- Hyperliquid faces backlash after whale manipulation of JELLY token, leading to delisting.
- ZachXBT links Binance wallets to JELLY token manipulation, raising suspicions.
- Arthur Hayes supports Hyperliquid’s HYPE token, calling it a “David vs. Goliath” battle.
The ongoing scandal surrounding Hyperliquid has intensified following allegations of whale manipulation of the JELLY token and the forced delisting of its perpetual contracts. Blockchain investigator ZachXBT recently pointed to Binance-linked wallets in connection with the incident, further complicating the situation.
The controversy has sparked a debate over the role of decentralized exchanges (DEXs) in managing manipulation risks and whether centralization-like actions are acceptable on such platforms.
The issue started after it was discovered that whale traders were manipulative in dealing with the JELLY token and created a short squeeze. This led to a near $10m loss to the liquidity providers (LPs) in Hyperliquid.
As a result of those occurrences, the validator group of Hyperliquid dissolved JELLY’s perpetual contracts. They also intruded through speculation by filling the unoccupied places at a particular price.
Despite the potential losses faced by LPs due to the manipulation, Hyperliquid’s liquidity pool (HLP) vault reportedly secured an overall profit of $700K. However, the platform’s decision to step in and impose a settlement sparked backlash from the community.
Critics of Hyperliquid’s actions argued that the forced settlement of trades set a dangerous precedent for decentralized platforms. Some drew analogies to the interventionist tactics seen during the collapse of FTX, suggesting that such centralized actions undermine the essence of decentralization.
Bitget CEO Gracy Chen voiced concerns, describing the platform’s decision as a move that could set a troubling standard for future decentralized exchanges. The action raised questions about such platforms’ integrity and ability to balance openness with stability.
ZachXBT’s Allegations: Binance-Linked Wallets Involved
Adding another layer to the controversy, blockchain investigator ZachXBT raised possible connections between Binance-linked wallets and the manipulation of the JELLY token.
In a detailed analysis, ZachXBT identified two wallet addresses that were allegedly involved in initiating the price manipulation. This raised suspicions of coordinated efforts between larger entities and their affiliates to influence the market.
ZachXBT’s findings have prompted further speculation about the involvement of prominent crypto exchanges in market manipulation. The connection to Binance, one of the largest exchanges in the world, has only fueled the ongoing debate.
Decentralization vs. Stability in DEXs
This incident points to the ongoing challenges of decentralized exchanges in striking a balance between decentralization and stability. DEXs are often seen as more transparent and open compared to centralized exchanges, but they also face unique risks when it comes to market manipulation.
The ability of platforms like Hyperliquid to intervene in market activities raises major questions about how much control a platform should exercise to ensure fairness and prevent large-scale manipulation.
While supporters of Hyperliquid’s actions argue that they were necessary to maintain the platform’s integrity, critics point out the dangers of such interventions and question whether they align with the core principles of decentralization.
BitMEX co-founder Arthur Hayes has backed Hyperliquid’s HYPE token amid these controversies. Hayes described the situation as a “David vs. Goliath” battle, likening it to the struggles of an underdog fighting against a perceived unbeatable opponent.
