While addressing the recent controversy surrounding the JELLY token, Hyperliquid has released an official statement stating that all JELLY traders – who were holding long positions on the token – will be refunded by the Foundation. With this, the platform now has also updated its risk management strategy using significant developments.
The incident, which led to a major market disruption, has prompted Hyperliquid to reassess its risk management framework while ensuring affected traders receive compensation.
According to Hyperliquid’s latest statement on X, the exchange has emphasized its commitment to continuous improvement and user protection with it announcing that all the settled price for JELLY token has been decided at $0.037555, on which every trader is advantageous.
“Yesterday is a good reminder to stay humble, hungry, and focused on what matters: building a better financial system owned by the people,” the team said, adding “Hyperliquid is not perfect, but it will continue to iterate and grow through the collective efforts of builders, traders, and supporters.”
Understanding the Incident
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. Following this transaction, the JELLY token surged more than 4X in a short period and triggered Hyperliquid’s backstop liquidity protocol.
This short position later led to a significant loss in Hyperliquid’s HLP vault. While the open interest (OI) cap formula dynamically adjusts based on global liquidity and OI on major centralized exchanges (CEXs), the 4M USDC position was within the platform’s existing limits.
The key issue arose when the HLP took over the position, sharing collateral with other component vaults. This prevented the triggering of the Auto-Deleveraging (ADL) mechanism for JELLY short position and total loss increased to more than $10 million.
Strengthening Risk Management
In response to the incident, Hyperliquid has announced several risk management enhancements for its platform. One of the major developments is for HLP Liquidator Vault Adjustments where the Liquidator vault will now have a tighter cap, representing a small fraction of the total HLP account value. It will also undergo less frequent rebalancing and implement more advanced logic for handling backstop liquidations.
Hyperliquid has also made notable changes in Dynamic OI Caps and Onchain Validator Voting process with it now granting validators authority to vote onchain for delisting any assets that fall below specific liquidity and market cap thresholds.
Despite the setback, Hyperliquid remains dedicated to refining its financial ecosystem. The platform has assured users that these measures will fortify risk management, enhance trader protection, and maintain stability across its trading operations.
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