Crypto: DEXs Thrive Despite A Major Hack On Hyperliquid

The decentralized exchange platforms are continuing their expansion in the crypto universe, challenging the supremacy of centralized players, despite a recent incident on Hyperliquid that resulted in a loss of several million dollars.

The Rise of DEX Against Traditional Platforms

On March 27, a large-scale fraudulent operation struck the platform Hyperliquid. An anonymous trader exploited the liquidation parameters of the system to generate an illicit profit of $6.26 million on the memecoin Jelly my Jelly (JELLY).

This attack represents the second major incident on the platform that occurred in March, as pointed out by Bobby Ong, co-founder of CoinGecko.

Despite these incidents, Hyperliquid has managed to climb to the eighth place among perpetual futures trading platforms in terms of volume, surpassing established players such as HTX, Kraken, and BitMEX.

The platform currently ranks twelfth among derivatives exchanges, with an open interest of over $3 billion in 24 hours.

These performances illustrate an underlying trend: decentralized exchanges are gradually nibbling away market share from traditional centralized platforms.

In a tweet on April 3, Bobby Ong also stated:

It is clear that CEXs feel threatened by DEXs and will not see their market share erode without a fight.

The Anatomy of a Sophisticated Exploitation and Its Consequences

The Hyperliquid incident highlights increasingly sophisticated strategies in the crypto universe. According to an analysis by Arkham, a blockchain specialized company, the attacker orchestrated an elaborate maneuver in three stages.

The trader first placed two long positions totaling approximately $4 million ($2.15 and $1.9 million respectively).

Simultaneously, he opened a short position of $4.1 million which, in theory, balanced his previous bets. The flaw appeared when the price of JELLY rose by 400%.

At this crucial moment, Hyperliquid’s protection system did not react as expected. Instead of immediately liquidating the short position, the Hyperliquidity Provider Vault (HLP) — a mechanism intended to manage these situations — absorbed it, creating an opportunity that the trader exploited.

This maneuver not only allowed him to pocket a substantial profit but also to retain 10% of all JELLY tokens in circulation, worth nearly $2 million.

In response, Hyperliquid suspended transactions of the memecoin and removed it from its platform, citing “suspicious market activity“. This decision raises fundamental questions about the governance of decentralized platforms.

Ryan Lee, an analyst at Bitget Research, highlights the paradox:

Hyperliquid’s intervention — criticized as centralized despite its decentralized ethic — could make investors wary of similar platforms.

Despite these incidents, decentralized exchanges continue to attract users seeking alternatives to traditional platforms. The challenge remains to balance fund security with decentralization principles, a balance that the crypto industry is still striving to perfect.