Hyperliquid News Today: DeFi's Vulnerability Laid Bare: Hyperliquid Loses $4.9M to POPCAT Manipulation

Hyperliquid, a decentralized perpetuals exchange, temporarily halted deposits and withdrawals on its Arbitrum-based platform on Wednesday amid speculation of a coordinated trading scheme involving the meme token POPCAT. The pause, described as "maintenance" on Hyperliquid's website, followed a surge in onchain activity that resulted in a $4.9 million loss for the exchange's community-owned liquidity vault, known as the Hyperliquidity Provider (HLP). The incident has reignited scrutiny over the vulnerabilities of decentralized derivatives platforms to price manipulation, as reported by Yahoo Finance.

The manipulation appears to have been orchestrated by a single trader who withdrew $3 million in USDC from centralized exchange OKX and distributed the funds across 19 wallets. Around 14:45 CET, the trader initiated a large-scale long position on POPCAT, placing $20 million in buy orders at $0.21, according to onchain analyst MLMabc. The combined position ballooned to $30 million before the trader abruptly removed the buy wall, triggering a cascade of liquidations. Hyperliquid's HLP was forced to absorb the losses as the position collapsed, with the POPCAT price plummeting further and exacerbating the damage, as noted in a The Block report.

Hyperliquid's response included manually closing the position, but the incident exposed systemic risks. The HLP, intended to act as a safety net for liquidity providers, faced losses similar to those incurred in March when the Solana-based meme coin JELLYJELLY was manipulated, leading to $12 million in unrealized losses, as detailed in the same The Block report. Analysts noted that decentralized exchanges, despite their growing popularity, remain susceptible to liquidity stress when faced with coordinated, leveraged trades, as reported by FinanceFeeds.

The attack on POPCAT also spilled over to centralized markets, with open interest for the token crashing from $114 million to $41 million as traders scrambled to exit positions. POPCAT's price briefly spiked to $0.20 before retreating to its usual range of $0.13, reflecting the artificial volatility generated by the scheme, according to a Cryptopolitan article. The token's 10X surge in trading volume to $230 million further highlighted the scale of the manipulation, as reported in that same Cryptopolitan article.

Hyperliquid's actions have drawn criticism from the crypto community. While the exchange emphasized its community-governed risk parameters, the manual intervention to close the position raised questions about its decentralized ethos. Steven Zheng, Research Director at The Block, noted that the incident underscores the platform's immaturity compared to centralized rivals, despite its ambitions to become a leading decentralized perpetuals exchange, as stated in the The Block report.

As of press time, Hyperliquid had not disclosed when deposits and withdrawals would resume. The exchange's status page listed no recent incidents, but an "EmergencyLock" function was triggered on Arbitrum, signaling the temporary suspension, as described in Yahoo Finance. The broader market reaction was mixed, with HYPE, Hyperliquid's native token, slipping 2% alongside POPCAT's decline, as noted in the FinanceFeeds report.