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The recent crypto market pullback may have caught many off guard, but it also did something useful—it forced the DeFi community to talk about an important topic we usually ignore in a bull market hype: risk management.
In March 2025, Hyperliquid—one of the most respected DeFi platforms—was rocked by two market manipulation events. One was a massive long position on Ethereum (ETH), the other a short play targeting a small-cap memecoin called JELLY. These trades weren’t just clever exploits; they were alarm bells ringing about the foundational weaknesses in DeFi’s risk infrastructure.
Two sides of the same problem
The first attack involved a trader leveraging $307 million in ETH at 50x, then strategically withdrawing collateral as the price rose to bring the position close to liquidation. When the price dipped, the forced liquidation couldn’t be absorbed by Hyperliquid’s liquidity pool (HLP) without major slippage, costing the HLP $4 million while netting the trader nearly half that in profit. Key remedies by Hyperliquid included lowering leverage limits for Bitcoin (BTC) and ETH, increasing maintenance margin requirements, and restricting collateral withdrawals to at least 20% of open positions.
Weeks later, the JELLY incident happened. A trader exploited the memecoin’s low liquidity on DEXs and aggressively spot-bought while holding a short position on Hyperliquid, causing a price surge that pushed HLP into a nearly $13 million unrealized loss. In response, Hyperliquid’s validators stepped in, controversially voting to forcibly settle at a substantially lower price and delist JELLY perpetuals. The protocol dodged the loss but at the cost of its own decentralization narrative and associated risks.
Both events—long and short, blue-chip and ‘shitcoin’—point to the same root problem: DeFi still largely treats risk management as an afterthought.
TradFi has been there before
That said, this is nothing new. Traditional finance has seen it all before through derivatives blowups, margin spirals, and rogue trades. But after each crisis, it didn’t just recover; it hardened. Position limits, capital requirements, stress testing, and other sophisticated methods became standard not because they were nice but because they were necessary.
DeFi, on the other hand, in many cases continues to reward high leverage, underestimate liquidity risk, and leave governance decisions to validator votes that can be reactive and panic-induced. Nonetheless, we don’t need to become TradFi, but we do have to adopt the discipline behind its evolution.
Risk isn’t the enemy—complacency is
The Hyperliquid incidents have taught us some important lessons on better adherence to risk control protocols. For instance:
- Position caps and margin locks could have limited exposure, neutralized the ETH long, and prevented forced liquidations.
- Better asset listing standards would have prevented JELLY from becoming a systemic liability.
- Clear, enforceable delisting protocols would have avoided the governance panic that undermined trust.
These aren’t burdens but basic building blocks, and they need to be embedded during protocol design, not slapped on retroactively.
The truth is, most DeFi platforms are still playing catch-up on risk, often learning through painful trial and error. Yet, we can’t afford to keep stumbling from one exploit to the next, hoping users will forgive and forget.
Risk in DeFi is interconnected—and amplified
DeFi isn’t just one ecosystem; it’s an interconnected tangle of protocols, tokens, and cross-chain bridges, amplifying contagion risks. A failure in one area—be it smart contract risk, liquidity crunches, or governance missteps—can cascade rapidly across the entire stack.
When one liquidity pool collapses, users scatter. When a governance vote looks panicky or arbitrary, institutional adoption hesitates. When a stablecoin staggers, everyone holds their breath.
This isn’t just technical risk—it’s market risk, reputational risk, and increasingly, regulatory risk.
Paranoia isn’t overreaction, it’s maturity
Some players in the crypto circles keep seeing risk management as a brake on innovation, and that’s a mistake. The next generation of DeFi leaders won’t be those who chase the highest APYs. They’ll be the ones who build resilient protocols that can withstand volatility, manipulations, and regulatory scrutiny.
Paranoia in DeFi isn’t a weakness; it’s a sign of maturity.
If we want DeFi to become a serious alternative to TradFi, then we have to start considering risk in every design decision we make, and not just during post-mortems. Because when the next exploit comes—and it sure will—the only question will be whether we were prepared or just hoping for the best.
