In response to the recent disruption caused by the JELLY token, Hyperliquid has announced that it will refund all traders who held long positions on the token. The platform also revealed significant updates to its risk management framework, aimed at preventing similar incidents in the future.
The market turmoil, which stemmed from an unusual trading event, prompted Hyperliquid to reevaluate its approach to risk management while ensuring traders affected by the incident are compensated. The exchange confirmed that the final settlement price for JELLY has been set at $0.037555, a move that ensures all traders are treated fairly.
In an official statement posted on X, Hyperliquid emphasized its ongoing commitment to improving its platform and protecting users. The exchange’s team also reflected on the importance of learning from challenges, stating, “Yesterday is a good reminder to stay humble, hungry, and focused on what matters: building a better financial system owned by the people.” They added, “Hyperliquid is not perfect, but it will continue to iterate and grow through the collective efforts of builders, traders, and supporters.”
The Incident Explained
The controversy began when a trader executed a self-trade of 4 million USDC in JELLY at a price of 0.0095 USDC per token. This triggered a dramatic surge in the token’s price, which quickly increased by over four times. The sharp price movement activated Hyperliquid’s backstop liquidity protocol, resulting in significant losses in the Hyperliquid Protocol (HLP) vault.
Although the trader’s position fell within the platform’s existing limits, the system failed to properly manage the situation. The HLP took over the position, sharing collateral with other vaults, and prevented the Auto-Deleveraging (ADL) mechanism from activating for the JELLY short position. As a result, losses escalated to over $10 million.
Strengthening Risk Management Protocols
In response to the incident, Hyperliquid has announced several key enhancements to its risk management processes. The platform will implement tighter caps on the HLP Liquidator Vault, ensuring that it represents only a small fraction of the total HLP account value. Additionally, the vault will undergo less frequent rebalancing and will adopt more advanced logic for handling backstop liquidations.
Hyperliquid has also introduced improvements to its Dynamic Open Interest (OI) Caps and Onchain Validator Voting process. Under the new system, validators will have the authority to vote onchain for the delisting of assets that fall below specific liquidity and market cap thresholds, further ensuring the platform’s stability.
Despite the recent setback, Hyperliquid remains focused on refining its financial ecosystem. The platform reassured users that these strategic updates will enhance risk management, improve trader protection, and maintain operational stability.
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