Hyperliquid Faces Criticism Over $10.63 Million JELLY Token Exploit
Hyperliquid, a popular crypto exchange, is under scrutiny following a $10.63 million loss due too a JELLY token exploit. Dr. Jan Philipp Fritsche, from Oak Security, analyzed the incident and shared his insights with crypto.news.
Fritsche believes the exploit wasn’t due to a software bug but a predictable failure. It highlights risks that could affect other DeFi protocols. The exploit involved coordinated market manipulation. A trader opened a $5 million short position on JELLY, then removed their margin. Hyperliquid was left holding the position, leading to a short squeeze by other traders.
“The attacker exploited the system by opening large opposing positions, knowing one would fail while the other would profit.The protocol lacked capped payouts and isolated risk, resulting in important losses,” explained Fritsche.
he described this as a “textbook example of unpriced vega risk,” a term from customary finance.Many DeFi protocols still struggle with this risk metric.
Hyperliquid has faced criticism, including from Bitget CEO Gracy Chen, who called their practices “immature and unethical.” The exchange has promised to compensate affected users,but the damage to its reputation might potentially be irreversible.
This incident has also shed light on broader vulnerabilities in the decentralized finance sector. In 2024, DeFi exploits caused $308.7 million in losses, surpassing rug pulls at $192.9 million. just days later,SIR.trading suffered a $355,000 loss due to a similar exploit.
