Hyperliquid’s near FTX 2.0 saga
In late March 2025, Hyperliquid—the popular perpetual decentralized exchange (DEX)—and Jelly my Jelly (JELLY)—a low-cap memecoin—nearly triggered a mega liquidation of Hyperliquid’s Hyperliquidity Provider (HLP) vault, an automated market-making mechanism tied to the exchange’s liquidation engine.
A trader opened two long positions on JELLY worth $2.15 million and $1.9 million, respectively, and a $4.1 million short position to offset them. The trader drove the JELLY price up over 400% by buying it on a decentralized spot exchange (on-chain), causing the short position to self-liquidate. The multi-million-dollar position was absorbed by the HLP vault—an automated market-making (AMM) mechanism linked to the exchange’s liquidation system. Although HLP’s unrealized PnL reached $13.5 million, swift intervention by Hyperliquid forcibly closed the position with a net profit of $703,000 and led to the delisting of JELLY by convening the validator set.
The incident exposed flaws in Hyperliquid’s risk management, liquidation protocols, and margin design, which failed to handle the manipulation. Critics, including Bitget CEO Gracy Chen, labeled Hyperliquid’s response “immature, unethical, and unprofessional,” warning that it risked becoming “FTX 2.0” due to centralized decision-making.
The infamous Binance -50% crash
On April 1, 2025, Binance updated its leverage and margin tiers for perpetual contracts, limiting 1x leverage positions to $4.5 million. Source: Binance Announcement
Act I, the Prophecy ($ACT) slumped 50%, DeXe ($DEXE) dropped 30%, and dForce ($DF) fell nearly 20% within minutes after 10:31 UTC on Tuesday.
The crash definitely began after the announcement, but traders allege that Wintermute initiated the crash due to its ‘de-risking’ strategy. This is not the first time Wintermute has been at the forefront of accusations of market manipulation. However, Wintermute’s CEO, Evgeny Gaevoy, denied initiating the crash, claiming they only reacted after it began.
The Dark Side of Crypto: Race for Perpetual Contracts
Price manipulation has been inherent to crypto markets ever since the dawn of trading, from BTC-e to FTX. The lack of regulation is a major reason, allowing bad actors with access to capital to take advantage of small retail traders.
Binance and Wintermute’s involvement in market manipulation is a topic of discussion on crypto streets during every market crash, with billions being liquidated. Though these are alleged theories, they have never been proven and are nearly impossible to prove due to the centralized nature of these platforms.
Not surprisingly, these were the reasons why perpetual DEXs rose to fame. Decentralization enables transparency and anti-censorship, with all information available through the public blockchain.
The JELLY incident opened the door to discussion: “Are DEXs really decentralized?” This is a valid question since Hyperliquid was swift in forcibly closing positions and delisting JELLY. Though the validator set convened for decision-making, the fact that 81% of staked HYPE tokens are under Hyperliquid’s control is nothing less than centralization.
The problem is that DEXs and CEXs are in a race to offer perpetual contracts for low-liquidity, low-market-cap coins (especially memecoins) to cash in on the hype, with only half-baked anti-manipulation systems in place. As long as traders demand futures instruments for low-market-cap coins, the crypto market will remain stuck in a vicious cycle of manipulation.
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