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I am playing a two player game and we are around 20-25 hours deep into our first threat Dadachaems awakening.

A threat is made up of a number of sections. Each section typically has an introduction then a preperation phase followed by an epilogue.

The way we tend to play is to explore and do as much as is possible, so far we have had 16 side quests, not all complete of course.

But within a section you do things that earn Hope Reborn cards.

The think action on the card states

In almost every section we have completed, there has been the situation where we have earned more Hope Reborn cards than there are available.

Within the preparation phase we perform the actions listed once each going from top to bottom.
The penultimate action being to return all Hope Reborn cards, immediately followed by checking side quests.

This has meant, for us, that we typically will get awarded a number of the Hope Reborn cards back.

We will usually instantly spend them on the destiny page and block them before even leaving the citadel.

We go off do the section earn more as we play, then more again when we read the epilogue.

Again, getting to the point where we are being awarded more than exist.

This has left me with the feeling that i could just do the main quests and ignore the side quests as one of the main rewards for this, tbe hope reborn cards, you just dont get.

Meaning to me at least that there is a hard cap of 7 cards per section, as soon as you have that many, no point in exploring further or doing more.

That is, unless we can perform the preperation phase actions multiple times.

I.e.
Return all hope reborn cards
Be awarded some from a side quest
Spend/block them
Return all hope reborn cards again.

Thank you for sticking with me if you have read this far!

What are your thoughts?

I think there is a hard cap of 7. This is a magical number. 7 Citadel. You should use all that cards before unblocking and returning.

I specifically created an account to reply to this.
I absolutely love it, when I put together a question, provide arguments and counter arguments, and all of this is ignored in an answer, addressing only a single line of my 4 paragraph email.

Is there a hardcap? Probably. At least in the tutorial it says the max number is 7, afterwards it doesn't specifically state this again for each scenario. However it is implied again and again by the game that, if you have to take a card that isn't there, nothing happens. There are 7 cards in the game, so probably hardcap.

Yes, you cannot "double-dip" on Hope Reborn cards. Especially if you have buildings that give you hope reborn cards or as the OP stated side quests you end up every scenario with way more HR cards to draw than there are.

Does that mean that engaging with content is, for the most part, unrewarding and potentially dangerous in 7th Citadel? Yes.
As a campaign with a certain setting and difficulty there are only two type of rewards that can be given to players to help them overcome higher difficulties: items/knowledge/utility actions and experience, to be cashed in to make certain things easier (i.e. a certain number of prestige to get into Kel without paying, etc.)
To keep a campaign interesting or challenging and not a roflstomp toward the end is difficult for game design.
We are currently at the mid point of our first threat book and have finished every single scenario so far with ~ 10 HR card where it not for the fact that they are limited. We have about 8 sidequests, and have finished one so far, with little to no progress on the others.
Maybe we were exceedingly lucky, but we are also permanently at weight limit for items.
From here on out there is very little reason to do anything but rush the scenario goal and not engage with anything else.
Rushing is also somewhat recommended by the scenarios, as they usually have some kind of end-boss or tough consequences. Then you sit at 7 HR, 5 glimmers and 15 HP per player and there is no reason to do anything but close out the scenario.

On the other hand the destiny meta progression is, also for the most part, minor impact, with a few OP things to aim for.

I had a similar case. There are a few aspects at work here:

In my first threat, I easily reached the 'rare case' of running out of space in the side quest page. Most of the time running into the 7 hope reborn cap as well.
During my second threat (Drums), I didn't even bother to build the tavern (side quests) and cemetary .

Instead I made it my goal to explore the whole world and discover what happens after helping the people you encounter. Suprise: hope reborn is capped most of the scenario's, and community scores maxed without ever using the citadel icon on the destiny page.

But I had another situation: I had some bad luck/failures in the main goal, which resulted in me doing 3 extra scenario's: . These extra scenario's resulted in me filling the destiny maze nearly completely, I got all outside numbers, added all but one reflex skills and completed the world map.

This results in a snowballing effect, making the game too easy. It was not rare to finish the scenario with 30+ health. I had 84 health left in the final scenario, and a few items to recover more.

This all to say, the 7 hope reborn cap is really required, or you will run in other issues by the destiny page running out.

There was a thread on bgg about this same issue: losing out on hope reborn rewards. The proposal there was to house rule the creation of a golden 99 card:
Choose one of the following:

• Take a 49 card
  
• Unblock 1 companion
  
• Share 2 health

Return this.

This would give a small, but repeatable reward, which allows to explore a bit longer.