Continuous new highs, how to understand the driving logic of ENA and HYPE?

Original Title: 《 Tale of Two Tokens: What Ethena and HyperLiquid Teach Us 》

Author: DiogenesCasares, Crypto Kol

Compiler: zhouzhou, BlockBeats

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

The following is the original content (reorganized for readability):

HyperLiquid became one of the top 20 tokens within weeks of its initial launch (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 that of BeReal/Instagram fans, rather than the "traditional" crypto finance groups like Link Marines.

The HYPE airdrop had (too few) conditions attached, which indeed made many people wealthy, but many chose not to sell, believing in the project. I think this is one of the core differences between HyperLiquid and many other current projects: people believe in HyperLiquid's vision and trust that they will profit.

This sacred symbiotic relationship between vision, execution, and fundamentals may be unique to HyperLiquid, but can also be seen to some extent in other profitable and widely followed DeFi projects this year, such as Ethena Labs.

This article will explore the similarities between Ethena and HyperliquidX, both of which are building core products widely used by local users, and will analyze their differences to help readers understand the factors that contribute to a system's success.

Laying the Foundation: Product

Creating a good product is always challenging, but in the crypto space, there is a strange mentality that good products are "unachievable," or that there is no product-market fit (PMF), or that it "isn't big enough," or "someone has already done it." These are all fallacies.

One of the biggest criticisms of Ethena is that what it does has been attempted by decentralized protocols like UXD. However, Ethena differentiated itself by leveraging custodial access to centralized liquidity, solving the liquidity issue and being able to earn yields on the underlying stETH/re-staked assets. This is a relatively small adjustment, but it gives Ethena's product scalability and stability. Moreover, by using USDe and sUSDe, which are almost equivalent to the relationship between ETH and stETH, Ethena's yield is naturally higher than if it executed the strategy independently.

HyperLiquid is not the first decentralized derivatives platform, far from it. However, HyperLiquid has innovated in speed (very fast deposit processing), liquidity (HLP), and distribution (vaults). HyperLiquid's trading platform is highly reliable, with almost no crashes, while competitors' systems have experienced outages lasting hours or even days, with one platform even facing a block reorganization (reorg), forcing it to ask users via Google Forms how much they lost.

This poor user experience has also troubled liquidity providers and traders, who never know if they can deposit or withdraw smoothly. HyperLiquid has eliminated this issue, thus earning user trust and support.

Building Process: Distribution and Execution

Both Ethena and HyperLiquid have excellent products, but that doesn't mean people will automatically find them. So, how do you get people to test the product and improve it? In the cases of Ethena and HyperLiquid, the answer is: communicate with as many people as possible.

On my anonymous account, the Ethena team actually reached out to me when their TVL had not yet reached $20 million. At that time, I needed to deposit by signing a contract and locking funds for a certain period, in exchange for a fixed minimum yield, which I ultimately did not do (of course, that was a big mistake). However, I greatly admire one aspect of the Ethena team: their ability to leverage "other people's networks" (OPNs).

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

For DCF God, this was fantastic because he believed in the product and the team, so these referrals were very helpful to people in his network. Meanwhile, this was also extremely useful for Ethena, which is why they allowed him to participate as an angel investor. This is also reflected in CryptoHayes's involvement, who is perhaps one of the best storytellers and one of the most engaging platforms with users, and he just happens to invest as well.

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 on the platform as possible and began building the products that the community needed, including ultimately helping to create the vaults that generated HLP, allowing HyperLiquid to have deep liquidity without market makers, avoiding the high costs typically associated with market maker liquidity trading on DEXs. This direct relationship between the product's users and the HyperLiquid team made users feel heard, important, and part of the project, rather than just external observers.

Maintaining Control: Moats and Network Effects

All excellent projects will spawn imitators or competitors, such as Ondo with OpenEden, Eigenlayer with Symbiotic, and Morpho with Euler, Aptos with Sui, and many similar examples. However, truly outstanding projects can identify and strengthen their own "moats," thereby enhancing product advantages and competitiveness.

Take stETH/Lido as an example; it is clearly the market leader, even though its underlying product is theoretically replicable. Running validator nodes, earning yields for users, and creating a wrapped token are not difficult. However, what is difficult to replicate or compete with is the massive liquidity that stETH possesses and its deep integration with lending protocols and the broader DeFi ecosystem.

These moats make users more inclined to use stETH, even if the yields may be slightly lower compared to competitors, because they can use stETH in DeFi. Ethena has replicated this model, 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 moats that Ethena has built in terms of liquidity, acceptability/composability, and large-scale high yields provide users with a range of functionalities, greatly enhancing user loyalty.

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

To solidify its dominance, HyperLiquid is allowing projects to build on a separate, 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 neutral hedging strategies, while increasing user functionalities and further reinforcing its market position.

Theoretically, HyperLiquid could be forked after open-sourcing, but the forked version would not have HLP, all users, or liquidity. Even if it is an excellent product, the key to long-term survival lies in establishing and strengthening moats. This is why, even though Ethena and HyperLiquid have nearly complete dominance in their respective markets, they continue to reinforce their moats.

Divergence: Funding Paths and Airdrops

This section marks the beginning of significant differences between Ethena and HyperLiquid, which are not just stylistic but also fundamentally different. Ethena's product provides liquidity access for hedging neutral yields, while HyperLiquid's product is a decentralized derivatives protocol.

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

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

Theoretically, Ethena could have chosen not to raise funds, but by securing financing, they could increase their chances of success. From a game theory perspective, especially from a financial standpoint, people tend to trust those 1) teams with rich experience in specific fields (like HyperLiquid) or 2) teams that have strong endorsements/support from 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 component of high-frequency trading) in managing hedging neutral trades. Ethena's securing of investments from these big players is not only for social support to accelerate their growth but also paves the way for eventual protocol integration, which may be the best decision for their specific product.

HyperLiquid decided not to raise funds, taking on the risk of covering HyperLiquid's operational costs, with the aim of conducting larger-scale airdrops and avoiding systemic sell-offs (like VC). This decision is likely the best choice they made based on their product characteristics, as their goal is to compete with most existing exchanges, even hoping to replace them.

Ethena's ENA airdrop was also very successful, with larger holders forced to hold for a longer time, while retail users faced no such strict restrictions and cleverly used remilios to garner community support for Ethena.

Nevertheless, its response was far less than that of the HYPE airdrop, which had almost no conditions attached and did not set vesting periods for larger accounts. HyperLiquid actually restricted the airdrop recipients, prioritizing larger accounts that might benefit from "airdrop farming," although they received a small portion of the initial value, these tokens would be fully unlocked after the airdrop.

Ethena's point system is also very clear, aimed at guiding user behavior, while HyperLiquid's system seems arbitrary, although it does disproportionately reward high-volume traders/market makers and liquidated users, it lacks a clear formula.

Conclusion: Path Dependence

My conclusion is that I believe this is a very important point, even though I have not seen it in any articles about HyperLiquid's success. HyperLiquid has done an excellent job in executing its vision and product path.

Ethena has also executed its product vision impeccably, becoming the fastest-growing stablecoin protocol. They have adopted completely different approaches to token and capital raising, but their decisions are based on a belief in their development path and a clear vision of the final product.

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