From Halopedia, the Halo wiki
Gypsum was the codename of a cancelled video game project that was worked on by Bungie, from the start of 2003 until June of that year. It was to be a free-roam third-person action beat-em-up with a setting that blended mythology and fantasy. Gypsum was being developed using Bungie's in-house Blam engine.
In it, the player would take control of a Minotaur and according to Martin O'Donnell who produced sound effects and music for the game, "you ran around and smashed things with a hammer and magic stuff happened." A playable prototype of the game was produced, which O'Donnell described as "a blast". Game designer Paul Bertone compared Gypsum's gameplay to modern titles such as The Witcher 3: Wild Hunt, Middle-earth: Shadow of Mordor and the Batman: Arkham games.
Despite its promise, the game was cancelled in June 2003 in response to major issues during the development of Halo 2, which required that Bungie focus all its resources on the game. In a 2017 article on the history of Halo, Bertone expressed disappointment at having to cancel the project, lamenting that it had been ahead of its time but that nobody outside Bungie had ever known about it.
Gypsum was worked on by a small internal team within Bungie, who had previously worked on Phoenix, another internal project that had been cancelled in late 2002 or early 2003. However, Jason Jones had promised the Phoenix team that they would get to develop their own game. So, despite the cancellation, the team remained separate from the Halo 2 team and commenced work on a new project, Gypsum, in early 2003. This project was helmed by two men who had previously created a mod called Chimera for Myth: The Fallen Lords, a previous Bungie title.
Against the wishes of Joseph Staten and Martin O'Donnell, Jones joined the Gypsum team as creative director and project lead at some point in early 2003, apparently bringing several Halo designers with him, while still moonlighting as project lead on Halo 2. A number of other Halo developers also contributed to the project, including game designer Paul Bertone (who had previously been part of the Phoenix team) and composer Martin O'Donnell, who produced music and sound effects for it. The Gypsum project made significant progress in the following few months, having produced a playable prototype by June 2003. This prototype seemed to be well-received within Bungie, with O'Donnell describing it as "a blast", and Bertone saying it was "pretty cool".
However, this success was short-lived, as after the famous Halo 2 E3 demo, it became evident within Bungie that they would not be able to ship Halo 2 in its current form on the Xbox, because the hardware was not powerful enough to handle the stencil lighting engine, given the scope of the game. This necessitated that the game be significantly overhauled, including a complete redesign of the campaign. Thus, all other ongoing projects at Bungie were cancelled in June 2003, including Gypsum, and all employees were folded into the Halo 2 team in order to complete the game.