Hyperliquid Tightens Security Measures After $10.63M JELLY Trade Loss

Hyperliquid has implemented new security measures in response to a JELLY trading incident that resulted in a $10.63 million loss.

The issue arose from an unauthorized trader who executed a large JELLY trade, causing a price surge and triggering a liquidation process. This led to Hyperliquid's (HYPE) market-making vault absorbing the loss. On Mar. 27, the platform detailed several steps it has taken to enhance its risk management in a post on X.

Among the primary updates is the imposition of stricter limits on the liquidator vault, which acts as an emergency fund to cover losses from unsuccessful trades. By lowering the cap, Hyperliquid aims to prevent the vault from taking on excessive risks that could jeopardize the platform's overall stability.

The frequency of vault rebalancing has also been decreased. Previously, risk was harder to predict due to the sudden changes in exposure caused by frequent rebalancing. By slowing down this process, Hyperliquid expects to create a more stable risk management system.

Another significant improvement is the modification of how liquidation vault triggers function. Previously, if the liquidator vault incurred a loss, it would automatically draw funds from other vaults. Now, if losses reach a certain level, automatic liquidation will be initiated instead of distributing risks to other vaults, this update aims to contain them.

Hyperliquid is also enhancing its open interest caps, which determine the maximum amount traders can wager on a single asset. These caps will now adjust dynamically based on market conditions, reducing the likelihood that the system will be disrupted by abrupt price fluctuations.

Additionally, validators will be able to decide when to remove risky assets through a new voting system. To prevent further issues, a token may be delisted if it falls below safety thresholds. Despite these updates, Hyperliquid continues to face challenges.

According to DeFi Llama data, the total value locked in its liquidity vault has declined from a peak of $540 million in February to $180 million as of Mar. 28. USDC outflows, which exceeded $340 million just hours after the hack, are ongoing, with 61.7 million USDC leaving the platform in the last 24 hours, as per Parsec data.

HYPE is also struggling to recover. Prior to the incident, the token was trading at around $16. It has now dropped to $13.98 as at the time of press, representing a 3% decrease over the past 24 hours and 59.83% below its peak of $34.96. Additionally, there has been a significant decrease in HYPE trading activity, with volume dropping 79.8% to $94.3 million over the past day.