Hyperliquid Halts Deposits, Withdrawals Amid Market Manipulation

Hyperliquid paused deposits and withdrawals on Wednesday amidst rumours of market manipulation on the decentralized perpetual exchange.

Speculations about a pause on the DEX first began on X. As a result, some users reported that their transactions were not being processed. A notice stating that “Deposits and Withdrawals are paused for maintenance” later confirmed this.

A screenshot on X, allegedly from Hyperliquid’s Discord, stated the pause affects only the Arbitrum bridge. It also claimed that other networks remain unaffected.

Trader Places Suspicious Trades on Popcat on Hyperliquid

According to MLM on X, the incident leading to the Hyperliquid pause started hours ago. One user withdrew $3 million in USDC from OKX and split the funds across 19 wallets.

The trader later opened long positions on POPCAT memecoin with about $20 million buy orders at $0.21. Their position soon increased to around  $30 million on the exchange.

With the massive position in place, the trader removed their buy wall. This resulted in a huge liquidation of the entire position in just seconds. This instantly triggered the DEX Hyperliquidity Provider (HLP) to take over the position even as POPCAT continued to decline in value.

Hyperliquid eventually closed the position manually after HLP had incurred $4.9 million in losses. Observers believe the incident is an attempt to manipulate the DEX.

HLP is the Hyperliquid protocol vault responsible for market-making and processing liquidations in exchange for a percentage of the trading fees. Users can deposit funds into the HLP and receive a portion of its profits.

Interestingly, this is not the first time that a trader has attempted to manipulate HLP on Hyperliquid. A similar incident in March saw one trader manipulate JELLY memecoin. This caused HLP to incur approximately $12 million in unrealized losses.

The protocol froze the JELLY contract and eventually delisted it. Meanwhile, the incident has been traced to bad actors who also manipulated the TST token in August.

One address linked to the TST shows a trail of transactions. This chain connects to a wallet involved in the Wednesday incident.

Competition among Perps DEX Gets More Intense

Hyperliquid’s recent pause on deposits and withdrawals, even though temporary, could not have come at a worse time. The DEX is struggling to gain market share. Competing Perps DEXs are now attracting more trading volume.

According to DefiLlama data, the volume of Perps in the last 30 days has been $1.36 trillion. Hyperliquid is not the biggest Perps DEX by volume in this period, with Changpeng Zhao-backed Aster having $313.32 billion.

Lighter comes second with $284 billion, while Hyperliquid is third with $264 billion. Hyperliquid is also third in Perps volume over the past seven days, behind Lighter and Aster.

Interestingly, Lighter recently raised $68 million at a $1.5 billion valuation with major VC firms. This includes Founders Fund, backing it. Unlike Hyperliquid, which is a layer-1 network, Lighter is an Ethereum-based L2 but also a singular chain focused on DEX derivatives.

Meanwhile, HYPE fell slightly today, compounding its weekly loss to 5.7%. The token, which was at almost $60 in September, is now down to $38 but still up 47% year-to-date.