Bitget CEO warns that Hyperliquid could become the next ‘FTX 2.0’

Gracy Chen recently expressed concerns about Hyperliquid’s response to a market manipulation incident, suggesting that the platform is at risk of becoming the next FTX. Hyperliquid made the controversial decision to remove JellyJelly (JELLY) perpetual futures contracts from its exchange due to suspicious market activity. While the company promised to compensate affected users, the decision was made by a small group of validators, raising doubts about the platform’s level of decentralization.

The CEO of Bitget, Gracy Chen, took to social media to criticize Hyperliquid’s handling of the situation, questioning the platform’s commitment to decentralization. She argued that despite positioning itself as a decentralized exchange, Hyperliquid operated more like an offshore centralized exchange, lacking KYC/AML requirements, which could enable illicit activities and bad actors within the platform. These sentiments were echoed by other industry figures, with BitMEX co-founder Arthur Hayes expressing skepticism about Hyperliquid’s claims of decentralization.

Chen further highlighted the unprofessional and unethical nature of Hyperliquid’s actions, attributing them to the mismanagement of the platform, causing losses to users and damaging its credibility. She also pointed out structural flaws in Hyperliquid’s exchange design, particularly the use of mixed vaults, which she argued exposed users to collective risks. This means that the actions of a few traders could have widespread implications for all users on the platform. Chen warned that such flaws could set a dangerous precedent for the platform, undermining trust and financial stability.

The incident involving the JELLY token stemmed from a trader’s attempt to manipulate Hyperliquid’s system for profit. The trader opened multiple accounts, engaging in long and short positions on JELLY futures contracts, leading to a significant price surge and subsequent liquidation. Hyperliquid’s decision to restrict account activities and prevent withdrawals disrupted the trader’s scheme, causing them to sell tokens at market prices to recover funds.

This incident was not an isolated case for Hyperliquid, as the platform had previously faced challenges with market manipulation. In a separate event, Hyperliquid raised margin requirements following a large liquidation triggered by a whale cashing out on a substantial ETH long position, resulting in losses for the exchange. Ben Zhou, CEO of Bybit, described the incident as a stress test for decentralized finance (DeFi) platforms.

In conclusion, the controversy surrounding Hyperliquid’s handling of the market manipulation incident has raised questions about the platform’s decentralization, integrity, and structural vulnerabilities. Without addressing these issues, Hyperliquid risks eroding trust and facing further challenges related to market manipulation.