A trader accused of market manipulation on crypto trading platform Hyperliquid could lose nearly $1 million, according to a report by blockchain analytics firm Arkham Intelligence.
The trader attempted to exploit price movements of the JELLY memecoin through a series of calculated trades. However, Hyperliquid responded by freezing accounts, limiting actions, and shutting down the JELLY token market.
Creation of Multiple Accounts and Large Bets
According to Arkham, the trader created three different accounts within minutes. Two of those accounts placed large bets that the price of JELLYJELLY would go up, known as long positions. These positions were valued at $2.15 million and $1.9 million. The third account opened a short position worth $4.1 million, which was a bet that the price would go down.
Increased Leverage to Manipulate the System
This setup allowed the trader to increase leverage—essentially borrowing more funds based on collateral—to gain more exposure to potential price movements. Arkham said this move was likely intended to trick the platform’s liquidation system and withdraw profits before it could react.
JELLY Price Spike Triggered Liquidation of the Short Position
The scheme began to unravel when the price of JELLYJELLY jumped over 400%. The large short position then became vulnerable to liquidation. On trading platforms, when a position becomes too risky, it is automatically sold to prevent further losses. In this case, the short position was too large to be handled instantly and was passed to Hyperliquid’s liquidity protection system, known as the Hyperliquidity Provider Vault (HLP).
At the same time, the trader withdrew collateral from the two accounts that showed large paper profits. Arkham said the trader had a seven-figure unrealized profit at that point.
Hyperliquid’s Response
Hyperliquid quickly responded by restricting the trader’s accounts. The accounts were limited to “reduce-only” orders, meaning they could only sell existing positions and not open new ones. This move was meant to prevent the trader from exploiting the situation any further.
The trader then attempted to recover funds by selling tokens from one of the accounts. However, Hyperliquid soon closed the JELLYJELLY market and set the final price at $0.0095—the same as the short position price. This erased all floating profit and loss from the two accounts, effectively canceling out the gains the trader had tried to extract.
$1 Million Still Stuck in the Hyperliquid System
Arkham’s report states the trader successfully withdrew $6.26 million from the platform before restrictions were applied. However, around $1 million remains frozen in the affected accounts.
Possible Losses for the Trader
“If he can withdraw this in the future, the total loss would be around $4,000,” Arkham explained. “But if not, the trader could be facing a loss close to $1 million.”
Previous Aggressive Trading on Hyperliquid
This isn’t the first time Hyperliquid has dealt with aggressive trading tactics. Earlier in March, the platform increased margin requirements after a large Ether (ETH) liquidation caused serious losses.
On March 12, a whale trader deliberately liquidated a $200 million long position in ETH. This led to a $4 million loss for the platform’s liquidity pool. In response, Hyperliquid made trading conditions stricter to reduce future risks.