Hyperliquid Profits $703K After "Pulling the Plug" on $JELLYJELLY Short Positions

In a significant market development on March 26th, blockchain analytics firm Lookonchain reported that Hyperliquid liquidated attacker-initiated $JELLYJELLY short positions just before delisting the token from its platform.

The exchange liquidated 392 million $JELLYJELLY tokens at a price of $0.0095 per token, representing approximately $3.72 million in total value. Rather than incurring any losses from this process, Hyperliquid surprisingly generated profits amounting to $703,000 from the operation.

This maneuver, colloquially referred to as "pulling the plug" in the crypto community, has raised eyebrows among market participants regarding liquidation practices during token delistings.

Background on the JELLY Attack

This liquidation comes amid a larger attack on Hyperliquid's vault. According to market analysts, the $JELLYJELLY short positions were part of a sophisticated price manipulation scheme that put Hyperliquid's treasury at risk of up to $240 million in liquidation exposure.

The attack followed a pattern similar to previous incidents on the platform: attackers opened large short positions on $JELLYJELLY at approximately $0.0095, with margins of around 3.5 million USDC. They then coordinated spot selling to temporarily drive down prices, allowing them to withdraw 2.76 million USDC in margin while forcing liquidation, transferring the short position to Hyperliquid's vault.

Once the vault took over these positions, attackers began aggressively purchasing $JELLYJELLY tokens, driving prices up by approximately 230% in a short period. According to market analysis, if $JELLYJELLY prices had reached $0.17, the vault could have faced a catastrophic liquidation event with potential losses of $240 million.

The attack has already impacted Hyperliquid's ecosystem, with Total Value Locked (TVL) reportedly declining by approximately $20 million to $231 million. Making matters worse, centralized exchanges (CEXs) including Binance and OKX listed $JELLYJELLY perpetual contracts during this period, further increasing buying pressure and potentially worsening the vault's exposure.

Hyperliquid's validator set responded by convening and voting to delist $JELLYJELLY perpetual contracts. All users affected by the delisting will reportedly receive full compensation from the Hyper Foundation.

The timing and execution of these liquidations highlight the complex dynamics between exchanges and leveraged trading positions during critical market events, revealing potential vulnerabilities in DeFi liquidity mechanisms.