Blockchain analytics firm details attempted market manipulation that backfired on leveraged trader in JELLY memecoin market
A trader suspected of attempting to manipulate the Jelly my Jelly (JELLY) token market on the decentralized perpetuals exchange Hyperliquid may be facing losses of nearly $1 million, according to blockchain analytics firm Arkham Intelligence. The alleged exploiter orchestrated a complex series of leveraged trades across multiple accounts in a bid to drain funds from the platform’s liquidity provider vault—only to be left with restricted access to remaining assets and frozen profits.
Hyperliquid just got exploited. What happened?
A trader deposited $7.167M on 3 separate Hyperliquid accounts within 5 minutes of each other. He then made leveraged trades on an illiquid coin, JELLYJELLY.
However, he ended up losing money, and is down almost $1M unless… pic.twitter.com/uNyMwLS5Sc
— Arkham (@arkham) March 26, 2025
Hyperliquid has since delisted the JELLY token and shut down its perpetual futures market, citing “suspicious market activity” that compromised the integrity of its trading infrastructure.
The Exploit: How It Unfolded
According to Arkham’s post-mortem published on March 26, the alleged exploiter opened three Hyperliquid accounts within a five-minute window, funding them with a mix of long and short positions:
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Account 1: $2.15 million long on JELLY
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Account 2: $1.9 million long on JELLY
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Account 3: $4.1 million short on JELLY
The structure of these positions allowed the trader to effectively self-match trades and manipulate the appearance of volume and price momentum, while building up leveraged exposure without triggering risk controls.
Arkham explains:
“This allowed him to build up leverage in an attempt to drain funds from Hyperliquid.”
When JELLY’s price surged over 400%, the massive $4.1 million short position entered liquidation. However, due to its size, the position could not be fully liquidated on the open market and was instead passed to Hyperliquidity Provider Vault (HLP)—a system designed to absorb large, unfillable positions.
Simultaneously, the trader began withdrawing collateral from the two long accounts, which showed a “seven-figure positive PnL,” according to Arkham. The goal appeared to be withdrawing as much as possible before the liquidation system could reconcile the artificial market conditions.
A Plan Gone Awry
The trader’s strategy began to unravel when Hyperliquid flagged the accounts for abnormal behavior. All three were placed in “reduce-only” mode, meaning the trader could no longer open new positions and was forced to sell down existing exposure.
Hyperliquid then closed the JELLY token market at $0.0095—coincidentally, the exact price at which the short position had been initiated. This zeroed out the unrealized profit on the first two accounts, rendering the manipulation attempt largely ineffective.
Arkham’s data suggests the trader was able to withdraw $6.26 million in total, but has nearly $1 million still stuck in the restricted accounts.
“Assuming he can withdraw this at some point in the future, his actions on Hyperliquid have cost him a total of $4,000. If he is unable to, he faces a loss of almost $1 million,” Arkham reported.
Hyperliquid’s Response and Market Integrity
In response to the incident, Hyperliquid delisted JELLY perpetual futures, citing market manipulation and abnormal trading behavior. The platform emphasized its commitment to protecting liquidity providers and maintaining fair trading environments, especially in the face of increasing attack sophistication within decentralized markets.
This is not the first time Hyperliquid has encountered issues with aggressive liquidation events or exploit attempts. On March 14, the platform raised margin requirements after its HLP system lost millions in an unrelated ETH liquidation cascade.
Furthermore, on March 12, a whale intentionally liquidated a $200 million ETH long position, resulting in $4 million in losses for the HLP—underscoring the growing trend of “whale hunting” on high-leverage DeFi platforms.
These episodes have prompted criticism from traders and industry figures. Notably, the CEO of Bitget publicly criticized Hyperliquid’s risk management procedures, questioning the protocol’s safeguards and transparency in dealing with such events.
DeFi’s Leverage Problem
The JELLY incident highlights several recurring issues in the DeFi derivatives space:
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Risk Concentration: Large positions can pose systemic risk when they interact with limited liquidity pools, especially in niche or illiquid assets.
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Liquidation Mechanics: Delays or inefficiencies in liquidation logic—such as reliance on fallback liquidity vaults—can be gamed by sophisticated actors.
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Transparency and Oversight: While decentralization is a core DeFi principle, the lack of centralized oversight leaves protocols vulnerable to complex exploit strategies.
As more capital flows into DeFi and memecoin markets, platforms like Hyperliquid will be forced to balance openness and accessibility with risk mitigation and security—a challenge that continues to evolve as both retail and institutional players increase their exposure.
Investor Takeaways
For investors, the incident offers several critical lessons:
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Scrutinize risk management systems on DeFi platforms before engaging in high-leverage trades.
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Watch for market manipulation signals, particularly in low-liquidity token markets.
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Consider centralized vs. decentralized execution risks, especially in platforms with novel liquidation frameworks.
Hyperliquid’s decision to delist JELLY may mitigate immediate damage, but the platform’s reputation and the trust of its liquidity providers may take time to recover.
Investors should remain cautious and monitor platform governance, future margin policy changes, and public disclosures—especially in a rapidly evolving and adversarial DeFi environment.
Final Thoughts
The JELLY incident on Hyperliquid is a cautionary tale of how clever market manipulation schemes can collapse under scrutiny, even in technically sophisticated ecosystems. With a growing number of DeFi users and higher capital exposure, exploit attempts are likely to become more frequent—and more complex.
For DeFi to mature, platforms must implement more robust risk parameters, improve real-time surveillance tools, and consider insurance or slashing mechanisms to protect both retail users and liquidity providers. The future of decentralized finance will depend not only on innovation—but also on its ability to defend itself.
