the admin permissions that currently exist, and when they'll be removed. Obscurity not a good look here."

After a self-trade wrecked their system, Hyperliquid is refunding JELLY longs at 0.037555 - better than reality, unless you’re on the blacklist.

They admit their risk model failed when HLP took on the toxic short, and now they’re tightening controls: stricter liquidation caps, smarter open interest limits, and an onchain vote to delist dead assets. A classic "we'll do better" post, but will it be enough?

The same protocol with no position limits on illiquid assets and weak oracle protection suddenly revealed its final vulnerability - governance designed to look trustless while keeping all the power concentrated where it always was.

When your protocol can override markets, rewrite prices, and delist tokens faster than most people can post a tweet, you haven't built a decentralized exchange - you've built a centralized dictatorship with a blockchain paint job.

Is DeFi just centralization in disguise, or will protocols admit that emergency powers are their true governing force?

This Hyperliquid saga reads like a crypto crime novel where everyone's the villain and nobody's hands are clean.

Crime one: The trader's deliberate market weaponization, turning Hyperliquid's own mechanics against itself. A perfectly crafted exploit that walks the razor-thin line between brilliant trading and outright manipulation.

Crime two: Binance and OKX's suspiciously convenient JELLY listings. Nothing says "competitive friendship" like listing perpetuals for an obscure token exactly when it would inflict maximum damage to your rival. Not just watching the house burn – selling tickets to the inferno.

Crime three: Hyperliquid's midnight tribunal, where a handful of validators with 81% foundation-controlled stake executed a price override faster than most protocols publish a tweet.

DeFi's version of "we had to destroy the village to save it."

HYPE didn't just tumble – it face-planted as holders realized their "decentralized perps" came with an invisible asterisk: "Terms subject to change when we start losing money."

No amount of Discord AMAs can rebuild trust vaporized by a two-minute validator vote.

The crypto arena isn't witnessing innovation – it's watching CEXs in DeFi clothing stab each other with USDs while tweeting about "community governance."

Gladiatorial combat where the weapons are token listings and the armor is made of emergency powers.

Hyperliquid users now stare at their screens knowing their "revolutionary DEX" might just be Sam Bankman-Fried's fever dream with better documentation.

Market prices only remain market prices until they threaten the wrong wallet.

The irony isn't lost on anyone: a protocol that rose to prominence by criticizing centralized exchanges just demonstrated exactly why centralization remains crypto's most persistent vulnerability.

In the end, the only clear winners were traders who sidestepped the chaos.

Then there's our galaxy-brain strategist who exposed yet another emperor with no clothes.

They taught the market a $12 million lesson about what decentralization really means when profits turn to losses.

When validators can flip from trustless consensus to price manipulation between Discord messages, is crypto’s greatest innovation really the technology - or just our endless willingness to believe in it after every betrayal?

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