Just two months ago, the total amount of funds locked (TVL) on Hyperliquid, a decentralized derivatives exchange (Dex) Allowing entrepreneurs to produce returns by staking a shared vault, sitting on a record of $ 540 million.
Now, users have fled, TVL has fallen to $ 150 million and the yield drops to a measles of 1%, in many cases, less than they can get if they broke their cash in a bank account.
In the issue is an exploitation that saw a user manipulate the price of a token called jelly and force the vault, known as the hyperliquidity provider, at a loss. But the negative PNL is not the reason for the release. Instead it was Hyperliquid’s response, which led to concerns about how the protocol was really decentralized, and if it acts exactly like the centralized exchange model it tried to keep itself away.
For manipulation, the user shortened the jelly to hyperliquid, selling tokens they did not own. They also bought tokens on unknown decentralized exchanges. Lack of liquidity tricks Oracle pricing to restore an inflated hyperliquid price, forcing the hyperliquid vault to inherit a toxic position by extermination.
While the price of the jelly has increased due to the pressure of the purchase of the area, the PNL for the hyperliquid vault sinks heavier into red. Eventually, the exchange The force closes the jelly marketrepairing it to $ 0.0095 compared to the $ 0.50 fed to the oracles by decentralized exchange.
This means that the negative PNL is killed and, on paper, the vault is performed well throughout the legend. But the action raises concerns about the control of what it means to be a decentralized process. At this time, Newfound Research CEO Corey Hoffstein Question of legality of the actions of Hyperliquid and Social Media have fallen into anger.
Some believe that exploitation is a mistake in the Hyperliquid part.
“The jelly that exploits Hyperliquid is not a fluke,” Jan Philipp Fritsche, director of Oak Security, said CoinDesk. “This is a case of the book -study of the failed risk of Vega: when the trading of the trading in PABAGU -change of properties is allowed without proper incounting for how the volatility can deplete the risk fund. Attack opens a huge conflicting position in the jelly, knowing that one side will fall and another will fall out.
“It’s not theoretical. It happened. And it will happen again. We have blown this exact risk vector in the audits before, but economic flaws are often ignored because they are not technical. That’s a mistake,” Fritsche added.
In this case, the manipulator graduated with a Small loss.
It is worth pointing out that Hyperliquid attempted to remedy centralization concerns, upgrading its system to include an on-chain validator voting for asset removal, which means the exchange will not be able to remove such jelly in the future without validator consensus.
Volume remains stable as hype falls
While the vault has suffered a major blow in terms of trust and bond, the exchange itself continues to detect only well in terms of trading volume. More than $ 70 billion worth of volume has been detected until this month and seems to be on the track to break the January record of $ 197 billion.
However, the native token of the exchange (hype), which was distributed to users in December, failed to mimic positive exchange performance, which has lost 60% of its value over the last four months with the market cap dropping from $ 9.7 billion to $ 4.6 billion.
