A High-Stakes Bet in a Digital Arena

When decentralized finance (DeFi) protocol Hyperliquid issued a request for proposal (RFP) for a native stablecoin, it fired a digital starting gun that kicked off a frenzy.

Suddenly, the protocol, which commands an impressive 70% of the decentralized perpetual futures market, became the battleground for the future of stablecoins.

An unlikely contender emerged in this nimble, degen-friendly ecosystem: Paxos, a regulated financial institution known for powering stablecoin infrastructure for giants like PayPal and Mastercard, with a cumulative issuance volume exceeding $160 billion.

At the heart of Paxos’s strategy are two key figures: Ronak, an enterprise veteran from the core Paxos team, and Bhau, head of the newly-unveiled Paxos Labs. Their partnership embodies the story's central theme.

The firm's approach to winning the Hyperliquid bid—by creating a dedicated lab, acquiring native talent, and leveraging its enterprise network in real-time—offers a microcosm of the entire industry's next chapter.

As Ronak, a core leader at Paxos, explained in a recent interview, this moment was precisely what the firm has been preparing for. "We are all here because we strongly believe that the TradFi and DeFi world is going to merge in ways that we are just starting to see," he stated. "Paxos Labs was created for this reason."

The Core Problem: A Tale of Two Silos

The intense competition for Hyperliquid's business highlights a fundamental challenge facing the digital asset space. For DeFi protocols, the dilemma is clear. Hyperliquid, despite processing nearly $400 billion in trading volume in August 2025 alone, relies heavily on external assets like USDC.

With nearly $5.5 billion in USDC deposits—representing approximately 7.5% of Circle's total circulating supply—the protocol faces systemic risk and limitations on its ability to attract institutional-grade liquidity without a native, fully-regulated stablecoin.

For traditional finance (TradFi) institutions, the dilemma is one of culture and trust. A buttoned-up, regulated entity like Paxos must earn the confidence of a skeptical DeFi community that values credible neutrality and native alignment. Simply having a large balance sheet is insufficient; cultural fluency is paramount.

This creates a fundamental gap. DeFi natives possess community and innovation but lack global regulatory rails and enterprise distribution. TradFi institutions have the opposite. The "bridge" between these two worlds represents a multi-trillion-dollar opportunity, and it's the problem Paxos Labs was purpose-built to solve.

The Solution Strategy: A TradFi-DeFi Hybrid

Paxos's strategic answer to this core problem is Paxos Labs, a new entity formed in June 2025 to operate with DeFi speed while backed by institutional-grade infrastructure.

Acquiring Native DNA

"What I actually did was I went and parked myself in their office for like 2 months to really get to know them... and really spend some time with them and got to know the team and got to know their product and you know was frankly blown away," Bhau reflected. "I came back to [Paxos leadership] and was like I think we should bring these guys on."

This move gave Paxos instant credibility and deep technical expertise within the ecosystem, with Bhau noting, "We have live products on Hyperliquid today with about $60 million of TVL."

A Two-Pronged Attack

With this hybrid team in place, Paxos deployed a two-pronged strategy.

The Bedrock:

The first prong leverages Paxos’s core strengths. With a New York State Department of Financial Services (NYDFS) trust charter and approvals to issue MiCA-compliant stablecoins in the EU, Paxos provides a regulatory moat that is difficult to replicate.

"Paxos really is the only company that has the licenses to do this globally," Bhau stated. "If the goal is for Hyperliquid to be global, you need a global issuer, right?"

The Spearhead:

The second prong deploys the Paxos Labs team to engage the community directly. This was demonstrated by their rapid iteration from their V1 to V2 proposal based on direct feedback regarding the protocol's assistance fund and alignment with the native HYPE token.

"One of the biggest benefits of moving so quickly... was we were able to kind of like be in market with our proposal for multiple days and really engage with the community and understand what was important to them," Bhau explained.

The Market Impact: A 48-Hour Power Play

The strategy was quickly put to the test. Feedback from the Hyperliquid community was direct, questioning whether the promised enterprise partnerships were a "pipe dream." As Bhau noted, it’s easy to make "hollow commitments."

Instead of just name-dropping partners, the Paxos team spent two days on the phone to deliver tangible proof. The result was the bombshell announcement in their V2 proposal: a major commitment from PayPal.

"We got that in a big way from PayPal," Bhau said. "We got them to agree to a listing for HYPE, doing USDH on and off ramps, and investing $20 million into ecosystem incentives... this is, you know, big kudos to PayPal for seeing the vision here and and going big."

This move did more than just answer the community's challenge; it redefined the race. The conversation shifted from who could build the best stablecoin to who could bring the most value to the entire ecosystem.

The abstract concept of an "enterprise distribution network" was made powerful and real. The ambition, as Bhau put it, is to build a "$50 billion asset, $500 billion asset," extending far beyond a simple replacement for existing stablecoins.

The New Stablecoin Playbook

The battle for Hyperliquid reveals a new formula for success in on-chain finance. The winning model is a hybrid that combines institutional-grade infrastructure with authentic, native expertise.

Paxos’s strategy shows that success hinges on acquiring native DNA, listening to the community, and weaponizing enterprise partnerships for the ecosystem's direct benefit.

A key element of this playbook is what Ronak calls "credible neutrality." By focusing purely on providing infrastructure, Paxos avoids conflicts of interest that can arise from competing with its partners.

"A large part of our offering has been that we don't have consumer products. We don't have our own chain. We're not trying to compete," Ronak emphasized. "We're an infrastructure provider... the combination of like the track record, that's the credible neutrality."

The Hyperliquid race is a blueprint. The Paxos Labs playbook of blending regulatory compliance, native talent, and enterprise distribution will likely be replicated across the industry.

The future of finance belongs not to the biggest bank or the most degen protocol, but to the entities that can masterfully bridge both worlds. This is just the first of many such battles to come.