Chinese law enforcement agencies have uncovered and dismantled three cryptocurrency money laundering schemes that exploited the HyperLiquid decentralized trading platform.
According to Mirror Tang, founder of Web3 security firm Salus, the cases follow a remarkably similar pattern of abuse, centered on manipulating HyperLiquid’s high-leverage liquidation mechanism.
The suspects allegedly generated artificial liquidation losses on HyperLiquid while simultaneously taking opposite positions on centralized exchanges.
The sophisticated approach enabled them to obscure the source of illicit funds and profit from carefully orchestrated reverse trades, effectively completing the laundering cycle.
These operations were detected and investigated by authorities since March 2025, marking an alarming evolution in on-chain financial crime.
Calls for Action and Potential Regulatory Implications
As the cases unfold, there are increasing calls for the HyperLiquid development team to address the vulnerabilities in their platform.
Mirror Tang directly appealed to HyperLiquid co-founder Jeff (known as @chameleon_jeff), warning that failure to implement robust risk control measures could invite regulatory scrutiny.
Tang emphasized that the platform’s current infrastructure allows bad actors to exploit its mechanics without sufficient oversight or preventive mechanisms.
If left unaddressed, this lack of controls could prompt not only further criminal activity but also stricter intervention by Chinese, and possibly global, regulators.
The HyperLiquid protocol, once praised for its innovation in DeFi derivatives, now finds itself under growing pressure to safeguard against financial crime.
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Salus to Publish Joint Research With Law Enforcement
In an effort to shed more light on these laundering schemes, Salus has announced plans to publish a comprehensive research article in collaboration with Chinese law enforcement.
The forthcoming report will detail the technical strategies used, trace the laundering paths, and recommend systemic solutions for DeFi platforms.
The goal is to provide the crypto community and developers with concrete insights into how decentralized protocols are being gamed for illicit purposes.
As the crypto space matures and law enforcement capabilities expand, incidents like these underscore the urgent need for platforms like HyperLiquid to evolve their risk management frameworks.
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Tactics Mirror the Strategy of Notorious Crypto Trader James Wynn
Salus’ Mirror Tang drew parallels between the recent laundering tactics and those previously employed by James Wynn, a high-profile crypto trader known for extreme leverage plays.
Wynn, once celebrated for turning $3.5 million into nearly $178 million by aggressively longing Bitcoin, recently made headlines after losing over $99 million in just a week.
His downfall came through the very same high-risk, high-leverage mechanisms that are now being investigated in China.
Tang pointed out that Wynn’s trading style, placing outsized bets and managing large liquidations, bears a striking resemblance to the methods used in the recent money laundering cases.
These similarities suggest that the strategy might be part of a broader trend or even taught within certain underground circles.
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