Bitget’s CEO, Gracy Chen, has condemned Hyperliquid for how it addressed concerns over a suspicious event involving the JELLY token.
Suspicions about the blockchain network’s centralization grew after Hyperliquid froze JELLY perpetual futures.
On March 26, Hyperliquid responded to an incident on its perpetual exchange by delisting JELLY token perpetual futures and refunding users after uncovering “evidence of suspicious market activity.”
Since only a limited number of validators participated in the decision, the incident intensified concerns about Hyperliquid’s level of decentralization.
Bitget CEO Gracy Chen sharply criticized Hyperliquid’s response and warned that the network could become “FTX 2.0.”
“Despite presenting itself as an innovative decentralized exchange with a bold vision, Hyperliquid operates more like an offshore [centralized exchange],” Chen said after saying, “Hyperliquid may be on track to become FTX 2.0.”
Sam Bankman-Fried founded the cryptocurrency exchange FTX, which collapsed unexpectedly in 2022. A U.S. court later found him guilty of fraud sentencing him to jail.
Although Chen did not allege any legal wrongdoing, she denounced Hyperliquid’s approach as “immature, unethical, and unprofessional.”
“The decision to close the $JELLY market and force settlement of positions at a favorable price sets a dangerous precedent,” Chen said. “Trust—not capital—is the foundation of any exchange […] and once lost, it’s almost impossible to recover.”
Venmo co-founder Iqram Magdon-Ismail introduced the JELLY token in January through his project, JellyJelly, as part of an effort to expand into Web3 social media.
The JELLY token’s market value nearly reached $250 million before dropping to just a few million in the following weeks, according to DexScreener.
After Binance debuted perpetual futures tied to JELLY, the token’s market capitalization jumped to about $25 million on March 26.
On the same day, a Hyperliquid trader “opened a massive $6 million short position on JellyJelly” and then “deliberately self-liquidated by pumping JellyJelly’s price on-chain”, according to Abhi, founder of Web3 company AP Collective.
BitMEX’s Arthur Hayes believes that early assessments exaggerated the potential harm the JELLY incident could cause to Hyperliquid’s reputation.
“Let’s stop pretending hyperliquid is decentralised. And then stop pretending traders actually [care],” Hayes said in an X post. “Bet you $HYPE is back where [it] started in short order cause degens gonna degen.”
On March 12, Hyperliquid faced a similar crisis when a whale intentionally exited a long Ether position worth about $200 million.
Hyperliquid’s liquidity pool, HLP, suffered nearly $4 million in losses, which impacted depositors after the forced liquidation of the trade at poor prices.
To mitigate the potential ripple effects of sizable trades at closing, Hyperliquid has since raised collateral demands for open positions.
A VanEck report published in January revealed that Hyperliquid holds the largest share of the leveraged perpetuals trading market, accounting for about 70% of the total.
Perpetual futures, also referred to as “perps,” enable leveraged trading without a maturity date and require traders to secure positions with collateral like USDC.
According to L2Beat, Hyperliquid relies on two key validator groups, each consisting of four validators.
While Hyperliquid operates with a limited number of validators, Solana and Ethereum use approximately 1,000 and 1 million validators, respectively.
Increasing the number of validators makes it more difficult for a small group of individuals to manipulate a blockchain.
