Unchained - Hyperliquid Saved Itself a $15 Million Loss, but Sparked Criticism - Ep. 807

Episode Date: March 28, 2025

Perpetual swap DEX Hyperliquid suffered a whale attack and was on the brink of losing $15 million. It promptly responded in a way that generated a fair amount of controversy. The founder and CEO of Ambient Finance Doug Colkitt joined the show to explain: How perp swaps work How a whale used the low-liquidity memecoin $JELLY to attack Hyperliquid’s vault How Hyperliquid’s response broke DeFi taboos around decentralization, oracles, etc. Criticisms of and justifications for the team’s decisions What can be done to prevent similar attacks in the future Visit our website for breaking news, analysis, op-eds, articles to learn about crypto, and much more: unchainedcrypto.com Thank you to our sponsors! BitKey: Use code UNCHAINED for 20% off FalconX Mantle Guest Doug Colkitt, Founder and CEO of Ambient Finance Links  Accounts of the $JELLY whale attack on Hyperliquid and its response  X: The story X: Nuking the vault X: How Hyperliquid responded Arguments for and against Hyperliquid’s solution: ZachXBT: ZachXBT calls out alleged hypocrisy Jordi Alexander: Shorting on a perp is not robust Jose Maria Macedo: How do they override the oracle price?  Doug: Closing positions at an arbitrary price Gracy Chen: Casting doubts on integrity Steven.hl: In defense of HL Kam: Of course quorum was reached easily What precedent Hyperliquid’s actions set Kevin Zhou: Binance and OKX set a precedent Timestamps: 👋 0:00 Intro 🤔 02:59 What is Hyperliquid? 🐳 05:16 How a whale used $JELLY to attack ⛔ 09:19 How Hyperliquid responded 📈 11:59 Why did Binance and OKX suddenly list the memecoin? 🤔 16:32 How did Hyperliquid ‘change the rules’ to protect themselves? ⚖️ 19:25 ‘Losses for thee, but not for me’: Hyperliquid’s hypocrisy? 💡 24:39 Doug’s ‘cleaner’ solution 👀 28:35 Will this have positive or negative knock-on effects? 🧹 31:20 Tidying up illiquid markets 📰 32:46 Crypto News Recap Learn more about your ad choices. Visit megaphone.fm/adchoices

Another way, then how far do you go, right? Is it North Korea? Is it any time either tax evader or somebody else is on it? Anytime, right, like there's a government subpoena. Do you have to comply with it? So there's kind of this slippery slope argument. That being said, right, they did convene to change the rules or, you know, go different than kind of what the rules they committed to are.

So I think, right, that's where Zach's argument is coming in is that, boy, If you're looking at your own losses, you know, they're definitely have the potential kind of conflict of interest there, motivated reasoning from their, from their side. So if you can arbitrarily change the rules for one thing, why can't you arbitrarily change the rules for the other thing? It's a tough question. There's good arguments on either side, to be honest. Hi, everyone. Welcome to Unchained. You're no hype resource for all things crypto. I'm your host, Laura Shin.

We are now featuring quotes from listeners on the show. Today we have a comment responding to my interview with the Ethereum Foundation Research co-leads, Alex Stokes and Barnaby Mono. Unchain Yoda writes, Don't think EF needs more research, maybe more shipping in fraud. If you'd like your comment featured,

write a review of the podcast overall or leave a comment on our video on YouTube or X. This is the March 28th, 2025 episode of Unchained. Bitkey is the Bitcoin Wallet from the team behind Square and Cash app. It's the first two of three multi-sick hardware wallet with recovery tools that replace the need for a seed phrase. Get 20% off with code unchained. Imagine an AI that speaks crypto and does the work of a team of analysts. Introducing Focal by Falcon X, bringing in clarity to a world of

noise. Visit askfocal.com. Mantil is building the future of on-chain finance. Experience its enhanced Index Fund, Mantle banking, and MantleX. Visit group.mantle.xy to learn more. Today's guest is Doug Colquitt, founder and CEO of Ambient Finance. Welcome, Doug. Hi. It's a lot to be here. This week, the crypto world was riveted by an unusual series of events on Hyperliquid. All of this happened on Wednesday.

And it resulted in Hyperliquid's vault called Hyper Liquid Provider, which is its automated market banker. At one point, being in the red, by I guess it was about 12 million or 15 million? Yeah, about I think 15 million at the trial. Okay. Yeah. So Doug and I were just talking before we started recording about how there's a lot of numbers floating out of road out there. And they're all a little bit different and contradictory. But we actually managed to sort through it all.

So the price of hype also dropped about 16 percent, according to Coin Gecko. Why don't you tell us what it is that happened? And, you know, as part of your description, just explain what hyperliquid is for listeners who may be unaware. Yeah. Yeah. So hyperliquit is a perp decks, which means, right, decks being a decentralized exchange, perps being perpetual futures. So unlike like a regular spot decks, you can trade leveraged positions. And these are derivatives on crypto coins like Bitcoin or Ethereum or in this case, jelly jelly.

You can trade derivatives on those. And then all that means is that, right, there's a long and a short. They don't actually hold the coins on the exchange. They just kind of enter, you enter into these contracts where someone's long, someone's short, and based on the price, one side will pay the other, depending if it goes up or down. So that is what hyperliquid is. And I guess we can jump into specifically what happened here. Yeah.

So go ahead and tell us how this series of events got started. Right. So like you mentioned, you have the HLP. vaults, which are basically a way for ordinary. So traditionally, like, in most exchanges, right, like liquidity is provided by market makers or professional trading firms, which is often the case on hyperliquit, too. There's a lot of trading firms and professional market makers there, but they also have these, these HLP vaults, which are basically, basically a way for ordinary retail depositors

to come in, commit capital to, like, these types of strategies that historically have been very good in terms of returns. returns relative to risk. Market makers tend to make a lot of money. And so ordinary people can contribute to these strategies, contribute to the vault. The vault does two things. Number one, it provides liquidity in these markets, meaning it's ready to buy when other people want to sell and it's ready to sell when other people want to buy.

As well as in Perp Dexis, you have, like, what are called liquidations, which mean that when a user, they have a levered position and it goes against them too much and they don't have enough money to back up the position they have, the system closed them out. takes their money and then their position gets closed out, but someone has to take over that position. And that would be called the liquidator vault, which is one of three components in the HLP vault. And in this case, the liquidator vault was attacked based on kind of the rules it had to operate by. And when you say attacked, what is this? So it started with a whale who entered into a series of positions.

Yeah, yeah, exactly. So it was on this coin, Jelly Jelly, which was a kind of meme like coin that was popular about a month ago. But since then has been down a lot. And basically the coin, I would say it's almost dead, but I mean, much less liquid, much less liquid, much less active than it had been about a month ago. So I think up until yesterday, really nobody was trading this market. It's very thin, not a lot of activity. And so what happened is what appears happened is a whale came in. and then was able to not only make a large trade, large trades on hyperliquit on the perps side,

but make large trades on the underlying coin itself. So this market, this market, right, is based on all perps markets have to look at at the spot market and they have something called an Oracle that tells them the right price. And so what this attacker was able to do was go to the spot market for Jelly Jelly itself, which only had about, I think at the time, $2 million of liquidity in the liquidity in the pool, it's a Solana meme coin. They were able to drive the price up from about 0.0, make sure I get those numbers right, about around point, about one cent, and they were able to drive the price up at one point all the way to as high as five cents. So obviously this costs money because you have to,

you know, trade into the liquidity pool, pay fees, take those positions. But they were able to take a very large, actually two very large positions on the, on the hyperliquid exchange on the perps. So they took both a large long position and a large short position. And the idea was that, okay, so basically the market had very little open interest, but they were because they were essentially trading against themselves to build up this position slowly over time. So they were on one wallet or long, on another wallet short. And this is something right, Dexas have to face is right, like anyone, very easy to open a wallet compared to spinning up like a new entity on like finance or something. So they were.

able to take a long in a short position, then they were able to go into the swap market, move the price up, which meant that their short position was liquidated because they just didn't like intentionally, they didn't put a lot of capital in there. And then the way the hyper liquidation system works is if the system can't liquidate in the regular order book, the vault steps in, takes over the position, takes all the capital in the position. So they lost, you know, they lost whatever margin they had to put into back that short position. position, but that created a situation where the hyperliquid, the HLP vault was short, now short at very, very large size, much larger than the market had liquidity for, and now the whale had a

really long perp position on. So hyperliquid took over that position. It was about one and a half cent somewhere around there, when the short got liquidated. Now they're sitting on the long side of the perp, as well as driving up the price in the swap market. And as they were, doing that now HLP was short which meant the higher the position went HLP was you know taking losses at least on paper and would eventually right has to work out of this position and the only way they can get out of it is actually to sell back to the only other person in the market or basically there were 95% of the rest of the market which is the whale and the whale just saying well I'm not going to going to sell to you so the price kept going higher and higher and theoretically there's no

upper upper bound on how high the price can go and And so there's no upper bounderometer losses the liquidity provider could take. So the HLP vault itself was in danger getting liquidated if the price of the coin went to 15 cents. And then so at that point, a hyperliquid, the protocol stepped in and then kind of did something outside the normal bounds of operation, which you get into. Yeah. Well, let's talk about that because, yeah, this has generated a lot of. of just interesting commentary and controversy. So how did they resolve it? Right. So what ultimately all perplexes have to have at one point, you know, they don't have access to infinite money. They don't have a money printer. So if one side is, it just keeps going up and up and there's not

enough on the other side, nobody who wants to step in and take the position, eventually you have to what, de-leverage the market, which means you're going to have to at one point force-closed positions just because there's no more money left in the market to support those positions. So the normal system is, you know, if the, it depends on the rules and they're not super well documented and hyperliquids closed source still. So nobody knows the exact rules. I don't think as far as I know or besides the like the internal developers. But, you know, at one point, if the vault itself got liquidated, they would have to force close the market. Everybody would be closed as like auto de-leveraging is what it's called.

Everyone would be closed at like whatever the last price was in the market. So if this whale continued to drive up the price to, let's say, 15 cents, the vault would have been looking at a, I think it was a $60 million loss if that happened. And right theoretically, this vault, which is actually pretty important to the product, it's all kind of retail investors would have would have been wiped to, well, at least this component of the vault would have been wiped to zero. So it would have been bad for kind of the ordinary users. So what they decided to do was intervene and manually, de-list. the market, which means basically they closed the entire market. And so every position was closed. And really kind of the controversial part was they didn't close it at the current price at the time they closed it, which I don't know the exact time, but it was around somewhere between

two and a half to five cents. They might have, five cents was kind of the last price they traded at. Some people said it had gone down before. But regardless, they were looking at a, you know, around a $10 million loss, $10 to $15 million loss. if they had closed it then. So they had a loss on paper. If they closed it, they would have kind of realized the loss and been locked into it.

The attacker would have walked away with 10 to 15 million. And so, right, so that's normally how, like, it would have gone if they had closed it in kind of a fair way based on the actual Oracle price.

They manually intervened, the validators in the network, fixed the price at around 1 cent, like 0.95 cents. And so the attacker actually, took a loss on the position because they closed it at kind of an artificially low price, which they said was the price before the manipulation began. So that was pretty controversial in terms of them kind of picking an arbitrary price. Okay. Yeah. So before we get into the community

reaction about that, we're going to take a pause to hear a quick word from the Spatsusi make this show possible. BitKee is the only Bitcoin wallet on Time Magazine's best inventions list of Built by the team behind Square and Cash app, BitKee is a two of three multi-signature wallet and the first hardware wallet with an innovative recovery suite that eliminates the need for seed phrases in self-custody. Their new inheritance feature means BitKee's not just the easiest way to self-custody or Bitcoin, it's the easiest way to ensure it ends up in the hands of loved ones when it's time for it to leave yours. Learn more at bitkey.world.

ITKEY.world. Use code unchained for 20% off. Picture this. The crypto market just got wrecked by billions in liquidations. You need to figure out what happened and what's next. But where do you even start? Meet Focal by Falcon X, your AI-powered crypto analyst. It's like having a legion of experts at your fingertips, ready to break down market-moving events, chart DeFi Protocol TVL, or explain why Salana Mindshare is rising. Get clarity in a world of noise with Focal. Learn more at askfocal.com. We have another listener comment responding to Barnaby Mono's thoughts on Athena announcing its own blockchain. On X, Fadong Singh writes, we don't need more blockchains. And then in all caps,

he added, we don't need more blockchains. For God's sake, let's focus on building utility and scaling the ones that are already there and promising. Again, if you want to hear your comment featured on the show, please write a review or leave a comment on an episode on YouTube or X. Back to my conversation with Doug. So actually, before we get into how people reacted to hyperliquids decision there, there was another twist, which involves Binance and OKX. They got involved.

What happened with them? Right. So as the price was right, you kind of think, think of like once the HLP vault was stuck in this position and everybody could see their liquidity, their liquidation price that's all on chain. So there's another thing, right? There's a challenge for Dex compared to a centralized exchange is everyone can see everybody else's position and where their liquidation prices are. And in some sense, right, you can be hunted, right? Like somebody can know, okay, if I push the price to here, you know, this guy is going to be forced to liquidate or sell or

whatever. And like, so other people, I think, started to pile on when, you know, this position was at five cents. And I said, hey, we know like Max Payne is 15 cents. So we're all going to kind of pile on and attack it. So what Binance and OKX did was they announced that they were going to list, list the coin jelly jelly, which was would be right, very unusual for like kind of list this coin at the time they listed it because it was, it was basically kind of dead at that point. They decided to list and typically what happens when an exchange like finance lists the coin is like you know it goes up right because it kind of opens it up to a whole like realm of buyer so it's a big deal right exchange listings are a big deal so the fact that they listed it itself created a pump in the coin and the

fact that they kind of listed it immediate like while this attack was going on was you know a pretty clear signal that they were trying to cause pain for hyperliquid and obviously their competitors in some sense. Yeah. And actually, I would, I would just tweak that to say, like, I saw at least for Binance that users were requesting it. And then I saw Haye, the co-founder, she said like something like, you know, oh, we're looking into this. And then it did get listed. So, you know, whether or not it was technically, I guess it was a very active coin at the time when it was going on, right? So I guess you could make the argument that regular finance users probably would want to, you know, trade it, traded as well. Yeah. And I just mean, you know, like it may not necessarily have been

Binance that was pushing the price of the coin up, but it could have just been the users. But the fact that, yes, they opened up kind of like new liquidity or, you know, new buyers for this. Enabled that even if it was other people that were actually. It could just be the anticipation, right? Even before a single finance user buys it, if everybody in the market knows, you know, the Binance is committed to listing it, right? Like even just regular Solana users are more likely to come in and kind of buy it. Yeah. So there were some points here about how it was that, sorry, that hyperliquid

resolve this situation, which was they delisted jelly. And then as you mentioned, they forced it to get liquidated at the price before. What I think like in, you know, traditional law would probably be called some form of manipulation. You know, I understand words like that get into like intention and whatever. So it's, it's complicated. but I think like most people just without looking into all the details and knowing too many of the facts would say this resembles that. So, you know, how did those decisions get made? Like, who voted in, you know, is your perception that it was done at a centralized way or a decentralized

way? And how do you even override an Oracle? Because, you know, the whole conception is that it's bringing in information from outside. And so there, and the word Oracle is because they're supposed to be the ultimate authority on something like that. So how, how, how? How did all this happen? Right. So the, I mean, the thing to understand about hyperliquit is that it is, you know, it is a Dex, but it itself is also the chain as well as the Oracle. So it doesn't use an external Oracle.

It uses an internal Oracle, which is generated by the validators on the chain. So there are, there's a rule set where it, you know, looks at the price of, you know, different sources, finance, okay, Coinbase, wherever coins listed, It has some formula for how it generates the Oracle price. At least it's like what's documented, right? But ultimately, right, that's just software. And that's just part of the rules of the blockchain itself. And because it does both the debts and the blockchain,

it can obviously fork or upgrade the blockchain in the network. If the validators all agree to it, it can fork or upgrade the blockchain in whatever way it wants. So in some sense, it's actually analogous to the Dow hack way, at the beginning of Ethereum where, you know, something really bad happened. And you said, okay, this is kind of bad. This is a major threat to the network. So, right, we have this dilemma. Are we going to follow the exact rules? Or are we going to, you know, upgrade the chain in a way to kind of prevent this bad actor? And so that's what it did. So the validators,

as far as I understand, the validators in the network all convened, it's convened virtually and discussed it and then kind of all agreed, or at least a majority of them agreed. that for this one particular case, they're going to change the rules instead of change the rule, then therefore change the Oracle price and therefore use this alternative price, which is possible because Hyperliquid is its own blockchain. If it was running, for example, say on Solana and used an external Oracle like Pith, you know, that type of thing wouldn't have been possible, at least like easily. Yeah, yeah.

And actually, I would for the same exact reason, kind of say that the analogy, between the Dow and Ethereum is imperfect in the sense that the Dow was, you know, a separate entity, was an application on top of Ethereum. Yeah, but you're right. In this case, because the quote-unquote app and the chain were the same, that's also how they were able to do that. So, you know, when you tweeted about how they had decided to override the Oracle, I saw that Zach XBT replied, quote, kind of annoying if they draw the line here, but not when DPRK, meaning North Korea, had reason of least-sized positions to open with funds from the Radiant Hack. And I also saw, this was like in a different thread, but he said when it's the Radiant Hack with DPRK funds, which had thousands

of victims, they claim they can't do anything, even though they were notified in a timely manner. When it's a low-cap PVP meme coin, the couple of validators and huge percentage of stake is controlled by hyperliquid, and they rush to close positions at an arbitrary price. So I think he's basically saying this is a little bit hypocritical, you know, if I'm going to paraphrase. So what's your take on his comments there? And by the way, one other tweet that I saw that kind of made me chuckle was a crypto security researcher and North Korea expert Taylor Monaghan replied, loss is for the, but not for me. Yeah. No, I mean, it's, you know, these are, these are really kind of tough, tough questions, especially, especially the chain itself and especially in the sense where a chain

and an app are one and the same, you know, there's an argument, right? There's conflict of interest here and is why like Ethereum kind of bends over backwards to be credibly neutral. Usually, again, like the Dow hack might be an exception. But in some sense, right, like any chain could, you know, fork out any situation, like, right, I have enough of the stake votes on some. So this is, you know, you could lodge the same criticism. Why does an Ethereum about the validators and stake it together to fork out North Korea, you know, North Korea as well, right? Because there's obviously funds on Ethereum that are attributable to North Korea or other hackers.

So, right, I think from there's an argument to be made that, right, like hyperliquit is a blockchain and they wanted to be credibly neutral. And, you know, the same way you wouldn't expect Ethereum to fork out to free or freeze North Korea's funds, you wouldn't expect hyperliquit as a blockchain to do the same. Right. Another, how far do you go, right? Is it North Korea? Is it any time either tax evader or somebody else is on it?

Anytime, right, like there's a government subpoena. Do you have to comply with it? So there's kind of this slippery slope argument. That being said, right, they did convene to change the rules or, you know, go different than kind of what the rules they committed to are. So I think, right, that's where Zach's argument is coming. in is that, boy, if you're looking at your own losses, you know, they're definitely have the potential kind of conflict of interest there, motivated reasoning from their, from their side.

So if you can arbitrarily change the rules for one thing, why can't you arbitrarily change the rules for the other thing? It's a tough question. There's good arguments on either side, to be honest. Yeah, yeah, I did see like a whole range of tweets criticizing them, but then a bunch of tweets defending them, you know, other, you know, people who work on protocols saying I would have done the same thing, et cetera, et cetera. So I don't know if there's necessarily one right way to have handled it, but I do think, like, if you are leaning more on the neutral side, it could have been like, you know, take the loss, learn the lesson, change, you know, how it's set up moving forward so that a bad actor like that couldn't necessarily get away with the same thing. Whereas, you know, I do think now because of the

contrast with the North Korea situation, they did open up this avenue of criticism that they had done something in their self-interest, but then when their users lost money, they didn't do the same to step in. But I saw that you had kind of another solution for something going forward. You tweeted, I think one thing that hyperliquid attack today revealed is that the liquidity vault should not be the backstop of last resort. And it went on to, you know, more detailed thought. So can you elaborate on your commentary there? Yeah. Yeah.

So one of the central issues here is that early on, HLP was like very important to bootstrap the network. And then from the liquidity side, they've actually moved kind of away from it to the point where, you know, only a small percent of liquidity nowadays comes from the HLP vault. But in terms of liquidation, they're still very dependent on the HLP vault. And again, I'm just going off to like documentation. and what I've seen, it's hard to say exactly what it is because it's closed source. But what happens is that the liquidity vault, as far as I can tell in hyperliquid, always if a position can't be liquidated in the normal market, the liquidity vaults always the last, the buyer of last resort.

So it takes over the position if something can. And that happens regardless of how large the position is. And that's exactly what the exploiter took advantage in this case. So the issue is, right, like if you have a trading. strategy, you really never want, I mean, because this is the vaults are a trading strategy. They're trying to make money, same as anything else. And normally liquidations are very profitable because you're getting positions at very dislocated prices. You know, like, these are normally very profitable things. So 99.9% of the time, just saying, give me all the liquidations, you'll make a lot

of money. Very small percent of time, especially if you're being attacked, you don't want those. So what I suggest it, and then we've thought a lot about, because, you know, we're also as a looking in the perp space, as I assume many other dexes are at this point. But what we've thought a lot about is how can you, right, like how can you have something where the vault, if the vault doesn't want to take a position, which I think is reasonable, there should be certain times on very low liquidity coins. The vault doesn't want to take a position. You should have something else, right? Like you should have a way to gracefully de-escalate. And probably what should happen is that during liquidation itself, if you could auto-de-lever then instead of they auto-de-lever, really manually

de-levered much later on after the situation that kind of gone out of control. If you just had a system where you auto-de-levered when the vault is past its risk controls, at the price that it happens, it's kind of a lot cleaner solution because the same thing happens, right? You're forcing positions to be closed. It's at a certain price, but you don't have time for the price to be manipulated. It's happening right away. The vault never takes on the position, so it never has losses. And I think kind of the really important thing here is, like, number one, you don't want the vault to take on limited risk. And number two, you want very clear rules about when the vault is past its pain point in either case, right? Because the vaults eventually can hit a pain point.

And so I can't take on infinite position. When the vaults pass its pain point, very clear rules about these are how things deescalate and de-lever, and you want to do it as early as possible. So you don't have time for things to be manipulated or once you have positions or other ways to take money out of it. So just the sooner, the sooner the better. So I think in this case, I'm kind of tying back to what we said, the most important thing is just the rules are, if you can make the rules clean ahead of time, there's going to be much less controversy because you're not going to be fighting about things afterwards. You're just say, these are the rules everyone signed up for them and kind of we applied them in a neutral way. And then I have to ask you about, you know, what finance and OKX did there,

you know, as we discussed, some people thought it was shady. Other people noted, including Zach Ex-VT, that the original whale who started these trades had actually funded their position from a withdrawal from Binance. And there was some speculation about, therefore, you know, what it meant about their identity. I don't know if you have an opinion on that or just, you know, what Binance is. I mean, it's hard to just because something comes from a, obviously a lot of people use Binance who aren't Binance users. So, you know, it would be very difficult to speculate.

But, I mean, at the very least, if somebody directly took money, we know Binance users usually, right, are, we know their identity. So it's at least a sign that whoever did this was reasonably confident that they wouldn't be prosecuted, I guess, wherever they were. When you say we know their identity, you mean because like law enforcement. If you sign up for Binance, you have an account of finance. You usually have to K-YC. So if you go and commit a crime with address tied to Binance, usually, right, a prosecutor could find out who you are. Yeah, not like any public person. But yeah, No, I'm sorry, I didn't mean that. I meant we as in the collective sense.

Law enforcement, law enforcement could identify them. If, you know, it had the situation escalated past a certain point. So these types of whether they're hacks or their highly profitable trading strategies, I think there's always debate about whether they're illegal or illegal, and sometimes people do them and don't think they're going to get in legal hot water and then they do. But it is interesting that whoever did this, I guess, was relatively confident, either where they live or their jurisdiction that they were kind of in the clear.

Okay, yeah. And I guess as we discussed about finance and OKX's decision to list jelly that, yeah, there's multiple ways you could view that. One is maybe they're just responding to user demand. However, I did see Kevin Zoe of Galois Capital. He had a kind of long tweet thread about implications for all the different entities or, you know, similar types of entities that were involved here. He said, quote, every decision sets precedent for the future. Finance and OKX listing perps and hyperliquids face does help their short-term incumbency status, but it also sends the message to other centralized exchanges and decks competitors of what to expect if they take on bad liquidations. And then he went on to say that, you know, most likely exchanges that are challenging these incumbents would first improve their risk management, which he said would create stronger competition for the incumbents. And then he said this would also actually create a. a chilling effect on cross-exchange coordination attempts, such as any attempts to create clearing houses. He also said that the way the validators acted here in hyperliquid could create what he

called overinvestment into HLP. And he said, if HLP investors know that they capture full upside and will get bailed out on big downsides, more capital will come into the vault and drive down yields. There were other things, but just generally, what was your take on his assessment here? As usual, I think I agree pretty much with whatever Kevin said here. Usually he's spot on. But yeah, I think that's right. Like the big thing being right, like even had this attack succeeded, right, it would be a $60 million loss, which wouldn't have been existential for hyperliquited, right?

It's obviously a $10 billion plus dollar protocol generates a ton of revenue, right? The same way, like ByBitt's recent hack was not existential for a by bit. it may be painful, but they'd be able probably cover it or kind of compensate people in various ways. So in some sense, right, it's like these things are interesting. Dexas have a lot more of a challenge, especially in perks or derivatives because they can't easily assign who's who. People can easily spin up wallets. So Texas have a lot more like levers to push to kind of limit this type of risk and manipulation that Dexas don't have. So to the extent this is kind of happening in real time and like hyperliquid and others are learning. I think the point is, right, like whatever,

whatever killies kills you only makes you stronger. Okay. And last question. So obviously, I'm sure from this point forward, hyperliquid is probably going to change up a few things. If you were in their shoes, what would you recommend they do? Yeah, I'd say the biggest thing was two things. Number one is kind of like what we talked about before having an alternative on the liquidation side. The second is definitely, I think they're looking in retrospect, this coin, probably should not have been continued to be listed. It might have had a lot of activity the first week it was out. But kind of all the drama and issues it caused was not worth whatever, the very, very tiny amount of activity people want to trade on. So I think the big thing is kind of these

longer tail assets, even if they're the hot coin of the day, I think they're probably thinking we should. More coins you have, the more risk you have and the more liquid coins, especially, the more risk you have. So I'm almost positive internally. They're taking a long, hard look at kind of cleaning out a lot of illiquid liquid markets. Yeah. Okay, Doug, well, this has been a great conversation. Thank you so much for coming on Unchained. Thanks up for having me.

Don't forget. Next up is the weekly news recap. Today, presented by Wondercraft AI. Stick around for this week in crypto after this short break. Mantle is revolutionizing its on-chain financial hub. Powered by a $4 billion treasury and proven products like Mantle Network and M-Eath protocol, Mantle is launching three innovation pillars. Enhanced index fund for optimized crypto exposure,

Mantle Banking for blockchain-powered banking, and Mantle X for AI-driven innovation. Experience the future of finance with Mantle, and follow Mantle on X to stay tuned. Welcome to this week's Crypto Roundup. In today's recap, we break down why everyone from World Liberty Financial to $5 trillion asset manager Fidelity is getting into the stable coin game. We also explore why GameStop shows

shares tanked after plans to raise more than 1.3 billion in debt to buy Bitcoin. Plus, crypto companies celebrate the removal of a key rationale by banking regulators, which they believe had put a target on their backs. And we discuss why Cracken is planning to raise up to $1 billion before it goes public. Finally, the Ripple versus SEC saga is over, with the regulator only walking away with $50 million after asking for as much as $2 billion. Thanks for tuning in to the weekly news recap. Let's begin. Everybody gets a stable coin. With stable coin usage surging and growing momentum for a piece of legislation in Congress that will set

the rules of the road for the digital dollar industry, more and more companies are looking to get into the game. On Tuesday, World Liberty Financial, a crypto project founded by family members of U.S. President Donald Trump, announced the launch of its own stable coin, dubbed U.S. D.1, which will be backed by short-term U.S. Treasuries, U.S. dollar deposits, and other cash equivalents, the company said. The token will be issued on the Ethereum Network and Binance Smart Chain, a blockchain created by Binance, the crypto exchange that has sought to forge closer ties to the president's family. The Trump family launched World Liberty Financial in October,

billing the entity as a decentralized finance or defy project that would help match crypto investors eager to borrow and lend from and trade with one another. Critics have said World Liberty Financial's stable coin launch poses a major conflict of interest for President Trump. We haven't had a president in recent memory ever sign legislation that could directly affect his financial interest, said Kedrick Payne, Senior Director of Ethics at the Campaign Legal Center, an ethics watchdog group to the Wall Street Journal. It is a clear violation of the ethics norm. Not to be outdone, $5 trillion asset manager fidelity is also in the advanced stages of test. testing its own stable coin, according to the financial times.

Additionally, the state of Wyoming is making steps towards launching a stable coin later this year, which could be the first fiat-backed and fully reserved token issued by a public entity in the US, state officials said at the DC blockchain summit on Wednesday. The Wyoming stable token, WYST is currently being tested on Avalanche, Solana, Ethereum, Arbitrum, optimism, Polygon, and Coinbase's base test nets. according to a press release. And finally, Custodia Bank, working with Vantage Bank, completed America's first ever tokenization of a bank's US dollar demand deposits on a permissionless blockchain

by issuing, transferring, and redeeming stable coins for a bank customer on top of Ethereum, according to a company press release. Crypto Exchange Cracken explores up to $1 billion debt package. Crypto Exchange Cracken is exploring raising as much as $1 billion in debt ahead of a potential initial public offering, according to a Bloomberg report, citing people with knowledge of the matter. The company is working with investment banks, Goldman Sachs, and J.P. Morgan Chase on the effort, which is still in preliminary stages, according to the sources. The two banks have also begun conversations with additional banks and direct lenders, the report said. Any debt

raised is set to help fuel the company's growth and isn't for operational needs, according to one of the sources cited in the report. As little as $200 million, dollars could be raised, they said. Kraken provided details on its annual financial performance for the first time back in January as one of several companies in the crypto industry that is readying for a potential ipahu and could go public over the next 12 to 18 months. The company reported an adjusted EBIT of $380 million based on $1.5 billion in revenue, which more than doubled its 23 performance of $671 million.

Trump media announces intention to partner with crypto, dot com to launch ETFs. Trump Media and Technology Group, TMTG, has announced a non-binding agreement with crypto.com to launch exchange-traded funds, ETFs, through its fintech brand, Truth Dify. The partnership will utilize crypto.com's broker-dealer, Forrest Capital US, to create ETFs focused on digital assets and Made in America securities. The planned ETFs will include a unique basket of cryptocurrencies featuring Bitcoin,

BTC, Crypto.com's native token chronos, CRO, and other crypto assets, according to a press release. The funds are expected to launch in 2025 across the U.S., Europe, and Asia. Crypto.com will provide backend technology, custody services, and cryptocurrency supply. TMTG plans to invest up to $250 million of its cash reserves in these ETFs and accompanying separately managed accounts, SMAs. With investment firm Charles Schwab serving as custodian, the products will be available to crypto.com's reported 140 million users, subject to definitive agreement and regulatory approval. The partnership with crypto.com comes as the community behind its cronos blockchain continues

to reel following a controversial vote, where crypto.com went against its community's wishes to push through a proposal to reissue 70 billion tokens that were supposedly taken out of circulation in 2021. Part of the rationale for remitting the tokens, an unprecedented step for the crypto-community, was to create a CRO-backed Spot Eve. It is a spit in all CRO holders' faces, wrote one Cero validator who voted against the remitting proposal to Unchained on Telegram. SEC only gets $50 million from Ripple. Ripple Labs has agreed to pay a $50 million fine to end the U.S. securities and exchange commission's years-long investigation into the Ripple-linked firm. The company's chief legal officer, Stuart Alderode, said on Tuesday,

the SEC will keep $50 of the $125 fine. Alderote wrote in a post on X, formerly known as Twitter, referring to the penalty, Ripple Labs was ordered to pay by a New York court in August over unregistered XRP sales to institutional investors. Alderode said that Ripple has meanwhile agreed to drop its cross-appeal of the U.S. District Judge Annalisa Torres' decision, which found that XRP is not necessarily a security on its face, especially within the context of programmatic sales to unknown buyers. The SEC, under the leadership of former chair Gary Gensler, sought a $2 billion penalty against Ripple Labs for what it claimed were unregistered securities transactions. The SEC first brought its lawsuit against Ripple Labs during U.S. President Donald Trump's

first administration. GameStop tanks on plans to buy Bitcoin. Video game company turned meme stock. GameStop's shares fell sharply on Thursday after the retailer announced plans for a private offering of $1.3 billion in convertible senior notes to use toward general corporate purposes, which could include investing in Bitcoin. Investors reacted negatively to the announcement, while analysts questioned the timing of the decision. We find it hard to understand why any investor would pay more than 2x cash value for the potential for GameStop to convert that cash into Bitcoin. Particularly since the same investors can invest in Bitcoin or a Bitcoin ETF themselves, noted Wedbush Securities Analyst Michael Pachter to seeking Alpha.

Intercontinental Exchange partners with Circle to explore new product offering. Intercontinental Exchange, ICE. The parent company of the New York Stock Exchange is exploring using Circle's USDC Stablecoin and USYC tokenized money market fund to develop new products and services. We believe Circles regulated stable coins and tokenized digital currencies can play a larger role in capital markets as digital currencies become more trusted by market participants as an acceptable equivalent to the U.S. dollar, said Lynn Martin, president of the New York Stock Exchange in a statement.

We are excited to explore the potential use cases for USDC and USYC across ICC. markets. This news comes as the total stablecoin market led by Tether's USDT, with $144 billion dollar market capitalization, continues to set all-time highs. The tokenized treasury market continues to grow as well, surpassing $5 billion for the first time as the assets are increasingly used for leverage in margin trades. Major bank regulator removes key rationale for blacklisting crypto industry. The Federal Deposit Insurance Corporation, FDIC, appears to be following in the OCC's footsteps by also moving to extinguish the use of reputational risk as a way to supervise banks. The FDIC is actively working on a new direction on digital assets policy, said Travis Hill, who was appointed acting chair

of the FDIC in January by President Donald Trump in a letter sent to Reperno Dan Mooser RP on Monday. Hill had previously urged the agency to take a more open approach to crypto. In his letter, he said banking regulators should not use reputational risks as a way for supervisory criticisms. While a bank's reputation is critically important, most activities that could threaten a bank's reputation do so through traditional risk channels, e.g. credit risk, market risk, etc. that supervisors already focus on. Hill said in the letter obtained by the block. And that's all. Thanks so much for joining us today. If you enjoyed this recap, go to unchained Crypto.com newsletter that is Unchained Crypto.com newsletter and sign up for our free newsletter so that you can stay up to date with the latest in crypto.

Unchained is produced by Laura Shin with help from Matt Pilchard, Juan Oranovich, Megan Gavis, Pam Majumdar, and Margaret Korea. The weekly recap was written by Stephen Erlich and edited by Carrie McMahon. Thanks for listening.