Stablecoin Reconstruction: The Battle of USDH

Hyperliquid is a leading Perptual Futures DEX and high-performance public chain that recently announced plans to launch a native stablecoin USDH. The goal of this initiative is to drop reliance on external stablecoins (such as USDC) — currently, Hyperliquid holds approximately 5.5 billion USD (about 7.5% of the total supply of USDC) — and to gain the benefits brought by reserve management.

Instead of issuing USDH on its own, the Hyperliquid Foundation has chosen to invite teams to submit compliant stablecoin design proposals with Hyperliquid as a priority through a public bidding process, and the final issuer will be determined by a vote from Hyperliquid's validators. The proposal submission deadline is September 10, and the validator voting is scheduled for September 14. It is worth noting that the validators of the Hyperliquid team will choose to abstain to ensure the neutrality of the results, with the final decision entirely in the hands of community validators.

The winning team will gain the right to issue USDH (limited to the use of the scarce ticker USDH, and will not receive any additional benefits from the platform). After being selected, the issuer must also win a gas auction on-chain and successfully deploy the stablecoin contract to officially become a provider of USDH.

There are currently six heavyweight proposals in competition: Paxos, Native Markets, Ethena, Frax, Agora, and Sky. Early voting data shows that Native Markets has a clear lead. Users still have two days to delegate their HYPE to validators supporting their preferred proposal. Each potential issuer has proposed differentiated designs in terms of reserve assets, revenue distribution, and compliance pathways.

Paxos

Paxos is a regulated fintech company based in New York, known for issuing stablecoins such as Pax Dollar (USDP) and PayPal USD (PYUSD). Its long track record in compliance is quite compelling, and it has acquired the LHYPE and WHLP teams, which are currently leading the efforts to promote USDH.

• Reserves and Collateral: USDH will be backed by high-quality liquid assets (such as U.S. Treasury securities and short-term repurchase agreements). Paxos also plans to include PayPal's PYUSD in the reserves to achieve portfolio diversification and enhance on-chain liquidity.
• Revenue Distribution: Paxos will not charge any fees until the TVL of USDH exceeds 1 billion USD. Once the TVL surpasses 1 billion USD, Paxos's revenue share starts at 1% and gradually increases to 5% when the TVL reaches 5 billion USD, with all fees priced in HYPE tokens. Up to 80% of the early revenue will be reinvested into development and liquidity incentives, and will gradually shift towards the Hyperliquid Assistance Fund. Additionally, Paxos commits to using 95% of the reserve income for HYPE buybacks and ecosystem incentives, retaining a maximum of 5% for operations.
• Compliance: As a regulated trust company in New York, Paxos places special emphasis on complying with MiCA and GENIUS Act requirements, and plans to issue USDH simultaneously on HyperEVM and HyperCore. In the V2 version of the plan, Paxos will also launch monthly transparency reports and reserve audit proofs.
• Differentiated Value: Paxos emphasizes its deep accumulation in compliance and views the integration with the PayPal ecosystem as a core selling point. Its updated plan shows that USDH will directly connect to PayPal, Venmo, and Braintree; at the same time, PayPal will launch the HYPE token for merchants and provide a $20 million incentive pool along with a free fiat deposit and withdrawal channel, allowing users to buy and sell USDH with zero fees. Paxos believes that these integrations have the potential to reach over 400 million PayPal users.

Native Markets

Native Markets is a newly established company specifically aimed at competing with USDH, led by Max Fiege, an early heavy user of Hyperliquid and a HYPE whale. The core highlight of its solution is the deep integration with Stripe's stablecoin platform Bridge, which in some ways positions Stripe as the "agent" participating in Hyperliquid.

• Reserves and Collateral: A hybrid reserve model is adopted. Off-chain reserves are managed by BlackRock through money market funds or US Treasury funds; on-chain reserves are managed through Superstate and the Bridge stablecoin platform under Stripe. This design ensures that USDH has both cash-like safety and on-chain liquidity.
• Profit Distribution: Native Markets commits approximately 50% of the reserve interest for HYPE buybacks, and the other 50% for USDH growth (including marketing and ecological incentives).
• Compliance: With the help of Stripe's Bridge, Native Markets brings regulatory giants into the ecosystem. Their solution emphasizes compliance and the ability to directly mint USDH within Hyperliquid through Bridge infrastructure. However, some governance participants are concerned that Stripe may prioritize its own Tempo blockchain in the future, thereby introducing potential single points of failure for Hyperliquid.
• Differentiated Value: Native Markets emphasizes its deep community foundation. Led by HYPE whale Max Fiege, the team's advantages lie in rapid implementation and seamless integration with Stripe fiat channels. The proposal also claims that its revenue distribution will be written into the on-chain smart contract to ensure enforceability.

Ethena

The Ethena team is known for issuing USDe/sUSDe and fully collateralized stablecoin USDtb. They had submitted a proposal for the issuance of Hyperliquid's native USDH, planning to leverage existing USDtb infrastructure and partnerships. However, due to widespread support for Native Markets among validators, Ethena has publicly announced its withdrawal from the competition and stated that it will continue to expand its product matrix on Hyperliquid.

• Reserves and Collateral: Ethena proposes to use 100% of USDtb as reserves for USDH, while USDtb itself is collateralized and custodied by BlackRock's BUIDL fund through Anchorage Digital Bank. Ethena also plans to monitor reserve transparency through a guardian network composed of Hyperliquid validators, and has the authority to pause minting or redemption in case of issues.
• Revenue Distribution: The plan commits to distributing at least 95% of the net reserve earnings to Hyperliquid, with the team retaining up to 5% for operations, and indicates that this percentage will further decrease as KPIs are met.
• Compliance: Anchorage Digital Bank will provide regulated USD banking custody services for USDH. Cross-chain transfers will be achieved through LayerZero, allowing USDH to flow freely between HyperEVM and other chains.
• Differentiated Value: Ethena positions itself as a "heavyweight" competitor thanks to its mature infrastructure and scale. It promises to launch hUSDe on HyperEVM and provide prime brokerage services for the derivatives market, enriching Hyperliquid's product line. At the same time, Ethena announced the establishment of a $150 million incentive pool to inject liquidity into USDH, fund developer grants, and subsidize migration costs. If Hyperliquid re-prices the existing USDC trading pairs to USDH, Ethena will bear all trading costs.

Frax Finance

Frax Finance is a well-known DeFi protocol, initially gaining popularity with its fractional-algorithm stablecoin Frax, and has now transformed into a more traditional fully collateralized model.

• Reserves and Collateral: USDH will be minted with frxUSD at a 1:1 ratio as collateral. frxUSD has now transformed into a fully collateralized token, with underlying assets including tokenized products of U.S. Treasury bonds, such as BlackRock's BUIDL fund, Superstate's on-chain fund, and other regulated instruments. This structure ensures that USDH is essentially backed by Treasury bonds.
• Profit Distribution: Frax promises to pass 100% of the government bond income directly to Hyperliquid governance through on-chain automatic flow smart contracts, allowing the community to decide its use. Frax will not retain any revenue (0% take rate). Founder Sam Kazemian stated that the real value lies in interoperability and community governance, rather than the revenue itself.
• Compliance: Frax plans to use its self-developed chain FraxNet to host Hyperliquid's USDH contracts and has partnered with a federally regulated bank to ensure compliance with the GENIUS Act requirements. Cross-chain interoperability is provided by LayerZero, supporting instant bridging between HyperEVM and other ecosystems. Frax also plans to offer minting/redeeming channels between USDH and USDC, USDT, and fiat.
• Differentiated Value: The solution highlights transparency and community alignment. Frax's 0% revenue sharing and real-time yield distribution set it apart from other bidders that retain earnings. At the same time, Frax provides cross-chain connectivity and instant redemption channels for multiple stablecoins/fiat currencies, positioning USDH as a public utility in the Hyperliquid ecosystem.

Agora

Agora is the issuer of the AUSD stablecoin, focusing on helping platforms issue their own asset-backed stablecoins. Its co-founder and CEO Nick van Eck is publicly leading this bidding process, and his father Jan van Eck (CEO of the globally renowned asset management company VanEck) has also publicly supported Agora's proposal.

• Reserves and Collateral: USDH will be fully collateralized 1:1 by US Treasury Bills (T-Bills). The reserve assets will be custodied and managed by VanEck and State Street, with audits provided by Chaos Labs for Proof of Reserves (PoR).
• Profit Distribution: Agora commits that 100% of the net reserve income will be allocated to Hyperliquid for HYPE buybacks or injection into the Assistance Fund. Additionally, a liquidity plan of 10 million USD has been announced to launch the USDH market.
• Compliance: Agora emphasizes its compliance readiness, stating that its architecture can meet the GENIUS Act and other regulations related to stablecoins. It positions itself as an independent issuer (without exchange or proprietary blockchain background), believing this can avoid potential conflicts of interest. Cross-chain interoperability is supported by LayerZero, allowing USDH to circulate beyond HyperEVM.
• Differentiated Value: Agora has built a wide cooperation alliance: Rain provides global deposit and withdrawal channels, MoonPay is responsible for compliance payment interfaces, EtherFi will introduce LSDfi products, and Centrifuge will promote RWA tokenization to bring additional benefits. Agora particularly emphasizes its cross-chain layout to enhance the practicality and distribution capabilities of USDH.

Sky (MakerDAO)

MakerDAO co-founder Rune Christensen announced the proposal for Sky on September 8, becoming the fifth major competitor. As the issuer of DAI and USDS, Maker/Sky manages approximately $12.5 billion in stablecoin assets, making it one of the most influential stablecoin issuing institutions in the world.

• Reserves and Collateral: Sky will leverage Maker's existing USDS infrastructure to support USDH, relying on a collateral asset pool of approximately $13 billion, and make USDH interchangeable with USDS. Its Peg Stability Module (PSM) can provide USDH with $2.2 billion in instant redemption liquidity.
• Revenue Distribution: The Sky proposal commits to providing a 4.85% annual percentage yield (APY) on all USDH held on Hyperliquid. If U.S. regulators prohibit stablecoins from directly paying interest, the protocol will switch to a "no yield mode" and allocate all reserve earnings for HYPE buybacks. Any additional earnings exceeding 4.85% will be injected into the ecological development fund, with Sky committing $25 million as initial funding.
• Compliance: Sky itself is a decentralized DAO, but acknowledges regulatory restrictions and commits to making USDH compliant with the requirements of the GENIUS Act when necessary. At the same time, it plans to achieve cross-chain functionality through LayerZero.
• Differentiated value: By offering a fixed interest rate above US Treasury yields and a large-scale liquidity backstop, Sky aims to win the support of validators. However, some community members are concerned about its B- credit rating and whether the additional yield of over 4.85% can truly be realized. Nevertheless, the proposal still emphasizes the potential of combining Decentralization + high-yield stablecoins with Hyperliquid governance.

Early Voting and Market Sentiment

According to predictions from Polymarket and early statements from some validators, Native Markets is currently very popular. As of September 12, Native has secured approximately 71% of the votes, with Paxos in second place at around 16%, and Ethena in third place at approximately 8%.

It is important to note that before September 14, users can still migrate their staking to validators that support their preferred solutions. Polymarket bettors give a winning probability of Native at about 90%.

Validators emphasize that the native alignment of Hyperliquid is a key consideration, preferring those that mint USDH directly on HyperEVM/HyperCore, rather than relying on cross-chain wrapped solutions. At the same time, compliance and regulatory records are also highly valued, giving licensed institutions like Paxos a certain advantage in terms of compliance.

This vote requires a two-thirds quorum, and the validators controlled by the foundation will abstain until the quorum is reached, after which they will align with the community voting results.

The current Polymarket probabilities are as follows:

• Native Markets: about 90%
• Paxos: about 9%
• Other options: Total approximately 1%

HYPE's revenue capture

Currently, there are approximately 5.5 billion USD of USDC deposits on the Hyperliquid platform, which has brought substantial returns to Circle through investments in U.S. Treasury bonds. If a portion of this is replaced with USDH, Hyperliquid can reinvest this portion of the revenue back into its ecosystem. Estimates show that if all 5.5 billion USD is migrated to USDH, under an assumed yield of about 4%, it could generate approximately 220 million USD in annual revenue, which was originally flowing to Circle.

Most proposals explicitly commit to using a significant portion, if not all, of the profits to buy back HYPE tokens or reward Hyperliquid users, thereby creating a new value capture loop for HYPE. For example, Paxos and Agora plan to use approximately 95-100% of the interest for HYPE buybacks, while Frax and Sky commit to returning 100% of the profits to the community (either directly to users or in the form of HYPE incentives).

This mechanism greatly enhances the practicality and appeal of HYPE: essentially, HYPE holders begin to indirectly earn risk-free returns from billions of dollars in stablecoin reserves. It's no wonder that as the USDH event progresses, the price of HYPE has soared and reached an all-time high this week.

Circle's risks

On the other hand, the issuer of USDC, Circle, will face an impact. Currently, the USDC held by the Hyperliquid platform accounts for about 7% of the total circulating USDC. If USDH succeeds, users will convert USDC into USDH, and Circle will lose a substantial portion of deposits.

If all 5.5 billion USDC is migrated to USDH, it not only means that the circulation of USDC will drop by 7%, but more importantly, Circle's annual interest income of about 220 million USD will also disappear, as these funds will be transferred to be managed by a new issuer.

In other words, Hyperliquid is trying to redirect a portion of Circle's revenue back to its own community. This also reveals a broader competitive landscape in the crypto industry: leading protocols like Hyperliquid are beginning to challenge the positions of existing stablecoin giants by issuing native stable assets, thus keeping profits within their own ecosystem. This poses a direct threat to Circle's business model and is why the decision regarding USDH has garnered attention from the entire industry.

is just a Ticker

It is worth noting that the Hyperliquid Foundation has made it clear that USDH will not receive any special treatment due to its code. Its success or failure ultimately depends on the actual market adoption. Nevertheless, considering the public attention and the upcoming incentives, if executed properly, USDH is expected to quickly gain market share on the Hyperliquid platform.

Governance Outlook

As the voting approaches, Hyperliquid's governance process is under scrutiny regarding its fairness and execution wisdom. The validators controlled by the foundation choose to abstain, ensuring that the final result is entirely determined by independent validators and community holders.

To some extent, the auction for the "USDH Ticker" itself is a brilliant marketing move by the core team of Hyperliquid. By making the competition public, Hyperliquid attracted proposals from several top institutions in the industry, and the ensuing debate has brought significant exposure to its ecosystem. HYPE has doubled in price over the past month and reached an all-time high, which is the best proof of this focus effect.

Once the validators vote and determine the winner, the next focus will shift to execution. If it can be smoothly implemented, USDH will not only open up a new source of revenue for Hyperliquid but will also further strengthen the tokenomics of HYPE, while providing users with a truly "super liquid" stablecoin that is deeply integrated with the platform.

Sources:

blockworks.co

dlnews.com

galaxy.com

cryptoslate.com

cointelegraph.com.

polymarket.com