Gracy Chen has criticized Hyperliquid’s response to an incident on its perpetual exchange, warning that the platform’s actions could result in it becoming the next FTX.

Her remarks come after the company’s decision to delist JellyJelly (JELLY) perpetual futures contracts.

Decentralization and Structural Risks

On March 26, Hyperliquid announced that it was removing JELLY’s future contracts from its platform after identifying what it described as “evidence of suspicious market activity.” It also committed to reimbursing affected users. However, the choice was made by a small group of validators, raising concerns about its level of decentralization.

This prompted the Bitget CEO to get on social media, criticizing Hyperliquids handling of the situation:

“Despite presenting itself as an innovative decentralized exchange with a bold vision, Hyperliquid operates more like an offshore CEX with no KYC/AML, enabling illicit flows and bad actors,” said Chen.

Her worries were shared by others in the crypto industry, including BitMEX co-founder Arthur Hayes, who called for the community to “stop pretending Hyperliquid is decentralized.”

The Bitget CEO further called the platforms actions unprofessional and unethical. She claimed the company’s mismanagement caused user losses and severely damaged its credibility.

Chen also pointed to deeper flaws in the exchange’s structural design. She argued that using mixed vaults exposed users to collective risks, meaning the actions of a few traders could impact everyone on the platform.

Additionally, she warned that the company’s approach set a dangerous precedent. According to her, the integrity of an exchange depends on trust as much as financial stability. Without fixing these issues, she cautioned that Hyperliquid remains vulnerable to further market manipulation.

JELLY Token Controversy

According to blockchain analytics firm Arkham Intelligence, the incident began when a trader attempted to manipulate Hyperliquid’s system to profit from price movements. The trader opened three accounts, with two holding long positions on JELLY worth $2.15 million and $1.9 million, respectively, and the third with a $4.1 million short position to offset the longs.

Soon after, JELLY’s price surged over 400%, flagging the $4 million short position for liquidation. However, due to its size, the position was not immediately liquidated and was instead transferred to Hyperliquid’s Provider Vault (HLP), which handles large liquidations.

However, their enrichment scheme hit a snag when Hyperliquid restricted the accounts to reduce-only orders, preventing further withdrawals. This forced the trader to sell tokens from the first account at market prices to recover some funds.

This was not the first time Hyperliquid has been the target of such manipulation. On March 12, the platform raised margin requirements for traders after its liquidity pool suffered a hit during a large liquidation event where a whale deliberately cashed out on a massive $340 million ETH long position, causing the exchange to lose $4 million while trying to unwind the trade. Bybit CEO Ben Zhou described that particular incident as a useful stress test for DeFi.