Ethena Exits Competition for Hyperliquid’s USDH Stablecoin Issuance

Ethena Labs has decided to withdraw from the competition for issuing Hyperliquid’s USDH stablecoin, following feedback from the community regarding its position as a non-native team.

Key Takeaways

Ethena Labs has withdrawn from the competition for Hyperliquid’s USDH stablecoin due to community concerns.
Key issues included Ethena’s lack of direct ties to Hyperliquid and its broader product ambitions.
Ethena’s commitment to developing products within the Hyperliquid ecosystem remains strong despite the withdrawal.
The outcome signifies a shift in Hyperliquid’s governance, favoring local projects over external teams.

Hyperliquid USDH Stablecoin Ethena Labs

A post on X by Ethena’s founder, Guy Young, on September 11, outlined that after engaging in discussions with validators and delegates, it became clear there were concerns about Ethena's focus and alignment with the Hyperliquid (HYPE) ecosystem.

Concerns from the Community Lead to Withdrawal

In his message, Young pointed out three primary concerns expressed by the Hyperliquid community: Ethena's lack of direct ties to the exchange, its broader product ambitions beyond the USDH stablecoin, and the perception that its growth strategy did not entirely align with the objectives of Hyperliquid.

“Congratulations to the Native Markets team. You deserve this,” Young stated, commending the competing proposal that has garnered support. He emphasized that Hyperliquid’s governance process illustrated how smaller, community-driven projects could thrive irrespective of their background or financial resources.

"The last few days have been incredible to witness. I've never seen a community rally around and engage with passion like this before."

Following discussions with community members and validators, we have taken onboard some concerns, particularly regarding Ethena's non-native status.

Ethena’s initial proposal included issuing USDH through Anchorage Digital Bank’s forthcoming USDtb token, which would be indirectly collateralized by BlackRock’s $2 billion BUIDL fund. Backed by BlackRock’s head of digital assets, Robert Mitchnick, along with Anchorage’s CEO Nathan McCauley, the team believed this structure would provide scalability and institutional credibility.

Additionally, Ethena committed to allocating 95% of USDH reserve revenues to Hyperliquid through community funds, token buybacks, or validator rewards. Despite these commitments, validator opinions ultimately turned against Ethena’s proposal due to fears of centralization and a perceived external focus.

Ethena Shifts Focus to Native Product Development

Although Ethena pulled out of the USDH competition, its team remains focused on development within Hyperliquid. Young mentioned prospective products, such as Hyperliquid-native synthetic dollars, USDe-enabled savings and spending tools, and new derivatives like equity-based perpetual swaps.

The team also intends to utilize its $13 billion Ethena USDe balance sheet to enhance liquidity and expand Hyperliquid’s HIP-3 markets, introducing innovations like modular prime broking and reward-bearing collateral.

“Our ambitions extend beyond working with a single partner exchange,” Young remarked, indicating that Ethena will continue to play a crucial role in Hyperliquid’s ecosystem despite this setback.

This development marks a significant change for Hyperliquid, as community governance has shown a preference for local builders over outsiders. With Native Markets likely to control the future of USDH, the strategy for stablecoin issuance could significantly influence Hyperliquid's risk profile and growth trajectory in the coming years.