Hyperliquid, a decentralized perpetuals exchange, has come under fire from the crypto community following its decision to delist JELLY perpetual contracts. The move, which was triggered by "suspicious market activity," has ignited debate about the platform’s governance, transparency, and decentralization claims.

On March 27, Hyperliquid announced that its validator set had convened and voted to remove JELLY perps from the platform. The exchange stated that users, except for flagged addresses, would be reimbursed by the Hyper Foundation based on on-chain data, with automatic settlements expected in the coming days.

Hyperliquid defended the decision, emphasizing that validators must sometimes take swift collective action to maintain the integrity of the network. The platform also committed to improving transparency and the robustness of its voting system. However, critics argue that the move exposes fundamental issues with Hyperliquid’s operational model.

ZachXBT and Industry Leaders Call Out Inconsistencies

The decision quickly drew sharp criticism from blockchain sleuth ZachXBT, who accused Hyperliquid of selective intervention. He pointed to a past incident involving North Korean-linked funds in the Radiant exploit, where Hyperliquid claimed it had no ability to act.

When it was the Radiant hack with DPRK funds affecting thousands of victims, Hyperliquid asserted that it couldn't intervene. However, when it came to a low-cap PVP meme coin, a small group of validators moved swiftly to close positions at an arbitrary price. ZachXBT questioned whether Hyperliquid aims to be a truly decentralized protocol or an arbitrarily controlled platform that picks when to act.

Gracy Chen, managing director at Bitget, likened Hyperliquid’s actions to the collapse of FTX, calling the JELLY incident "immature, unethical, and unprofessional." She criticized the platform’s lack of KYC/AML measures, alleging it enables illicit financial flows. Additionally, Chen highlighted the dangers of Hyperliquid’s design, including mixed vaults and unrestricted position sizes, warning that these flaws could expose the platform to future manipulation.

Concerns Over Decentralization and Governance

The controversy has reignited debates about true decentralization in DeFi. Some industry experts argue that Hyperliquid’s governance structure allows insiders to intervene at will, undermining trust in the system.

Crypto researcher CosmoDeFi asked ZachXBT about potential solutions. In response, ZachXBT outlined three paths Hyperliquid could take: remain consistent and take action during all possible major incidents, fully embrace decentralization and allow the market to resolve issues organically, or implement mechanisms to deter bad actors from exploiting the platform in the first place, citing Railgun’s PPOI as an example.

As the dust settles, all eyes are on Hyperliquid’s next move. Will it take concrete steps toward decentralization and fair governance, or will it continue to exercise selective control over its markets?