Article source: REKT; Translation: Jinse Finance xiaozou

A trader has just weaponized Hyperliquid's own liquidation mechanism to strike back at the protocol, forcing it to choose between continuous bleeding of $12 million and exposing its centralized emergency switch.

A small group of validators reached a "quorum" within two minutes, overturning the market price and forcibly delisting the token after JELLY surged 429% in one hour.

Binance and OKX launched perpetual contracts at a precise moment, while Bitget CEO directly pointed out that Hyperliquid is "repeating the FTX 2.0 mistake".

Meanwhile, ZachXBT questioned why Hyperliquid draws a line for market manipulators but allows North Korean hackers using stolen funds to go free.

When exchanges wage war through token listings, and validators vote faster than one can say "decentralization", who is truly using violence to control, and who is covering up catastrophic risk management?

1. A New Script of Financial Warfare

We first warned about Hyperliquid's fragile security when North Korean hackers were probing its defense system.

Today, the situation has not improved. Despite claiming validators would expand to 16 and promising enhanced security, similar vulnerabilities remain shocking.

While traders usually strive to avoid liquidation, the attack planners deliberately created liquidation - turning Hyperliquid's liquidation engine into a ticking time bomb.

What was the target? JellyJelly (JELLY) - a niche token with a $20 million market cap, perfect for manipulation.

Strategy? Pure genius-level plunder: establishing a massive $6 million perpetual short position while continuously accumulating long positions in cross-chain spot markets.

After positioning, the second phase launched: deliberately raising spot prices across exchanges, forcing the system to liquidate their own short positions.

JELLY surged 429% in one hour, with Hyperliquid's HLP (liquidity pool) automatically inheriting this toxic short position - losing millions of dollars per minute as funding rates skyrocketed.

This was more than trading. It was a meticulously designed financial guillotine, forcing Hyperliquid to make an impossible choice: either watch its $230 million treasury face liquidation as JELLY continues rising, or tear off the "decentralization" mask and exercise emergency privileges.

The operation exploited four fatal vulnerabilities: lack of real position limits for illiquid assets, weak oracle manipulation prevention, automatic position inheritance system, and absence of circuit breakers.

A perfect storm of surgical strike against systemic weaknesses.

As Hyperliquid's paper losses approached $12 million with no ceiling in sight, the protocol finally played its trump card: initiating an emergency validator vote to completely delist JELLY.

The lightning consensus reached in two minutes revealed who truly holds power.

Settled at $0.0095, while market prices hovered around $0.5 - turning potential eight-digit losses into a $700,000 profit between keyboard strokes. Could there be a greater humiliation?

A centralized speed of democratic consensus.

When crisis hits, crypto protocols reveal their true nature faster than liquidation.

When you can rewrite market prices faster than a Discord admin banning FUD spreaders, can this still be called an oracle? Or just a Google Sheet with a few extra steps?

2. Exchange War

While Hyperliquid scrambled to stop the bleeding, Binance and OKX perhaps smelled blood in the water.

Their countermove? Launch JELLY perpetual contracts at the most opportune moment, maximizing the slaughter.

"Suspicious timing" would be an understatement. As ZachXBT pointed out, two JELLY manipulation addresses (0x20e8 and 0x67f) just received fresh funds from Binance on Arbitrum chain before the attack.

Coincidence, or a meticulously planned market assassination?

Users noted that Binance co-founder He Yi reportedly replied "OK, received" to requests regarding Hyperliquid.

The subtext: specifically listing JELLY to suppress an emerging competitor.

Bitget CEO Gracy Chen bluntly stated that "Hyperliquid might be becoming FTX 2.0", criticizing its "immature, unethical, unprofessional" crisis management. The most transparent friendship in the crypto world is an adversarial relationship.

All these dramatic scenes mask the exchange war playing out in broad daylight.

As Wazz said: "Two exchanges just publicly bullied another exchange, and you still think this market isn't a player-versus-player mode?"

For Hyperliquid, it wasn't a choice between decentralization and centralization - but between losing $12 million or losing reputation. They chose the latter, and the market knows it.

ZachXBT delivered a fatal blow: "Their selective boundary-drawing this time is unsettling, especially when they were indifferent to North Korean hackers using Radiant stolen funds to open reasonably sized positions."

Selective enforcement makes even the most principled stance seem purely self-preservative.

From SBF's "$8 billion operational mistake" to Terra's "$40 billion algorithmic collapse", Hyperliquid's emergency privileges and Binance's "timely" listing are just a new chapter in crypto's oldest drama: a centralized theater dressed in decentralization marketing.

When every crypto disaster's director's notes read "unprecedented emergency powers", when will we admit that the real emergency is the system itself?

3. Two Minutes to Reach Quorum?

Democracy dies in darkness. For Hyperliquid, democracy never existed.

"Validators gathering to meet and vote" sounds noble, until you peek behind the curtain.

A small group of validators. Two minutes. One result. Zero debate.

This reveals a truth - 81% of the 404 million staked HYPE tokens are comfortably stored in foundation nodes.

Far from the decentralized utopia promised in marketing documents.

The supposedly independent validator ValiaDAO posted the official stance on Twitter: "We voted to delist JELLY perpetual contracts at the price point of manipulation."

No process explanation. No justification for the 98% price decapitation. Just robotic click approvals.

Borrowing a sharp question from Twitter user Lucas that no one at HL wants to answer: "Did HL validators secretly add the power to override market prices, or has this emergency switch always been brazenly hidden?"

The silence is deafening.

Lucasdirectly points to the core of the farce: "HLonly needs to disclose existing management permissions and removal timeline to clarify all FUD. Being ambiguous is not decent in this context."

After destroying the self-trading system, Hyperliquid compensated JELLY long positions at 0.037555 dollars—more generous than the real price, unless you are on the blacklist.

They acknowledge that their risk model failed when HLP took over toxic short positions, and are now strengthening controls: stricter liquidation caps, smarter unexecuted position limits, and on-chain voting to delist zombie assets. A typical "we will improve" announcement, but is this enough?

It's still the same protocol with no position limits on non-liquid assets and weak oracle protection, suddenly exposing the ultimate loophole—designed to seem trustless in governance, but power remains centralized in the same old place.

When your protocol overturns the market, rewrites prices, and delists tokens faster than most people can tweet, you're not building a decentralized exchange—but a centralized dictatorship disguised in blockchain clothing.

Is DeFi just disguised centralization, or will protocols eventually admit that emergency powers are their true governance strength?

4. All Villains

This Hyperliquid legend is like a crypto crime novel, with all players being villains, none innocent.

First Crime: Traders weaponized the market, turning Hyperliquid's own mechanism against itself. A perfect exploit walking the line between genius trading and naked manipulation.

Second Crime: Binance and OKX's "just right" JELLY listing. Launching perpetual contracts for an obscure token at the precise moment to cause maximum damage to competitors—no more "friendly competition" than this. Not just watching from the sidelines—but selling tickets to hell.

Third Crime: Hyperliquid's midnight court, where a minority of validators controlling 81% of staked volume execute price overrides faster than most protocols can tweet.

DeFi version of "we had to destroy the village to save it".

HYPE is not just a crash—when holders realize their "decentralized perpetual contract" comes with an invisible asterisk clause ("reserve the right to modify when losing money"), it's a face-first collapse.

No amount of Discord AMAs can rebuild the trust evaporated by a two-minute validator vote.

The crypto arena witnesses not innovation—but CEXs stabbing each other with USDT while tweeting about "community governance".

Gladiators battling with token listings as weapons and emergency privileges as armor.

Hyperliquid users now staring at their screens, finally understanding their "revolutionary DEX" might just be a document-optimized version of SBF's fever dream.

Market prices are only market prices when they don't threaten the wallets of the privileged.

Ironically well-known: a protocol that rose by criticizing centralized exchanges just perfectly demonstrated why centralization remains the most stubborn vulnerability in crypto.

The ultimate winners are the traders who avoided the chaos. And our genius strategist who exposed the emperor's new clothes.

They taught the market a lesson worth 12 million dollars: what "decentralization" truly means when turning profitable to loss.

When validators can switch from trustless consensus to price manipulation between two Discord messages, is crypto's greatest innovation really the technology itself—or just our endless blind faith after each betrayal?