Original Article Title: Tale of Two Tokens: What Ethena and HyperLiquid Teach Us
Original Article Author: DiogenesCasares, Crypto Kol
Original Article Translation: zhouzhou, BlockBeats

Editor's Note: Although HyperLiquid and Ethena have adopted different fundraising and token strategies, they have both successfully executed their respective product visions. HyperLiquid focuses on decentralized derivatives, while Ethena has rapidly grown into a leading stablecoin protocol. Both have made decisions that align with their product development by understanding user needs and dynamically adjusting their strategies. The key to their success lies in guiding decisions based on a clear vision and conviction, rather than a "one-size-fits-all" approach.

Below is the original content (slightly reorganized for readability):

Within weeks of its initial release, HyperLiquid became a top 20 token (if considering FDV), achieving this milestone without relying on any major centralized exchange listings. Its supporters are primarily traders and users, whose trust in the product resembles more that of BeReal/Instagram fans than the "traditional" crypto finance groups like Link Marines.

The HYPE airdrop had (not too many) attached conditions and indeed made many people wealthy, but many also chose not to sell. They believe in this project, which I believe is one of the core differences between HyperLiquid and many other projects today: people believe in HyperLiquid's vision and believe they will make money.

This interplay between vision and execution, fundamentals, may be unique to HyperLiquid, but it can also be seen to some extent in some of the most profitable and widely followed DeFi projects this year, such as Ethena Labs.

This article will explore the similarities between Ethena and HyperLiquid, both of which are building core products widely used by native users, and will also analyze their differences to help readers understand the factors that enable systems to succeed.

Laying the Foundation: Product

A good product is always hard to build, but in the crypto space, there is a strange mindset that believes a good product is "impossible to achieve," or it lacks Product-Market Fit (PMF), or it is "not big enough yet," or "someone else has already done it"; all of which are fallacies.

One of the biggest criticisms of Ethena is that what it does has been attempted before by decentralized protocols like UXD. However, Ethena addressed the liquidity issue by utilizing a custodial gateway to access centralized liquidity and earn yield on the underlying stETH/re-staked assets, thus achieving differentiation. This is a relatively small adjustment but gives Ethena's product scalability and robustness. Furthermore, by using USDe and sUSDe, which are pegged to ETH and stETH, respectively, Ethena's yield naturally outperforms executing the strategy independently.

HyperLiquid is not the first decentralized derivatives platform, far from it. However, HyperLiquid innovated in speed (fast deposit processing), liquidity (HLP), and distribution (vaults). HyperLiquid's trading platform is very reliable, with almost no history of crashes, while competitors' systems experienced hours to days of downtime, with one platform even facing a block reorganization (reorg) that prompted them to ask users via a Google Form how much they lost.

This poor user experience also troubled liquidity providers and traders, who never knew whether they could smoothly deposit or withdraw. HyperLiquid eliminated this issue, thereby earning users' trust and support.

Build Process: Distribution and Execution

So, Ethena and HyperLiquid both have great products, but that doesn't mean people will automatically find them. So, how do you get people to test the product and provide feedback? In the case of Ethena and HyperLiquid, the answer is to engage with people as much as possible.

On my anonymous account, the Ethena team actually reached out to me before their TVL reached $20 million. At the time, I was required to sign a contract and lock funds for a period to deposit, in exchange for a fixed minimum yield, but I ultimately did not proceed (a big mistake, of course). However, one thing I greatly admire about the Ethena team is their ability to leverage "Other People's Networks" (OPNs).

Seraphim (MacroMate8) is a master in this regard. I was contacted by dcfgod, who is one of the best angel investors in this field and has contacted me, the templedao team, other RFV traders, large traders—basically his whole network.

For DCF God, this is great because he believes in this product and team, so these referrals are very helpful to the people in his network. At the same time, this is extremely useful for Ethena, which is why they allowed him to participate as an angel investor. This is also reflected in CryptoHayes' involvement. He may be one of the best storytellers and one of the most user-friendly platforms. And incidentally, he also invests.

In the case of HyperLiquid, Jeff and other team members cast a wide net. They reached out to everyone from HsakaTrades to my RFV trading friend burstingbagel. They tried to get as many people as possible on board and started building the products the community needed, including ultimately helping create the vaults for HLP, which allowed HyperLiquid to have deep liquidity without market makers, avoiding the high fees typically associated with liquidity trading on DEXs. The direct relationship between the users of this product and the HyperLiquid team makes users feel listened to, important, and part of the project rather than just external observers.

Staying in Control: Moats and Network Effects

All great projects will spawn imitators or competitors. For example, Ondo has OpenEden, Eigenlayer has Symbiotic, and there are Morpho and Euler, Aptos and Sui, and so on. However, truly great projects can identify and strengthen their "moats," thereby reinforcing their product advantages and increasing competitiveness.

Take stETH/Lido, for example. It is clearly the market leader, although theoretically, its core product is replicable. Running validating nodes, earning rewards for users, and creating a wrapped token are not that difficult. What is hard to replicate or compete with is the significant liquidity stETH possesses and its deep integration with lending protocols and the broader DeFi ecosystem.

These moats make users more inclined to use stETH, even though theoretically the returns may be slightly lower compared to competitors, as they can use stETH in DeFi. Ethena has replicated this pattern, focusing on funding rate arbitrage. It has integrated with almost all major protocols in ETH DeFi, as well as an increasing number of centralized exchanges. The moat Ethena has built in terms of liquidity, composability, and high-yield at scale provides users with a range of features, greatly enhancing user loyalty.

For HyperLiquid, liquidity itself is its core moat. HyperLiquid's HLP is designed to provide users with quality liquidity, enabling new markets to grow while ensuring users always have the ultimate buyer/seller guarantee. The more users, the better pricing, attracting more users in a positive feedback loop that further strengthens the platform's position.

To solidify its leadership position, HyperLiquid is allowing projects to build on top of it through a standalone EVM-compatible chain that can interact with HyperLiquid's spot/derivative positions. This will provide traders with more seamless and capital-efficient market-making and hedging strategies while enhancing user capabilities, further strengthening its market position.

Theoretically, HyperLiquid may be forked once it is open-sourced, but the forked version will not have the HLP, all users, and liquidity. Even if it is an excellent product in itself, long-term sustainability relies on building and fortifying moats. That's why even though Ethena and HyperLiquid have almost complete dominance in their respective markets, they continue to reinforce their moats.

Point of Divergence: Funding Path and Airdrop

This is where significant differences between Ethena and HyperLiquid begin to emerge, differences that are not only stylistic but also fundamentally very different. Ethena's product offers liquidity access for market-neutral returns, while HyperLiquid's product is a decentralized derivatives protocol.

Due to its model, Ethena must rely on existing platforms to achieve scale, and a good way to ensure this is through obtaining investments from exchanges to incentivize them. In contrast, HyperLiquid aims to replace these exchanges and does not intend to collaborate with them, hence not relying on them.

The HyperLiquid team is renowned for its high-frequency trading (HFT) capabilities and does not need to raise capital. While the Ethena team is also very successful, they did not raise the tens of millions of dollars that may have been needed to build Ethena, ensuring its long-term survival and ability to focus entirely on the product without having to worry about profitability.

In theory, Ethena could have chosen not to raise funds, but through fundraising, they were able to increase their chances of success. From a game theory perspective, especially from a financial perspective, people are more inclined to trust teams that 1) have rich experience in a specific field (such as HyperLiquid) or 2) teams that have been strongly recommended/supported by authoritative figures.

While the Ethena team is excellent, they do not have the same reputation as the HyperLiquid team in understanding exchange infrastructure (a core part of high-frequency trading) in hedge neutral trading management. Ethena securing investments from these major players is not only to gain social support to drive faster growth but also to pave the way for the final protocol integration, which may be the best decision for their specific product.

HyperLiquid decided not to raise funds, took on the risk of covering HyperLiquid's operating expenses, in order to conduct a larger-scale airdrop and avoid systematic selling pressure (such as from VCs). This decision was likely the best choice they made based on the characteristics of their product. After all, their goal is to compete with most existing exchanges, even hoping to replace them.

Ethena's ENA airdrop was also very successful. Larger holders were forced to hold for a longer period, while retail users did not have such strict restrictions and cleverly used remilios to garner community support for Ethena.

However, its response was far less than the HYPE airdrop, which had almost no additional conditions and did not set a lock-up period for larger accounts. In fact, HyperLiquid restricted the airdrop recipients, prioritizing larger accounts that might benefit from "airdrop farming" by giving them a small portion of the initial value, but these tokens would fully unlock after the airdrop.

Ethena's point system is also clear, aimed at guiding user behavior, while HyperLiquid's system seems arbitrary. Although it disproportionately rewards high-volume/traders and liquidated users, there is no explicit formula.

Conclusion: Path Dependence

My conclusion is that I believe this is a very important point, although I have not seen it in any article about HyperLiquid's success. HyperLiquid has done a fantastic job in executing its vision and product roadmap.

Ethena has similarly executed flawlessly on its product vision, becoming the fastest-growing stablecoin protocol. They have taken a completely different approach to tokenomics and fundraising, but their decisions are all based on a belief in their own development path and a clear vision of the final product.

There is no "one-size-fits-all" way to manage airdrops and tokenomics; they are dynamic equations that must be adjusted with an understanding of your product's background and user needs. If you can do this and your decisions reflect the ideal path for your product, then you can achieve success.

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