Only two months ago, the total value of Funde Locked (Tvl) sat on Hyperliquid, a decentralized derivative exchange (DEX) that allows traders to generate returns by setting a shared vault on a record $ 540 million.

Now users are on the run, Tvl has dropped to $ 150 million, and the dividend has fallen to a fuzzy 1%, in many cases less than they would get if they stuck their cash in a bank account.

This is an utilization that then uses one uses the price of a token called jelly and forcing the vault, known as Hyperliquidity provider, for a loss. But the negative PNL was not the reason for the emigration. It was rather Hyperliquid’s answer, which led to concern about how decentralized the protocol was and whether it worked exactly as the centralized exchange model it tried to distance itself from.

For the manipulation, the user maps jelly on Hyperliquid, which is sold tokens they do not own. They also bought tokens on illiquid decentralized exchanges. The lack of liquidity fooled pricing to forward an inflated price to hyperliquid, forcing Hyperliquid’s vault to inherit a toxic position via liquidation.

As the price of jelly increased further due to the spot purchase pressure, PNL sank for Hyperliquid’s vault more in the red. Eventually, the exchange power closed the jelly market and wound up at $ 0.0095 as opposed to the $ 0.50 that were led to oracles via decentralized exchanges.

This meant that the negative PNL was dried away and on paper the vault worked well throughout the saga. But the action raised concern about control of what is meant to be a decentralized process. At that time, the newfound research manager Corey Hoffstein questioned the legality of Hyperliquid’s actions and social media fell into indignation.

Some believe the exploitation was a mistake on the part of Hyperliquid.

“The Jelly utilization at Hyperliquid was not a fluke,” Jan Philipp Fritsche, CEO of Oak Security, told Coindesk. “It was a textbook case about unpriched Vega risk: When geared trade in unstable assets is allowed without properly explaining how this volatility can drain the risk of the striker opened massive opposite positions in jelly, knowing that one side would collapse and the other would pay out.

“This is not theoretical. It happened. And it will happen again. We marked this exact risk principal in audits before, but economic deficiencies are often ignored because they are not technical. It is a mistake,” Fritsche added.

In this case, the manipulator ended with a small loss.

It is worth pointing out that Hyperliquid was trying to alleviate the centralization problems and upgrade its system to an on-one on-Chain-Validator that votes for the delisting of Active, which means that the stock exchange will not be able to remove as a jelly in the future without a validator consensus.

Volume remains stable when hype tumbles

While the vault suffered a great stroke in terms of trust and branding, the exchange itself continues to cross together just fine with regard to trading volume. Over $ 70 billion value of volume has been chopped so far this month, and it seems to be about to break its $ 197 billion January record.

Still, Exchange’s original token (hype), which was distributed to users in December, failed to emulate the positive performance of the stock exchange and lost 60% of its value over the past four months with its market capital, which pigs from $ 9.7 billion to $ 4.6 billion.