The story I want to tell today can be called the most exciting "Squid Game"in the crypto in the past two weeks - a werewolf killing on the chain worth hundreds of millions of dollars, which exposed Hyperliquid, which claims to be "decentralized Binance". Some people say this is a "just hunting", and some people call it "dealer cheating", but the truth is far more magical than it seems. When the casino itself becomes the biggest gambler at the gambling table, and when transparency becomes the gun in the hands of the hunter, this drama is destined to bloodbath the crypto cognition.
Chapter 1: A Shocking Hunt—A $6 Million Werewolf Jump on the Chain
1.1 The first strike of the wolf: the "death duet" of short-order fishing + on-chain pull-up
Market data shows that Jelly tokens rose by more than 500% in just two hours
On the evening of March 26, 2025, an anonymous whale(codenamed “Werewolf A” ) staged a textbook-level hunt on Hyperliquid:
- Short order fishing : First, open a JELLYJELLY short order on Hyperliquid with a margin of 6 million US dollars, and use a leverage of 50 times. This operation seems normal, but it is actually a hidden danger - JELLY is a meme coin with a market value of only 20 million US dollars, and the liquidity pool depth is less than 5 million US dollars.
- On-chain pull : At the same time, the associated addresses controlled by Werewolf A frantically bought JELLY on DEXs such as Pump.fun and Raydium, and forcibly pulled the price of JELLY from $0.0095 to $0.5, a 429% increase. This is equivalent to using 20 million to leverage a market value of 50 million.
1.2 Hyperliquid liquidation mechanism is triggered:
- Hyperliquid's liquidation mechanism transferred the short order to the HLP Vault (Hyperliquidity Provider Fund Pool) owned by its community. As the price of JELLY continued to rise, the HLP Vault faced huge unrealized losses, reaching a maximum of approximately US$12 million to US$13.5 million.
1.3 External exchanges assist:
- During the incident, Binance and OKX quickly announced the launch of JELLYJELLY perpetual contracts (with a leverage of up to 25 times), further pushing up market enthusiasm and prices. This move was questioned by the community as "taking advantage of the fire", which may have increased the pressure on Hyperliquid.
Fatal logical chain :
- Short positions were forcibly closed → HLP vault took over → vault's floating loss exceeded 12 million US dollars → users panicked and withdrew 140 million US dollars .
- At this time, if JELLY continues to rise to $0.17, Hyperliquid's $230 million treasury will be directly reduced to zero.
Werewolf A's operations are comparable to the "junk stock market manipulation technique" in "The Wolf of Wall Street", but what's even more outrageous is that he is not betting on the market, but on the risk control loopholes of the casino.
Witch to the rescue? No, it's the casino that flips the table!
When Hyperliquid’s HLP treasury was on the verge of collapse, officials suddenly pulled out the “nuclear button”:
- Emergency vote to delist JELLY : A "Council of Elders" composed of a small number of validators voted quickly to force the JELLY contract to be delisted.
- Forced liquidation at $0.0095 : Although the market price was $0.45 at the time, the platform settled the short order at the original opening price, and made a net profit of $700,000 from the treasury loss.
- Compensation commitment + blacklist marking : announced compensation for ordinary users, but marked "suspicious addresses" without compensation.
Since the Hyperliquid protocol vault is at risk of returning to zero, the above operations can be simply regarded as "pulling the network cable".
Magical Realism :
- User: “Where is the decentralization? How come unplugging the network cable is faster than CEX?!”
- Bitget CEO Gracy Chen directly fired back: “This is FTX 2.0!”
- OKX founder Star Xu said: Is the super liquidity of derivatives provided through smart contracts in a decentralized model exempt from derivatives regulation?
- Arthur Hayes added: “Stop pretending, traders don’t care about decentralization at all.”
This wave of operations can be described as "the witch gave poison to the prophet, but the witch herself jumped into the wolf trap" - it not only exposed the centralized core, but also confirmed the loopholes in the rules.
Chapter 2: Vulnerability Analysis: How is DEX’s Achilles’ Heel Striked?
2.1 Fatal Vulnerability 1: Oracle Price = Emperor’s New Clothes
Hyperliquid's contract pricing is completely dependent on the on-chain oracle, and the liquidity pool depth of Meme coins such as JELLY is only 2-3 million US dollars . Werewolf A only used 6 million US dollars to pull the market and created a 5-fold price difference , making the oracle a "puppet".
( Data critical : When the contract trading volume accounts for 30% of the liquidity pool, the cost of price manipulation approaches zero.)
2.2 Fatal Vulnerability 2: HLP Treasury = Casino’s Self-Operated Fund Pool
Hyperliquid's HLP vault is essentially a mixed pool of user pledged funds + platform funds , which serves as both a liquidity provider and a liquidator. This is equivalent to the casino owner personally gambling against gamblers, but was directly penetrated by Werewolf A's "suicide liquidation".
Classic case: Previously, the ETH whale used 50 times leverage to open a long order of 300 million US dollars, withdrawing the margin and causing HLP to lose 4 million US dollars
Earlier, a whale using 50x leverage opened a long order of ETH worth about $300 million on Hyperliquid, with a maximum floating profit of $8 million. However, the user subsequently withdrew most of the principal and profits, causing the liquidation price to be pushed up, and the position was eventually liquidated, with a net profit of about 1.8 million USDC. However, the platform's insurance fund (HLP Vault) suffered a loss of about $4 million.
2.3 Fatal Vulnerability 3: Pseudo-decentralized Governance
Hyperliquid, which claims to be “decentralized”, has emergency decision-making power in the hands of four validators . The voting process for delisting JELLY was neither transparent nor allowed for community participation, a vivid example of “elder dictatorship”.
Comparative damage : Uniswap's major decisions require millions of UNI holders to vote, while Hyperliquid's "flash vote" only took 15 minutes
Chapter 3: Industry Earthquake - CEX Suppression and DEX Faith Collapse
3.1 Binance and OKX’s “three consecutive hits”
Just when Hyperliquid was struggling, traditional CEX suddenly joined the battle:
- JELLY contracts were launched quickly : Binance and OKX launched JELLY perpetual contracts with 25x leverage within one hour, directly grabbing traffic.
- Public opinion sniping : He Yi retweeted the relevant topic on Twitter with "hahaha", which was interpreted as gloating.
- KOLs set the pace : A large number of analysts published articles comparing CEX’s “mature risk control” and DEX’s “full of loopholes”.
Conspiracy theory perspective : This is very similar to Binance’s siege of FTX back then - using liquidity advantages and public opinion warfare to strangle competitors.
3.2 Trust crisis in DEX
After the incident, Hyperliquid suffered a series of blows:
- Capital flight : Since March, HyperLiquid TVL has dropped from 654M to 273M, a drop of nearly 60%. In the past 24 hours, USDC has seen a net outflow of $140 million and a 30% drop in TVL.
- Token plummeted : In the past month, the price of HYPE fell from $20.5 to $14, and the market value evaporated by more than $7 billion.
- Developers flee : The open source community accuses it of "pseudo-decentralization", and multiple ecological projects suspend cooperation.
Soul-searching question : When DEX can neither guarantee the security of funds nor deliver on the promise of decentralization, why don’t users use CEX?
Chapter 4: Werewolf Replay - Who is the real "Sky Eye Player"?
If we deconstruct this hunt from the perspective of Werewolf:
Character Cards
- Werewolf A : An anonymous whale, stabbed through the HLP vault on the first night, and acted as a prophet during the day
- Witch (Hyperliquid) : Emergency release (removed JELLY), but exposed itself as a wolf
- Hunter (CEX) : Shooting in the daytime (online contracts), harvesting the battlefield with open cards
- Civilians (retail investors) : I was confused throughout the whole process, and finally found out that the judge (market rules) was also a wolf teammate
Key rounds
- First night : Werewolf A hits the weak spot of HLP vault with a precise knife, and the prophet (community supervisor) keeps his eyes closed the whole time
- Daytime speech : The witch (Hyperliquid) forced the votes to return, but was turned over and killed by the hunter (Binance)
- The second night : The Wolves (CEX + market makers) collectively charged, and civilians (retail investors) were bloodied on the ticket counter
The Ultimate Truth
There are no good guys in this game - when the loopholes in the rules of casinos (DEX), the harvesting instinct of CEX, and the bloodthirsty nature of whale are intertwined, retail investors are destined to be lambs to be slaughtered. The real "Sky Eye Players" are the smart money that has long seen through the "decentralized" emperor's new clothes.
Chapter 5: Future Revelation - Survival Rules in the Ce-DeFi Era
5.1 Hyperliquid’s life and death crisis
If you want to survive, you must cut your vital points three times:
- Dynamic leverage : automatically limit leverage multiples based on the depth of the liquidity pool (e.g. liquidity 100 million → maximum 10x)
- Oracle Reform : Introducing hybrid pricing of CEX prices such as Coinbase + on-chain depth
- Transparency in governance : Publicizing the identity of validators and establishing a community emergency proposal mechanism
Pessimistic prediction : If no reform is made within 3 months, TVL will fall below $1 billion and become a third-tier exchange
5.2 Retail Investor Anti-Margin Trading Guide
- Stay away from high-leverage Meme coins : Playing JELLY with 50x leverage is like dancing in the crater
- Beware of “pseudo-decentralization” : DEXs with less than 10 validators will be blacklisted
- CEX/DEX hedging strategy : large funds are placed in CEX to earn interest, while small funds fight in DEX
Final Chapter: The First Law of Survival in the Crypto
All casinos that claim to "subvert traditional finance" will eventually grow into what they hate.
The story of Hyperliquid tells us: In the crypto world,
Either be a player who can see through the rules,
Or be a bystander who stops profiting in time,
But don’t believe in the fairy tale of “decentralization”——
Because the prince charming in the fairy tale,
Probably a werewolf in a witch costume.
