The success of HyperLiquid and Ethena stems from excellent products, user trust, and unique moats, while both exhibit distinctly different models in their financing paths and user distribution strategies.

Author: @DiogenesCasares

Translation: Blockchain in Plain Language

HyperLiquid entered the top 20 tokens (based on fully diluted valuation) within weeks of its launch. This achievement did not rely on the support of any mainstream centralized exchange. Its supporters are primarily traders and loyal users who hold the product in high regard, resembling more of a user base akin to BeReal or Instagram rather than the traditional "financial cults" of the crypto space like Link Marines.

The airdrop of HYPE had almost no conditions attached, making many people overnight millionaires. However, many chose not to sell, believing in the project's future. I think, this is precisely the core difference between HyperLiquid and many other current projects: people not only believe in HyperLiquid's vision but also trust that it can bring them profits. This "sacred symbiosis" between vision, execution, and fundamentals may be HyperLiquid's unique success factor, but it can also be seen to some extent in another highly profitable and widely followed DeFi project this year, @ethena_labs.

This article will explore the similarities between Ethena and @HyperliquidX—both are building core products that are highly utilized by native users, while also analyzing their differences to help readers understand the key factors behind successful systems.

1. Laying the Foundation: Product

Creating an excellent product is always challenging, but there exists a strange mindset in the crypto space: the belief that a great product is "impossible to achieve," or that a product-market fit (PMF) has not been found, or that the product scale is "not large enough," or even "has already been done." These views are actually fallacies.

Take Ethena as an example; its biggest criticism is that the direction Ethena is attempting has already been tried by decentralized protocols (like UXD). However, what sets Ethena apart is that it addresses liquidity issues by accessing centralized liquidity through custodians, allowing it to earn yields on underlying stETH or re-staked assets. This is a relatively small adjustment, yet it makes Ethena's product more scalable and reliable. Additionally, by introducing USDe and sUSDe (similar to the relationship between ETH and stETH), Ethena's yields are evidently higher compared to users executing strategies on their own.

HyperLiquid is also not the first decentralized derivatives platform, nor is it close to being the "first." However, it has innovated in speed (very fast deposit processing), liquidity (HLP), and distribution (vaults). The HyperLiquid platform is known for its reliability, having almost never experienced downtime, while its competitors' systems have faced outages lasting hours or even days. One platform even had to survey users about their losses through Google Forms due to restructuring issues. This not only resulted in a poor user experience but also affected liquidity providers and traders, as users could not determine whether they could access their funds. This dual user experience and financial/technical issues have been eliminated by HyperLiquid, thus earning user trust and support.

2. Expanding the Landscape: Distribution and Execution

While both Ethena and HyperLiquid have solid products, this does not mean users will naturally discover them. So, how do you get people to try the product and continuously improve it? For Ethena and HyperLiquid, the answer is: communicate with as many people as possible.

For Ethena, before its TVL (Total Value Locked) reached $20 million, my anonymous account was actually contacted by the team. At that time, if I wanted to deposit, I needed to sign a contract and lock my funds for a period in exchange for a fixed minimum yield. Although I ultimately did not participate (which was obviously a big mistake), what impressed me about the Ethena team was their ability to leverage "Other People's Networks (OPN)." Seraphim (@MacroMate8) is a master at this. I was also contacted by @dcfgod, who can be considered one of the best angel investors in the field. He not only reached out to me but also contacted the @templedao team, other RFV traders, and many people in his extensive social network. For DCF God, this was fantastic because he believed in the product and team, and these referrals were beneficial to people in his network. At the same time, this was very helpful for Ethena, allowing him to participate as an angel investor. This strategy also applies to @CryptoHayes, who may be one of the best storytellers in the field and one of the best user communication platforms, while also directly investing in projects.

As for HyperLiquid, Jeff and other team members cast a very wide net. They directly messaged many people, from @HsakaTrades on Twitter to my RFV trading partner @burstingbagel. The team encouraged as many people as possible to use the platform and began building features needed by the community, such as Vaults, ultimately helping to create HLP (HyperLiquid Liquidity Pool). HLP allows HyperLiquid to gain deep liquidity without traditional market makers and those high costs. This direct relationship between the team and the community and users makes users feel that their voices are heard, that they are important, and that they are part of the project rather than mere bystanders.

3. Maintaining Control: Moats and Network Effects

All excellent projects will give rise to imitators or competitors. Ondo has OpenEden, Eigenlayer has Symbiotic, Morpho and Euler, Aptos and Sui, and so on. Nevertheless, excellent projects can identify and strengthen their moats, thereby enhancing the competitiveness of their products.

Take stETH / Lido as an example; it is clearly the market leader, even though it is replicable from a fundamental product perspective. Running validation nodes, earning yields for users, and creating wrapped tokens is not difficult. However, what is difficult to replicate or compete with is the vast liquidity that stETH possesses, as well as its integration with borrowing protocols and the broader DeFi ecosystem. These moats mean that for users, even if they could theoretically earn slightly more through competitors, the appeal of using stETH is greater because it can be widely utilized in DeFi. Ethena has adopted a similar strategy in funding rate arbitrage. It has integrated with every major protocol in ETH DeFi, as well as an increasing number of centralized exchanges. These moats formed in liquidity, compatibility, and higher yields (in scaled scenarios) provide users with a wealth of features, thereby maintaining user loyalty.

For HyperLiquid, its greatest moat lies in its name itself: liquidity. HyperLiquid's HLP is designed to be a good liquidity provider, capable of supporting the growth of new markets, ensuring that users can always find a last buyer or seller. The more users there are, the better the pricing, which in turn attracts more users to use HyperLiquid, creating a virtuous cycle.

HyperLiquid is further solidifying its market dominance through an EVM-compatible chain. This chain can interact with HyperLiquid's spot and derivatives positions, providing traders with smoother and more capital-efficient market-making and neutral volatility strategies. This further expands the functionalities available to users and again solidifies its market position. Theoretically, when HyperLiquid becomes open source, other teams could fork it, but the forked version would lack HLP, the existing user base, and its liquidity. While the product itself is excellent, maintaining long-term competitiveness is not solely about the product; the key lies in solidifying the project's own moat. This is precisely what Ethena and HyperLiquid have been committed to, even as they nearly completely dominate their respective markets.

4. Divergence: Financing Paths and Airdrops

This section highlights the significant differences between the approaches of Ethena and HyperLiquid, which are not merely stylistic but have profound substantive differences. Ethena's product primarily offers access to delta neutral yield, while HyperLiquid's product is a decentralized derivatives protocol. There are clear distinctions in their core strategic paths.

1) Ethena's Model and Financing Path

Ethena's operational model essentially relies on the use of existing platforms to achieve product expansion. Therefore, one of their strategies is to obtain investments from trading platforms to incentivize these platforms to participate in collaboration and achieve ecosystem expansion. This approach allows Ethena to grow faster and ensure the sustainability of its product.

In contrast, HyperLiquid has taken a completely different path. They do not rely on existing trading platforms and even aim to completely replace them, thus not needing to depend on investments or collaborations from these platforms. This strategic path allows HyperLiquid to adopt a more independent development route.

Additionally, the background of the HyperLiquid team is noteworthy: they are known for their high-frequency trading (HFT) and possess excellent trading skills and experience, allowing them to operate without relying on external financing. While the Ethena team has achieved success in its field, it has not accumulated tens of millions of dollars in capital through its own profits for product expansion. This means that if Ethena chooses to fully self-fund, they may face greater risks. Therefore, they opt to increase their chances of success through financing. From a game theory perspective, especially in financial terms, investors are generally more willing to trust two types of teams:

• Teams with rich experience in specific fields, like HyperLiquid.
• Teams supported or endorsed by authorities.

Although the Ethena team has certain strengths, they do not possess the relevant professional qualifications in "delta neutral" trading management like the HyperLiquid team. This is why Ethena's decision to seek investment from major investors for social support and accelerated growth is a wise choice.

2) HyperLiquid's Financing Strategy and Airdrop

HyperLiquid chose not to pursue financing but to take on the risk of operational costs in order to provide users with larger-scale airdrops and avoid relying on traditional venture capitalists (VCs) to create market pressure. Their decision is based on the characteristics of the product itself and their strategic considerations in competing with existing trading platforms. This decision gives them greater flexibility and reduces the market impact brought by traditional venture capital institutions (systematic sellers).

Ethena's Airdrop History and Strategy Ethena's $ENA airdrop strategy has been executed quite smoothly. Larger holders are required to hold for a longer time, while retail users have more flexibility. At the same time, they cleverly utilized mechanisms to incentivize community participation in Ethena. Nevertheless, this airdrop was not as widely accepted or favored by users as the $HYPE airdrop.

The $HYPE airdrop history adopted a different strategy from Ethena, as it did not come with many conditional constraints and did not limit the lock-up period for investor accounts, but rather specifically restricted airdrops to "larger holders" who might engage in account farming behavior, allowing these users to receive a portion of the initial funds from the airdrop, which could be fully unlocked later.

Differences in Project Reward Mechanisms Ethena's points program is more purposeful, clearly influencing user decisions through user behavior guidance; while HyperLiquid's reward mechanism appears more casual, although they tend to reward users with larger transaction volumes or those who are forcibly liquidated, there is no fixed formula or rule.

5. Conclusion: Path Dependence

My conclusion, which is a key point I have not truly seen in my article about HyperLiquid's success, is that HyperLiquid has perfectly realized their envisioned vision and product path. In contrast, Ethena has also achieved its product vision at an astonishing speed, becoming the fastest-growing stablecoin protocol in history.

Both have taken completely different approaches in token strategy and financing paths, but their decisions stem from a firm belief in their respective paths and ultimate product visions. There is no universal "standard answer" for managing airdrop history and token economics; they are more like dynamic equations that require a deep understanding based on your own product and the needs and preferences of users.

If you can achieve this and ensure that your decisions reflect the best path for product development, then you have the potential for success.

Article link: https://www.hellobtc.com/kp/du/12/5573.html

Source: https://x.com/DiogenesCasares/status/1864478979086012920

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