Hyperliquid (HYPE), a decentralized perpetual exchange (DEX) running on its own layer-one blockchain, is currently facing major security concerns after observing abnormal trading activities linked to North Korean hacking groups. Multiple addresses labeled as a North Korean hacker were traded on Hyperliquid, with a total loss of more than $700,000, as first highlighted by @tayvano_, a cryptocurrency threat tracker known for its expertise in identifying risks related to North Korea’s cyber activities.
According to @tayvano_ the nature of these transactions suggests They may be tests of Hyperliquid’s security systems and not just financial activity. He expressed his concerns through a post on I would poop my pants properly by now. The hyperhydrated guys don’t seem to be worried at all, although I’m sure it’s fine (…) DPRK does not practice trading, he explained.
To underscore the urgency of the situation, @tayvano_ followed up with a strong statement about the need for immediate action by Hyperliquid to bolster its defenses. “My offer from two weeks ago still stands with Hyperliquid. I’m still happy to do it asynchronously or over a call. I can even introduce you to one of my very nice colleagues if you don’t like me. A tremendous amount of damage will come to people if you don’t toughen up soon,” he warned. As soon as possible.
Excess fluid poses some serious risks
Prithveer Jhaveri, Founder and CEO of Loch, a dedicated analytics and intelligence platform for cryptocurrency portfolios, presented appreciation One of the challenges faced by Hyperliquid via X. Jhaveri detailed the operational security risks, highlighting exposure due to the platform’s reliance on a minimum number of auditors.
“Wallet addresses known to be from North Korean hacker group Lazarus have been testing Hyperliquid. These addresses typically run tests using live funds before coordinating a hack. Their preferred method of dealing is phishing. Jhaveri reported that HL only has 4 verification tools, all of which work the same Code.
He also spoke in detail about the regulatory challenges that Hyperliquid may face. He discussed possible violations of US Office of Foreign Assets Control (OFAC) sanctions and Securities and Exchange Commission (SEC) regulations due to the platform’s interaction with entities from a sanctioned country and its operation as an unregistered broker, respectively.
They operate financial software that is used by a country subject to OFAC (DPRK) sanctions. They can argue that their software is open source and uncensored, but we will have to wait and watch. Going from 4 auditors to 16 could help their case, he explained about the risks of OFAC.
Regarding SEC risks, he added: “The SEC could go after HL for acting as an unregistered broker. The good thing for HL is that the SEC and Congress in the next administration are in a position to be pro-crypto and pro-freedom. However, the problem is that the sponsors of this cryptocurrency lobby are directly competing with HL. HL has not received any venture capital funding. They are facing big money that is economically incentivized to protect the interests of existing CEX exchanges (Coinbase, Kraken) and L1s (Ethereum, Solana).”
The concentration of market-making activities within Hyperliquid’s liquidity provider (HLP) is another concern raised by Jhaveri, citing risks associated with a centralized approach to liquidity. He warned that any major exploit could result in significant financial loss for clients: “HyperLiquid Liquidity Provider (HLP) is by far the largest MM by volume (…) A single mistake or exploit can quickly make client funds disappear.”
In conclusion, Jhaveri summarized Hyperliquid’s strategic positioning amid these challenges. “The HL team has built an amazing product. Trading on Hyperliquid is unparalleled in user experience. However, the risks they face are not nothing. If they can overcome these issues, Valhalla is not far away (…), but I find Difficulty seeing risk-adjusted upside in bidding at the moment.
At press time, HYPE was trading at $28.
Featured image created with DALL.E, a chart from TradingView.com
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