DeFi Platforms Face Scrutiny Over Risk Management After Hyperliquid Market Manipulation and Forced Settlements
Recent events on DeFi platform Hyperliquid have raised significant concerns around risk management practices in decentralized finance. Bitget CEO Gracy Chen compared Hyperliquid’s centralized response to market manipulation—including forced settlements and contract delisting—to notorious centralized exchange failures like FTX. In March 2025, a trader exploited excessive leverage on Ethereum, causing a $4 million loss to Hyperliquid’s liquidity pool (HLP). Shortly afterward, another trader manipulated the low-liquidity JELLY token, resulting in an unrealized $13 million loss for the HLP. Hyperliquid reacted by reducing leverage and increasing margin requirements, but its decision-making—entrusted to a small group of validators—has been critiqued for lacking decentralization. These incidents highlight systemic risks in DeFi: weak controls, excessive leverage, and low listing standards. As protocols grow more interconnected, failures in one can amplify risk across the DeFi market. Experts urge DeFi platforms to adopt robust, proactive risk management like position caps and stronger governance to ensure institutional adoption and market stability, not just reactive measures after losses.
Bearish
The recent manipulations and significant losses in Hyperliquid’s liquidity pools have undermined confidence in the protocol’s risk controls and governance. Forced settlements and centralized validator actions contradict DeFi’s decentralized ethos, raising trust concerns among traders and institutional investors. The immediate impact is likely increased caution and reduced activity on affected platforms, with potential spill-over to interconnected DeFi protocols. While improved risk management may emerge long-term, the short-term trader sentiment remains bearish due to heightened perceived systemic and protocol-specific risks.