Bitget CEO Criticizes Hyperliquid's Handling of JELLY Token Incident
2min read Gracy Chen, CEO of Bitget, a prominent cryptocurrency exchange, has publicly criticized Hyperliquid's management of a recent incident involving the JELLY token. On March 26, Hyperliquid, a blockchain network focused on trading, announced the delisting of perpetual futures contracts for the JELLY token following the detection of suspicious market activity. The decision, made by a consensus among Hyperliquid's validators, highlighted concerns about the network's perceived centralization.
Chen expressed her concerns by stating that Hyperliquid, despite its claims of being a decentralized exchange, operates more like an offshore centralized exchange. She warned that Hyperliquid could be on a path to becoming another FTX, referencing the infamous collapse of the cryptocurrency exchange run by Sam Bankman-Fried, who was convicted of fraud in the US. Chen did not accuse Hyperliquid of specific legal violations but emphasized what she considered to be an immature, unethical, and unprofessional response to the incident.
The JELLY token, launched in January by Venmo co-founder Iqram Magdon-Ismail as part of a Web3 social media project called JellyJelly, initially reached a market capitalization of roughly $250 million before declining to the single-digit millions. On March 26, the token's market cap surged to around $25 million after Binance, the world's most popular crypto exchange, introduced its own perpetual futures tied to the token. The same day, a Hyperliquid trader opened a massive $6 million short position on JellyJelly and then deliberately self-liquidated by pumping the token's price on-chain, as reported by abhi, founder of Web3 company AP Collective.
BitMEX founder Arthur Hayes downplayed the initial reactions to Hyperliquid’s JELLY incident, suggesting that the network's potential reputational risks were overestimated. He noted that traders might not be as concerned about the decentralization of Hyperliquid as some believe. Hayes also predicted that the network would quickly recover from the incident, as traders would continue to engage with it despite the controversy.
Hyperliquid has faced similar challenges in the past. On March 12, the network dealt with a crisis caused by a whale who intentionally liquidated a roughly $200 million long Ether (ETH) position. This trade resulted in approximately $4 million in losses for depositors into Hyperliquid’s liquidity pool, HLP, after the pool was forced to unwind the trade at unfavorable prices. In response, Hyperliquid increased collateral requirements for open positions to mitigate the systemic impact of large positions with hypothetical market impact upon closing.
Hyperliquid operates the most popular leveraged perpetuals trading platform, controlling a significant portion of the market share. Perpetual futures, or "perps," are leveraged futures contracts with no expiry date, and traders deposit margin collateral, such as USDC, to secure open positions. Hyperliquid has two main validator sets, each comprising four validators, which is relatively small compared to rival chains like Solana and Ethereum, which are supported by approximately 1,000 and 1 million validators, respectively. A larger number of validators generally reduces the risk of a small group of insiders manipulating a blockchain.
