Bitget CEO Gracie Chen criticized Hyperliquid's response to a recent incident on its platform, warning that its actions could lead to a repeat of the fate of FTX.
This came after Hyperliquid announced the delisting of its JellyJelly (JELLY) perpetual futures contracts due to suspicious market activity, according to a statement, and pledged to compensate affected users.
However, the decision raised questions about the platform's degree of decentralization, given that it was made by a small group of validators.
Concerns about decentralization and structural risks:
Chain expressed concern that Hyperliquid, despite presenting itself as a decentralized exchange, actually operates as a centralized exchange (CEX) without Know Your Customer (KYC) or Anti-Money Laundering (AML) procedures, facilitating illicit flows.
These concerns were shared by prominent figures in the industry, including Arthur Hayes, co-founder of BitMEX, who called for an end to the pretense that Hyperliquid is a decentralized platform.
Chain also described Hyperliquid's actions as unprofessional and unethical, arguing that its decisions caused user losses and damaged the platform's credibility.
It also pointed to deeper structural risks, as Hyperliquid's use of mixed treasuries leaves users vulnerable to collective losses, as the actions of a few traders can impact everyone.
It also warned that the platform's failure to address these issues could leave it vulnerable to further market manipulation, threatening user confidence.
JELLY Controversy and Price Manipulation:
Arkham Intelligence revealed that the incident began when a trader attempted to exploit Hyperliquid's mechanism to make illicit profits.
The trader opened three accounts with conflicting positions on JELLY, leading to a 400% price surge and unexpected liquidations.
However, Hyperliquid intervened, imposing restrictions on the accounts and preventing withdrawals, forcing the trader to liquidate his positions at market price to recover a portion of his funds.
