Hyperliquid Delists JELLY After $10M Loss From Short Squeeze

On March 26, 2025, Hyperliquid, a decentralized exchange (DEX), made the decision to delist the token JELLY following a significant short squeeze that resulted in substantial financial losses for the platform. The incident unfolded when a trader, identified by the wallet address 0xde95, shorted JELLY on Hyperliquid and subsequently removed the margin, leading to the passive liquidation of $4.5 million in short positions by the Hyperliquidity Provider (HLP) vault. This action left HLP with a massive short position, which was then exploited by another trader using a newly created wallet, 0x20e8, to open a long position on JELLY, resulting in an unrealized profit of over $8.2 million.

The short squeeze was orchestrated through the manipulation of Hyperliquid's liquidation mechanism. The trader opened a short position on JELLY derivatives while simultaneously purchasing the spot token. By artificially inflating the spot price, the trader forced the short position to be liquidated, transferring the loss to the HLP vault. As the spot price continued to rise, HLP's short position incurred a loss of over $6.5 million initially. The HLP vault, responsible for managing liquidations and supporting the system during forced liquidations, ended up with a significant loss.

The delisting of JELLY by Hyperliquid came shortly after major exchanges announced the listing of JELLY futures. This move likely contributed to the price surge of JELLY, exacerbating the losses for Hyperliquid. The delisting was a strategic decision to mitigate further damage, as the platform accepted a loss of over $10 million.

This incident underscores the risks associated with listing illiquid tokens on DEXs, particularly when the tokens are subject to supply control mechanisms. The HLP vault's role in managing liquidations and supporting the system during forced liquidations exposes the platform to significant risks if exploited by traders with malicious intent. This event serves as a cautionary tale for DEXs, emphasizing the importance of thorough risk management and due diligence when listing new tokens.