Decentralized exchange “Hyperliquid” recently faced a significant exploit, involving the Jelly Token.

The incident unfolded when a trader artificially manipulated the token's price, leading to a substantial loss for Hyperliquid's liquidity vault, Hyperliquidt Provider (HLP).

Decentralized exchange “Hyperliquid” recently faced an exploit that involved Jelly Token and resulted in an estimated loss of over $12 million for Hyperliquidt Provider (HLP). The incident unfolded when a trader artificially manipulated the token’s price, ultimately causing the liquidity vault to sustain significant losses.

As a result of the exploit, Hyperliquid’s native token, HYPE, dropped more than 14% to reach its lowest point on Thursday morning, trading at $14.23. At the time of writing, the token is down 11.95% over the last 24 hours.

HYPE Token Drops 14% As Hyperliquid Suffers $12M Exploit

Decentralized exchange Hyperliquid has confirmed that all users affected by the exploit will be fully reimbursed by the Hyper Foundation, excluding any flagged accounts. The platform stated that this process will be automatic, based on on-chain data, and no manual ticket submissions will be required.

Moreover, Hyperliquid's validator set has taken steps to delist JELLY perpetual contracts in a move to safeguard the network from further compromise.

In response to the incident, Hyperliquid is also making adjustments to enhance the robustness and transparency of its validator voting system. Despite the exploit, HLP's 24-hour profit and loss stood at approximately 700k USDC.

According to Arkham Intelligence, the exploit began when a trader deposited a total of $7.167 million across three separate Hyperliquid accounts within a five-minute span. These funds were then used to execute leveraged trades on JELLY, a token with very low liquidity on Hyperliquid.

The trader’s strategy involved a classic “short squeeze.” Initially, they dumped a large amount of JELLY to crash the token’s price and create a passive short position for the HLP vault. Afterward, they aggressively bought back the token, driving its price up and causing the vault to incur losses as it struggled to cover the short position.

Although the trader pulled off the exploit, they ended up losing nearly $1 million due to the high costs of executing the trades. Unless Hyperliquid allows the trader to withdraw funds, they remain at a net loss. This unusual outcome has added another layer of complexity to an already controversial incident.