USDC withdrawals from Hyperliquid surpass $340M due to JELLY controversy, causing HYPE to drop 10%

Over $340 million in USDC has been withdrawn from Hyperliquid following a dispute involving the token JELLY, which had a 429% price increase before being delisted. According to Parsec's blockchain analytics data, these recent outflows occurred just hours after the JELLY liquidation event, mirroring the $300 million in outflows that occurred during a prior BTC whale liquidation event. As a result, the USDC reserves of Hyperliquid (HYPE) have decreased from $2.58 billion to $2.02 billion in the last 30 days.

The issue with JELLY began when Hyperliquid's treasury took a $5 million short position on the token. The unrealized loss increased to $10.63 million as the token's price unexpectedly rose. If the price of JELLY had reached $0.17, the treasury of Hyperliquid would have faced a loss of up to $240 million.

It seems likely that the price spike was a result of manipulation. An address labeled 0xde95 established a substantial 430 million JELLY short position on HyperliquidX, only to remove its margin shortly thereafter. This caused a series of liquidations, with the losses being absorbed by the treasury of Hyperliquid. Another wallet, 0x20e8, simultaneously opened a long position in JELLY, which caused the price to rise even more.

To prevent further damage, Hyperliquid's validator committee made the decision to delist JELLY and force-settled it at $0.0095. The platform promised that short positions would be settled at their initial entry price and that the Hyper Foundation would fully compensate affected users.

However, the way the situation was managed has been met with criticism. Bitget CEO Gracy Chen described Hyperliquid's actions as "immature, unethical and unprofessional," comparing them to FTX. According to Chen, the platform functions more like an unregulated offshore exchange than a decentralized platform.

#Hyperliquid may be on track to become #FTX 2.0.

The way it handled the $JELLY incident was immature, unethical, and unprofessional, causing user losses and raising serious concerns about its integrity. Despite promoting itself as an innovative decentralized exchange with a…

In the last 24 hours, Hyperliquid's native token, HYPE, has decreased by 10%, according to the crypto.news price tracker. Trading volume has surged by 443%, reaching $466 million, indicating increased market activity. Despite being 58% below its all-time high of $34.96, HYPE is still up 284% from its lowest price.

Additionally, the total value locked in its Hyperliquidity Provider Vault, a protocol vault responsible for market making and liquidations, has dropped, falling from a peak of $540 million on Feb. 10 to $195 million as of Mar. 27, according to DefiLlama data.