The Dark Side of the Cryptocurrency Market – Questions Raised by Hyperliquid Manipulation Allegations

As of November 14, 2025, another shocking event has unfolded in the cryptocurrency market. Popcat (POPCAT) plummeted by 30% in just one day, bringing allegations of price manipulation by Hyperliquid into the spotlight. An anonymous trader is suspected of having established a $30 million long position and then causing significant losses to LPs (liquidity providers) through instant liquidation, once again bringing the structural issues of the decentralized derivatives market to the surface.

This is not the first time such an incident has occurred. In the cryptocurrency market, particularly in derivatives trading, allegations of market manipulation by large traders have been continuously raised. However, this incident is particularly noteworthy because Hyperliquid, despite being a platform that advocates decentralization, took centralized measures by halting deposits and withdrawals. This action has been criticized as contradictory to the fundamental philosophy of decentralized finance (DeFi).

Hyperliquid is a U.S.-based decentralized derivatives exchange established in 2021, which has promoted the fact that users can directly manage their assets, unlike traditional centralized exchanges. The platform has shown rapid growth, recording approximately $5 billion in cumulative trading volume to date, but this incident is likely to put a brake on that growth momentum. Particularly when compared to competitors like dYdX and GMX, Hyperliquid’s response leaves much to be desired.

Personally, the most concerning aspect of this incident is the losses suffered by LPs. Liquidity providers deposited their funds trusting the stability of the exchange, only to incur unexpected losses due to manipulative trading by large traders. This is not simply a loss due to market volatility but rather a result of artificial manipulation exploiting system loopholes, making it even more serious. Hyperliquid has stated that “the decentralized derivatives market needs to mature,” but such responses are unlikely to restore investor confidence.

## The Dilemma of Decentralization: Autonomy vs. Stability

This incident highlights the fundamental dilemma faced by the decentralized finance market. On one hand, it aims for free trading without central authority intervention, but on the other hand, it lacks mechanisms to respond to market manipulation or malicious activities. In traditional financial markets, regulatory bodies can intervene in such situations, but in decentralized markets, such safety nets are limited.

In fact, looking at the traditional derivatives market in the U.S., the CFTC (Commodity Futures Trading Commission) strictly monitors and penalizes market manipulation. In 2020, JP Morgan was fined $920 million for spoofing in the precious metals futures market. However, in the cryptocurrency derivatives market, such regulatory frameworks are not yet fully established, and decentralized platforms are particularly in a gray area.

But when you think about it, this issue is not unique to Hyperliquid. Other major decentralized exchanges also have similar vulnerabilities. For example, dYdX had a YGG token manipulation incident in 2022, and GMX has continuously faced issues with LP losses due to arbitrage by large traders. This can be seen as a limitation inherent in the current structure of the decentralized derivatives market.

Particularly in the Korean market, the perspective on such incidents is even more complex. Domestic cryptocurrency exchanges are under strict scrutiny by financial authorities, making the occurrence of such large-scale manipulation relatively unlikely, but domestic investors using overseas platforms are directly exposed to these risks. One of the reasons domestic exchanges like Upbit and Bithumb do not offer overseas derivatives trading services is precisely due to such regulatory risks.

The notable aspect of the Popcat incident is the scale of the manipulation. A sum of $30 million is not something an individual trader can easily mobilize. This implies the financial power of institutional investors or large hedge funds. In the cryptocurrency market, large trading firms like Jump Trading and Alameda Research have indeed had significant impacts. Although Alameda closed with the FTX bankruptcy, many large trading firms are still active.

## Fundamental Issues in Market Structure

Analyzing the Hyperliquid incident reveals clear structural issues in the decentralized derivatives market. First, the vulnerability of the liquidity pool structure. Most decentralized derivatives exchanges use the AMM (Automated Market Maker) model, which is inherently vulnerable to large trades. If a $30 million position is liquidated instantaneously, slippage increases sharply, causing unexpected losses for LPs.

In a traditional centralized exchange, protective measures like circuit breakers or trading halts could be implemented in such situations, but in a decentralized system, such mechanisms are limited. Hyperliquid’s halting of deposits and withdrawals was ultimately a centralized intervention. This shows that even while advocating decentralization, there are moments when centralized control is necessary.

Another issue is the limitations of the Oracle system. Decentralized exchanges use oracles like Chainlink or Pyth to obtain external price information, but these are not perfect. Especially in situations of rapid price fluctuations, delays or inaccurate price information from oracles can lead to improper liquidations. For tokens with relatively low liquidity like Popcat, this problem becomes even more severe.

Compared to competitors, dYdX has addressed these issues by building its own chain and introducing a validator system. It also operates an insurance fund to compensate LPs for losses in extreme situations. GMX, on the other hand, has created a structure to distribute risk through GLP (GMX Liquidity Provider) tokens and offset losses with fee revenue. However, these measures are not perfect solutions either.

Personally, I believe this incident serves as an indicator of the maturity of the decentralized derivatives market. It has not yet reached a level where it can fully replace the stability and protective measures of traditional derivatives markets. However, I also believe the market will learn and evolve through such incidents. In fact, the cryptocurrency market has become more robust even after the Terra Luna incident and the FTX bankruptcy in 2022.

In Korea, awareness of these overseas platform risks is increasing. Financial authorities are continuously issuing warnings about the use of unauthorized overseas exchanges, and investors are becoming more cautious. However, it is also true that many investors are still drawn to overseas platforms by the allure of high returns. Particularly in Korea, where derivatives trading is limited, investors seeking leverage trading continue to flock to overseas platforms.

For the decentralized derivatives market to develop healthily in the future, several improvements are needed. First, the introduction of more sophisticated risk management systems is necessary. Monitoring of large positions, gradual liquidation mechanisms, and the expansion of insurance funds to protect LPs are among them. Enhancing transparency is also crucial. In a structure where anonymous traders can engage in large-scale manipulation, market trust is inevitably undermined.

Ultimately, the Hyperliquid incident can be seen as an example of the gap between the ideals and realities of decentralized finance. It is an event that occurred in the process of finding a balance between pursuing complete decentralization and ensuring market stability, and between innovation and regulation. To prevent such incidents from recurring, efforts from the entire industry and the establishment of an appropriate regulatory framework will be necessary.

This article was written after reading the Popcat, Hyperliquid ‘Price Manipulation’ Allegations Lead to 30% Plunge [Feature Coin] article, with personal opinions and analysis added.

Disclaimer: This blog is not a news outlet, and the content written reflects the author’s personal views. The responsibility for investment decisions lies with the investor, and no responsibility is taken for investment losses based on the content of this article.