In 2021, American retail traders and Wall Street short-sellers engaged in a "retail versus Wall Street" drama centered on GameStop. On March 26, 2025, the crypto industry witnessed a similar scenario. A single whale investor nearly caused the decentralized exchange "Hyperliquid" to lose almost $230 million.

This was more than a simple "pulling the plug" incident—it encompassed a crisis of decentralization, the forced compromise of an ideology, and the fierce competition of interests within the crypto trading ecosystem.

Let's review this event: Did retail traders really win? And who was the ultimate winner?

JellyJelly experienced a short squeeze, surging 429% in just one hour (SGT: 21:00-22:00). Subsequently, Hyperliquid Vault took over a trader's self-destructed short position, at one point facing a floating loss exceeding $12 million.

The situation was dire: if JellyJelly had risen to 0.15374, Hyperliquid Vault's $230 million fund would have been completely wiped out. As funds continued flowing out of the Hyperliquid Vault, JellyJelly's liquidation price would be further suppressed, creating a death spiral.

The attacker precisely exploited four critical vulnerabilities in Hyperliquid's system:

This wasn't just a trading operation but a surgical strike against systemic weaknesses, pushing Hyperliquid into a dilemma: either watch its $230 million treasury face liquidation risk or abandon its "decentralization" principles by using emergency measures to intervene in the market.

Market sentiment reached its peak as many individual investors joined the siege, while influential KOLs posted messages tagging major CEX founders to "join the battle." Binance co-founder He Yi responded to community members suggesting Binance list JELLYJELLY, triggering further price fluctuations.

Everyone was hunting the casino together, with retail traders wanting Hyperliquid to collapse.

Just when retail traders thought victory was imminent, Hyperliquid initiated an emergency validator vote to completely delist the JELLYJELLY token. This decision reached "consensus" within two minutes. Hyperliquid quickly issued an official statement announcing that the governance committee had intervened and delisted the affected asset, demonstrating the platform's stance on "stabilizing the market" and forcibly ending the short squeeze storm.

In this most aggressive siege in history, the institutions were the first to "concede" and exit.

The Hyperliquid incident demonstrates that even in 2025, a completely decentralized exchange exists only in fantasy.

This event exposed a major flaw in Hyperliquid: allowing extremely large positions on small-cap, low-liquidity coins where there simply aren't enough counterparties to absorb these positions during liquidation. In other words, market depth couldn't support such large orders—once a short squeeze occurred, liquidity collapsed and the liquidation mechanism became useless.

Hyperliquid should have remained a dealer, but it joined the table as a player. Then, when the situation turned unfavorable, it reverted to being the dealer and shut down the casino.

Market faith in DEXs collapsed as Hyperliquid made "decentralization" particularly ironic. "Consensus" reached within 2 minutes; the governance committee changing rules at will; closing trading pairs immediately—actions even faster than many CEXs. This raises questions: Is "decentralization" only effective during stable market conditions, becoming "whatever we want" once markets lose control?

If DEXs can also force delistings, what's the point of decentralization? Are CEXs more stable, or are DEXs more trustworthy?

From a purely "decentralization" perspective, DEXs seem safer because assets always remain in your wallet, eliminating concerns about centralized institutions misappropriating funds. With AMM mechanisms, DEXs ensure decentralized trading viability, but the drawbacks are obvious—poor liquidity, high slippage, impermanent loss, and generally mediocre user experience. Most people use DEXs either for long-term holding or airdrops, finding the day-to-day trading experience inadequate.

CEXs are user-friendly, have sufficient depth, and strong functionality for derivatives and spot trading, but there are tradeoffs: once funds are deposited, control is surrendered. Mt.Gox hacks, FTX collapses—such "zero-out" accidents have happened too often, with no guarantees against the next one affecting your chosen CEX.

The Hyperliquid incident exemplifies this dilemma: the inherent conflict between decentralization ideals and capital efficiency. Pursuing absolute decentralization inevitably impacts capital efficiency, while maximizing capital efficiency often requires some degree of centralized control.

This presents a classic "trolley problem": maintain decentralization principles and accept potential systemic risks and capital efficiency losses, or sacrifice some decentralization when necessary to ensure system safety and capital efficiency? Hyperliquid chose the latter, "pulling the plug" to protect the protocol when facing massive losses, but this decision drew severe criticism.

Interestingly, many critics have faced similar dilemmas themselves. Among the critics, BitMEX "pulled the plug" during the March 12, 2020 event, going completely offline—a move that received mixed reviews. Some argue that without emergency measures, catastrophic consequences might have befallen the entire crypto industry, highlighting the complex relationship between ideals and reality.

Looking ahead, DEXs may evolve toward "partial centralization + transparent rules + necessary intervention" rather than pursuing extremes like "100% decentralization + market non-intervention" or "100% centralization + black box status + constant intervention."

Between crypto culture and capital efficiency, next-generation DEXs will seek a balance point, maintaining sufficient on-chain transparency and user control while effectively protecting system security and user assets during crises. This balance isn't a betrayal of principles but a pragmatic response to reality.

CEXs also face transformation—addressing user concerns about asset control rights and competitive pressure from DEXs through a strategic shift centered on Web3 wallets. Leading exchanges, established platforms, and emerging players are all exploring the "CEX+Web3 wallet" model to combine centralized trading convenience with decentralized security guarantees:

This transformation responds to user needs and aligns with industry development logic. By integrating Web3 wallet functionality, CEXs maintain centralized trading depth and efficiency while giving users asset control options—deciding when to keep assets under exchange custody for convenience or transfer them to self-controlled wallets for security.

As the industry matures, we may see more solutions where "bounded decentralization" coexists with "transparent centralization." In this new integrated development phase, participants who find the optimal balance between transparency, security, and efficiency will stand out in increasingly fierce market competition.

Combining CEX efficiency with DEX transparency may well be the next development stage for crypto trading—not ideological opposition but a fusion of advantages.