Jelly Token Meltdown: A Sticky Situation in DeFi Chaos

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Ah, the tale of the Jelly-my-Jelly (JELLY) memecoin, a story so absurd it could only exist in the wild, untamed jungles of decentralized finance. Suspicious trading activity, like a thief in the night, led Hyperliquid, the so-called decentralized exchange, to delist the token. And thus, the saga of the exploit began to unravel, like a poorly knitted sweater. 🧶

2025, a year already marred by historic exploits, saw the DeFi sector grappling with oversight and security issues. North Korean hackers, those modern-day pirates, made off with $1.4 billion in the Bybit hack. But the JELLY incident? Oh, that was a masterpiece of its own. A whale, exploiting Hyperliquid’s liquidation parameters, swam away with millions, leaving the industry in shambles. 🐋💸

Critics were quick to pounce on Hyperliquid’s reaction, with some comparing it to the ill-fated FTX. Here’s how the sticky situation unfolded.

Jelly Token Price Crashes Ahead of Hyperliquid Exploit

Venmo co-founder Iqram Magdon-Ismail, in a stroke of genius (or madness), launched the JELLY token as part of the JellyJelly Web3 social media project. The token, initially priced at $0.21, crashed to a mere $0.01 within ten days. 📉

From a market cap of almost a quarter of a billion dollars, it plummeted to roughly $25 million by March 26. A true rollercoaster ride, if ever there was one.

A Short Squeeze of JellyJelly

The short squeeze on the JellyJelly token was a spectacle to behold, unfolding over just a few hours on March 26. According to Arkham Intelligence, here’s how it went down:

  • The exploiter deposited $7 million across three Hyperliquid accounts, making leveraged trades on the illiquid Jelly token. 🎰

  • Two accounts took $2.15 million and $1.9 million long positions on JELLY, while the other took a $4.1 million short position to cancel the others out. 🤹‍♂️

  • As the price of JELLYJELLY increased, the short position was liquidated, but it was too large to be liquidated normally. 🚨

  • The short position was passed to the Hyperliquidity Provider Vault (HLP). 🏦

  • The exploiter, now sitting on a seven-figure PnL, began to withdraw. By this point, the price of JELLY had pumped 400%. 🚀

  • Hyperliquid restricted their accounts, so the exploiter began to sell their JELLY position. 🛑

Hyperliquid Shuts Down Jelly Market

As the trader began to sell their remaining Jelly position, Hyperliquid, in a move of sheer brilliance (or desperation), shut down the market for the token. Arkham reported that the exchange closed the market with Jelly at $0.0095, the price at which the third account had entered its short trades. 🎭

Hyperliquid announced on X that it would delist perpetual futures trading for the JELLY token, citing “evidence of suspicious market activity.” The exchange promised to make all users whole, apart from flagged addresses, from the Hyper Foundation. 🏛️

It acknowledged the hit the HLP took but noted that the HLP’s positive net income was $700,000 over the last 24 hours. “Technical improvements will be made, and the network will grow stronger as a result of lessons learned,” they said. Sure, sure. 🙄

Crypto Observers Criticize Hyperliquid

Some market observers were less than impressed with Hyperliquid’s handling of the situation. Bitget CEO Gracy Chen called it “immature, unethical, and unprofessional,” suggesting the exchange “may be on track to become FTX 2.0.” 🚨

Alvin Kan, COO at Bitget Wallet, noted that the Jelly meltdown was a reminder that hype without fundamentals doesn’t last. “In DeFi, momentum can drive short-term attention, but it doesn’t build sustainable platforms,” he said. Wise words, indeed. 🧠

Arthur Hayes, founder of BitMEX, seemed to imply that reactions to the Jelly incident were overblown, writing on X, “Let’s stop pretending hyperliquid is decentralised. And then stop pretending traders actually give a fuck.” Brutal, but perhaps not entirely wrong. 🤷‍♂️

The exchange had already taken action regarding leveraged trading earlier in March, increasing margin requirements after its HLP lost millions during a large Ether liquidation. Still, Hayes could be right — “degen” traders, those fearless risk-takers, may just eat the losses and move on. 🍽️

The true irony of the exploit? Everyone lost out — the exchange, traders, and even the exploiter. The trader deposited $7.17 million but was only able to withdraw $6.26 million, with $900,000 still remaining on their Hyperliquid accounts. If they can’t get the funds back, the exploit could cost them almost $1 million. A costly lesson, indeed. 💸

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2025-03-28 17:33