Ethena Withdraws from Hyperliquid’s USDH Stablecoin Issuance Competition: What It Means for DeFi

Ethena's sudden exit from Hyperliquid's USDH stablecoin race sends shockwaves through DeFi circles—just when you thought stablecoin drama couldn't get more entertaining.

The Strategy Shift

Pulling out of a major issuance competition isn't just a change of plans—it's a statement. Ethena's move suggests recalculations in risk, reward, or perhaps regulatory shadows looming a bit too close for comfort.

Market Reactions

Traders and protocols are left reading between the lines. Does this signal a broader retreat from algorithmic stablecoin ventures, or is Ethena simply sharpening its focus elsewhere? In crypto, every step back is really a leap sideways—usually toward the next shiny object.

Looking Ahead

One less player in Hyperliquid’s arena might mean less competition, but also less credibility. Because nothing says 'trustworthy' like a stablecoin battle that's already seeing dropouts—classic DeFi, where the only thing stable is the chaos.

Community pushback leads to withdrawal

In his statement, Young highlighted three key concerns from the Hyperliquid community; Ethena’s lack of native ties to the exchange, its wider product ambitions beyond USDH, and the perception that its growth strategy was not fully aligned with Hyperliquid.

“Congratulations to the Native Markets team. You deserve this,” Young wrote, praising the rival proposal that has gained traction. He added that Hyperliquid’s governance process demonstrated how smaller, community-driven projects could succeed regardless of pedigree or financial backing.

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 direct discussions with individuals in the community and validators we have taken onboard some of the concerns, namely:

-Ethena is not…

Ethena’s initial bid proposed issuing USDH through Anchorage Digital Bank’s upcoming USDtb token, indirectly collateralized by BlackRock’s $2 billion BUIDL fund.

Supported by BlackRock’s head of digital assets, Robert Mitchnick, and Anchorage’s chief executive officer Nathan McCauley, the team argued that this structure WOULD offer scalability and institutional-grade credibility.

Furthermore, Ethena pledged to direct 95% of USDH reserve revenues to Hyperliquid through community funds, token buybacks, or validator rewards. Despite these assurances, validators’ opinions were ultimately swayed against Ethena’s bid due to concerns about centralization and its external focus. 

Ethena pivots to native product development

Ethena’s team made it clear that it is still dedicated to developing within Hyperliquid even after leaving the USDH race. Young pointed to upcoming products, including Hyperliquid-native synthetic dollars, USDe-enabled savings and card spending tools, and new derivatives such as equities-based perpetual swaps.

The team also plans to leverage its $13 billion Ethena USDe (USDE) balance sheet to provide liquidity and expand Hyperliquid’s HIP-3 markets, introducing innovations like modular prime broking and reward-bearing collateral.

“Our ambitions extend beyond working with just one partner exchange,” Young said, signaling that Ethena intends to remain a key player in Hyperliquid’s ecosystem despite the setback.

The outcome marks a turning point for Hyperliquid, where local builders have been given preference by community governance over outsiders. Since Native Markets now most likely control USDH’s future, the exchange’s approach to stablecoin issuance could shape its risk profile and growth trajectory for years to come.