What happened at Hyperliquid last night

 A whale trader opened a massive 430M JELLY short position on Hyperliquid, partially liquidated, and disappeared after withdrawing remaining margin. The Hyperliquid Vault (HLP) automatically assumed the liquidated 398M JELLY position.

 Community traders then deliberately pumped $JELLY's price, triggering a short squeeze. HLP's unrealized losses skyrocketed to over $10M.

 Hyperliquid's lack of risk management became apparent: excessive leverage, no OI limits, and no ADL system for a low-cap token. The illiquid market left HLP unable to close the position, causing mounting losses.

 As losses grew, community concern shifted from "Who's the target?" to questioning Hyperliquid's system integrity. $HYPE token price also declined.

 Hyperliquid responded by announcing JELLY perpetual futures delisting and compensation plans for affected users, excluding suspected manipulators.



 HLP eventually closed the short position at $0.0095, recovering about $700K. However, this forced liquidation of innocent long positions, sparking community outrage.

 This incident exemplifies a DeFi disaster caused by excessive leverage, poor risk management, and low liquidity. Hyperliquid's recovery depends on implementing stronger risk controls and improving governance transparency