Curriculum·R410 Copy Trading, Vaults, and Agentic Execution·about 33 min
Vaults and delegated liquidity
By the end of this lesson you can
- →State what a depositor in a liquidity vault is actually selling
- →Explain why a vault's risk is set by the venue's worst listing rather than by its strategy
- →Compute the ratio that makes a thin listing an attack on the vault
- →Read a vault's terms for the four things that decide its exposure
Senior · enrolled learners
This lesson opens with Hyperliquid's HLP vault and JELLY, March 2025, read as a deposit.
- What happened
- Hyperliquid operates a protocol vault, HLP, which the community can deposit into and which runs market making strategies, performs liquidations and shares its PnL with depositors. Under the venue's rules a position whose liquidation cannot be completed on the order book can be taken over by a liquidator vault that is part of HLP. In March 2025 a trader opened a large short in the thinly traded JELLY perpetual alongside offsetting longs. The short was liquidated, which accounts attribute either to the trader withdrawing margin or to spot buying that pushed the price up, and HLP inherited it because the order book could not absorb it. As JELLY's spot price kept rising, HLP's unrealized loss on the position was reported at between $12M and $13.5M. The validators reached consensus in about two minutes, delisted the market, set aside the JELLY oracle price and settled all positions at $0.0095, the price at which the original short had been opened, against a reported high of about $0.043, a haircut of about 78 percent to that high. Hyperliquid then stated that HLP's 24-hour PnL was approximately 700,000 USDC in profit, and FXStreet put the profit on the closed position at about $703,000 and that all users apart from flagged addresses would be made whole by the Hyper Foundation.
- The decision point
- The depositors had bought a yield product and were holding an underwriting position in every market the venue listed. What ended the episode was not the vault's strategy but a discretionary price override agreed by a small set of parties in about two minutes, after which the vault's reported loss became a gain. The first fact, that the vault takes over positions the order book cannot absorb, was in the venue's documentation before anybody deposited. The second, that a small validator set could set aside an oracle price, was a property of the venue's governance that the episode made visible.
- Recorded loss
- $13,500,000
What you will be able to answer
- →What does a vault depositor sell?
- →What sets a vault's risk?
- →What ratio makes a listing an attack?
- →What four terms decide the exposure?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://www.coindesk.com/markets/2025/03/26/hyperliquid-delists-jellyjelly-after-vault-squeezed-in-usd13m-tussle
- https://www.halborn.com/blog/post/explained-the-hyperliquid-hack-march-2025
- https://oakresearch.io/en/analyses/investigations/hyperliquid-jelly-attack-context-vulnerability-team-solution
- https://www.theblock.co/post/348314/hyperliquid-delists-jellyjelly-memecoin-amid-whale-manipulation-fiasco
- https://decrypt.co/311713/hyperliquid-delists-solana-meme-coin-liquidation-crisis
- https://www.fxstreet.com/cryptocurrencies/news/hyperliquid-escapes-liquidity-crisis-following-jellyjelly-short-squeeze-delists-token-202503262225
- https://hyperliquid.gitbook.io/hyperliquid-docs/trading/liquidations
- https://hyperliquid.gitbook.io/hyperliquid-docs/hypercore/vaults/protocol-vaults
Confidence medium·Volatility high·Reviewed 2026-10-22·Owner unassigned
Contested
J302-11 uses this incident as a perpetual venue architecture case, covering the backstop as the component that distinguishes such a venue and the governance question raised by the override. This lesson uses it as a delegation case, covering what a depositor is buying and what terms decide it. The split is declared and the JELLY figures are shared. Keep it.
Whether the validator override was appropriate remains genuinely contested, with serious commentators on both sides at the time. Per P6 this lesson presents the fact and its implication for a depositor without resolving the question.
Accounts of the mechanics differ. CoinDesk and Halborn describe the short being forced underwater by spot buying that pushed JELLY's price up; Oak Research describes the trader withdrawing margin to force their own liquidation, with the large spot purchase following. The unrealized loss is $12M in Halborn, Oak Research and The Block (citing Lookonchain) and $13.5M in CoinDesk. The two-minute consensus is Halborn's figure; Oak Research says the quorum was reached in minutes. The settlement price of $0.0095 is in CoinDesk, Halborn, Decrypt and FXStreet, and Halborn identifies it as the attacker's short entry price. The market price it is measured against is contested: CoinDesk and Halborn give $0.50, but that is inconsistent with every other figure, since Decrypt reports a CoinGecko high of about $0.043, FXStreet values the trader's 124.6 million tokens at $4.5 million (about $0.036), and Halborn puts JELLY's market capitalization near $25M. A 392 million token short marked from $0.0095 to $0.043 loses about $13M, which matches the reported unrealized loss, while $0.50 would imply a loss near $190M. This lesson uses $0.043 and a haircut of about 78 percent (about 81 percent at $0.05). The roughly 700,000 USDC 24-hour profit for HLP is Hyperliquid's own statement as quoted by The Block, and FXStreet puts the profit on closing the position at about $703,000. The Hyperliquid documentation cited is the current version, which describes the liquidator vault as part of HLP.
R402-04 owns the waterfall of insurance fund, auto-deleveraging and socialized loss. J312 owns cover protocols and their capital pools. This lesson owns the depositor's side of a delegated liquidity product. Keep the splits.