Hyperliquid Ethena Liquidity and USDe Integration

shoku
Thu, 17 Oct 2024 10:57:36 +0000
General

Summary

This proposal requests that Ethena integrate the Hyperliquid L1 (“Hyperliquid”) as an eligible venue for a portion of its hedging flow, subject to technical and legal due diligence by the Ethena Foundation. If approved, the proposed integration would be implemented slowly and in a controlled way with Risk Committee guidance as Ethena hedging flow scales alongside the growth of Hyperliquid, with maximum initial proposed allocations outlined below.

This proposal outlines synergies between Hyperliquid and Ethena and requests that the Ethena Risk Committee undergo due diligence of Hyperliquid’s suitability as a potential hedging venue.

Background

Hyperliquid has 200,000+ total users and typically sees daily volumes of between $1-4B. With over $1B in open interest (OI), Hyperliquid is significantly larger than all other onchain perpetual DEXs and would even rank among some of the biggest centralized exchanges.

So far in October, Hyperliquid has regularly accounted for roughly 40% of onchain perpetual volumes according to Artemis.

To date, Hyperliquid has maintained a clean security track record. The bridge between Arbitrum and Hyperliquid has been audited by Zellic, one of the top security firms in the space, and the results of those audits are publicly available here.

Below is a proposed maximum initial allocation for consideration by Ethena’s Risk Committee based on Hyperliquid’s OI on October 15, 2024, designed to keep Ethena’s exposure to Hyperliquid at or below 10% of Hyperliquid’s OI per asset as an initial roll out. Note this is an illustrative notional allocation and the size of the allocation should be adjusted depending on changes in Hyperliquid notional OI on an asset-by-asset basis.

Token | Hyperliquid OI | Ethena Max Allocation (10% of HL OI)
BTC | $313M | $31M
ETH | $203M | $20M
SOL | $118M | $11M
Total | $634M | $62M

Ethena x Hyperliquid Synergies

1. Attractive Funding Rates

Funding on Hyperliquid is designed to closely match the process used by centralized perpetual exchanges. A more technical breakdown of the calculation behind funding rates is available in the docs.

1 year funding rates as per Hyperliquid’s app on September 27, 2024

Hyperliquid BTC funding over the last month has been at baseline (10.95%) more often than either Binance or Bybit and has touched as high as 100% for a brief period based on data from Velo.

| Binance | Bybit | Hyperliquid
YTD | 12.55% | 10.74% | 15.31%

YTD BTC Perpetual Futures Annualized Funding Yield

Source: Velo

As the short side of the trade, a more predictable and oftentimes higher funding rate is a more attractive proposition for Ethena than its current setup of hedging purely on centralized exchanges.

2. Moving Ethena’s hedging flow onchain

Migrating USDe hedging flows to onchain venues can improve transparency for users while reducing counterparty risk over Ethena’s positions.

3. Integration of USDe into the Hyperliquid L1

Ethena’s integration with Bybit and other centralized exchanges, offering USDe as margin collateral, is a model which saw significant success with over 450m USDe held on Bybit by its users at its peak. USDe has become the fastest growing USD-denominated asset on multiple chains outside of ETH L1 with integrations in a variety of DeFi applications. In addition to the above integrations, this proposal requests that USDe is added to the Hyperliquid L1 on launch of EVM mainnet.

Proposal

Request that the Ethena Risk Committee assess the proposed integration to move a portion of Ethena’s hedging flow onchain to Hyperliquid and USDe integrated.

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