Author: @DiogenesCasares
Translation: Blockchain in Plain Language
HyperLiquid has risen to the top 20 Tokens (by fully diluted valuation) within weeks of its launch. This achievement did not rely on the listing support of any mainstream centralized exchange platforms. Its supporters are mainly traders and loyal users who are highly enthusiastic about the product, more akin to the user base of BeReal or Instagram than the traditional "financial sects" like Link Marines in the crypto space.
The HYPE airdrop had almost no conditions attached, making many people overnight millionaires. However, many have also chosen not to sell, believing in the future of the project. I believe this is the core difference between HyperLiquid and many other current projects: people not only believe in HyperLiquid's vision, but also believe it can bring them returns. This "sacred symbiosis" between vision, execution, and fundamentals may be the unique key to HyperLiquid's success, and can also be seen to some extent in @ethena_labs, another highly profitable and widely followed DeFi project this year.
This article will explore the similarities between Ethena and @HyperliquidX - they are both building core products that are heavily used by native users, and also analyze the differences between the two to help readers understand the key factors behind successful systems.
1. Laying the Foundation: Product
Creating an excellent product has always been difficult, but there is a strange mindset in the crypto space: thinking that an excellent product is "unattainable", or that the product-market fit (PMF) has not been found, or that the product scale is "not large enough", or even that it has "already been done". These views are actually fallacies.
For example, the biggest criticism of Ethena is that the direction it is trying has already been attempted by decentralized protocols (such as UXD). However, Ethena's difference is that it solves the liquidity problem by accessing centralized liquidity through custodians, and can earn the base stETH or re-staked asset yields. This is a relatively small adjustment, but it makes Ethena's product more scalable and reliable. In addition, by introducing USDe and sUSDe (similar to the relationship between ETH and stETH), Ethena's yields are clearly higher than if users executed the strategy themselves.
HyperLiquid is also not the first decentralized derivatives platform, and is far from being the "first". However, it has innovated in terms of speed (extremely fast deposit processing), liquidity (HLP), and distribution (vaults). The HyperLiquid platform is known for its reliability, with almost no downtime, while its competitors' systems have often experienced outages lasting for hours or even days. One platform even had to use Google Forms to survey users' loss amounts due to restructuring issues. This was not only a terrible user experience, but also impacted liquidity providers and traders, as users could not be sure whether they could deposit or withdraw funds. These dual user experience and financial/technical issues have been eliminated by HyperLiquid, earning it the trust and support of users.
2. Expanding the Footprint: Distribution and Execution
Although Ethena and HyperLiquid both have good products, this does not mean that 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: interact with as many people as possible.
In the case of Ethena, before its TVL (Total Value Locked) reached $20 million, my anonymous account actually received contact from the team. At the time, if I wanted to deposit, I would need to sign a contract and lock up my funds for a period of time in exchange for a fixed minimum yield rate. Although I ultimately did not participate (clearly 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 contacted me, but also reached out to the @templedao team, other RFV traders and large traders, as well as many people in his extensive social network. For DCF God, this was great because he believed in the product and the team, and the referrals were also beneficial to the people in his network. At the same time, it was very helpful for Ethena, so they allowed 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, and he also directly invests in projects.
As for HyperLiquid, Jeff and other team members have cast a very wide network. They directly messaged many people, from @HsakaTrades on Twitter to my RFV trading partner @burstingbagel. The team tried to get as many people as possible to use the platform and started building features that the community needed, such as Vaults, which ultimately helped create HLP (HyperLiquid Liquidity Pool). HLP has enabled HyperLiquid to obtain deep liquidity without the need for traditional market makers and their high fees. This direct relationship between the team, the community, and the users makes the users feel that their voices are heard, that they are important, and that they are part of the project, not just bystanders.
3. Maintaining Control: Moats and Network Effects
All excellent projects will spawn imitators or competitors. Ondo has OpenEden, Eigenlayer has Symbiotic, Morpho and Euler, Aptos and Sui, etc. Nevertheless, excellent projects are able to identify and consolidate their own moats, thereby enhancing the competitiveness of their products.
Take stETH / Lido as an example, it is clearly the market leader, although from the perspective of the basic product, it can be replicated. Running validator nodes, earning yields for users, and creating wrapped Tokens are not difficult. However, what is difficult to replicate or compete with is the massive liquidity that stETH has, as well as its integration with lending protocols and the broader DeFi ecosystem. These moats mean that for users, even if they could theoretically earn slightly more yield through a competitor, the appeal of using stETH is greater because it can be widely used in DeFi. Ethena has also adopted a similar strategy in interest rate arbitrage. It has integrated with every major protocol in ETH DeFi, as well as an increasing number of centralized exchanges. These moats in terms of liquidity, compatibility, and higher yields (when scaled) provide users with a wealth of functionality, thereby maintaining user loyalty.
For HyperLiquid, its biggest moat lies in its name itself: liquidity. HyperLiquid's HLP is designed to be a good liquidity provider that can support the growth of new markets, ensuring that users can always find the ultimate buyer or seller. The more users, the better the pricing, which in turn will attract more users to use HyperLiquid, forming a virtuous cycle.
HyperLiquid is further consolidating its market dominance through a chain compatible with EVM. This chain can interact with HyperLiquid's spot and derivative positions, providing traders with smoother and more capital-efficient market making and delta-neutral strategies. This further expands the functionality available to users and further consolidates its market position. In theory, when HyperLiquid is open-sourced, other teams can fork it, but the forked versions will not have HLP, the existing user base, and its liquidity. Although the product itself is excellent, to maintain long-term competitiveness, the product is not the only critical factor, the key is to consolidate the project's own moat. This is what Ethena and HyperLiquid have been striving for all along, even though they have almost complete control over their respective markets.
4. Divergence: Financing Path and Airdrops
This part shows the significant differences between the approaches of Ethena and HyperLiquid, which are not just stylistic differences, but have profound substantive differences. Ethena's products primarily provide access to liquid delta-neutral yield, while HyperLiquid's products are decentralized derivative protocols. There are obvious differences in the core strategic paths of the two.
1) Ethena's Model and Financing Path
Ethena's operating model essentially depends on the use of existing platforms to achieve product expansion. Therefore, one of their strategies is to obtain investment from trading platforms to incentivize these trading platforms to participate in cooperation and achieve ecosystem expansion. This approach allows Ethena to achieve growth more quickly and ensure the sustainable development of the product.
In contrast, HyperLiquid has taken a completely different path. They do not rely on existing trading platforms, and even try to completely replace them, so they do not need to rely on investment or cooperation from these platforms. This strategic path has led HyperLiquid to take a more independent development path.
In addition, the background of the HyperLiquid team is also worth noting: they are known for high-frequency trading (HFT) and have excellent trading technology and experience, and can operate without relying on external financing. Although the Ethena team has achieved success in their own field, they have not accumulated hundreds of millions of dollars in capital through their own profitability to expand their products. This means that if Ethena chooses to raise funds entirely on their own, they may face greater risks. Therefore, they have chosen to raise funds to increase their chances of success. From a game theory perspective, especially in financial terms, investors are usually more willing to trust the following two types of teams:
· Teams with rich experience in a specific field, such as HyperLiquid.
· Teams supported or endorsed by authoritative figures.
Although the Ethena team has certain strength, they do not have the professional credentials in "delta-neutral" trading management like the HyperLiquid team. This is why Ethena's decision to seek investment from major investors to gain social support and accelerate growth is a wise choice.
2) HyperLiquid's Financing Strategy and Airdrops
HyperLiquid has chosen not to raise funds, but to bear the risk of operating costs in order to provide users with larger-scale airdrops and avoid relying on traditional venture capitalists (VCs) to form market pressure. This decision is based on the characteristics of the product itself and their strategic considerations in competing with existing trading platforms. This decision gives them more flexibility and reduces the market impact of the traditional venture capital institution (systemic seller).
Ethena's Airdrop History and StrategyEthena's $ENA airdrop strategy has been implemented quite smoothly. Larger holders are required to hold for a longer period, while retail users have more flexibility. At the same time, they have cleverly used mechanisms to incentivize community participation in Ethena. However, this airdrop is not as widely accepted or liked by users as the $HYPE airdrop.
The $HYPE airdrop strategy, on the other hand, has taken a different approach from Ethena. It did not have too many conditional constraints, nor did it restrict the lock-up period of investor accounts, but rather targeted the "larger holders" who may have bot behavior, limiting the initial airdrop amount for these users, but allowing them to be fully unlocked later.
Differences in Project Reward MechanismsEthena's point system is more purposeful, obviously influencing user decisions through user behavior guidance; while HyperLiquid's reward mechanism appears more random, although they tend to reward users with larger trading volumes or forced liquidations, there is no fixed formula or rule.
5. Conclusion: Path Dependence
My conclusion, which is also a key point that I have not really seen in the article about HyperLiquid's success, is that HyperLiquid has perfectly realized the vision and product path they envisioned. In comparison, Ethena has also achieved its product vision at an amazing speed, becoming the fastest growing stablecoin protocol in history.
The two have taken completely different approaches to Token strategy and financing path, but their decisions are rooted in their firm belief in their own paths and ultimate product vision. There is no "standard answer" for managing airdrop history and Token economics, they are more like dynamic equations that require you to deeply understand your own product and the needs and preferences of your users.
If you can do this and ensure that your decisions reflect the best path for product development, then you have a chance of success.
Link to the article: https://www.hellobtc.com/kp/du/12/5573.html
Source: https://x.com/DiogenesCasares/status/1864478979086012920
