Hyperliquid’s USDH Bid War – Reclaiming $220M in Leaked Yield

Hyperliquid dominates DeFi perps with 73% market share and $5.5B in deposits, but with 95% in USDC, about $220M/year in Treasury yield flows to Circle, not the Hyperliquid ecosystem.

USDH fixes this. It’s a native, fully-backed stablecoin designed to recycle yield into HYPE buybacks, lower fees (up to 80% off spot pairs), and validator rewards.

Why It Matters

USDH transforms Hyperliquid from a venue into a full-stack economy. Owning the money supply creates a flywheel for growth:

more deposits → more yield → stronger buybacks/rewards → lower fees → deeper liquidity.

Circle has already responded with native USDC, but HL’s move signals the broader DeFi shift to protocol-owned stablecoins.

👉 For readers who want the full picture — including how governance works, the mechanics of the value flywheel, and a detailed comparison of every proposal — dive into the full analysis below. This is a living document, and we’ll continue adding context, including embedded tweets, charts, and videos, as the situation develops.

Disclosure: This is a living document, updated as new proposals and news emerge. It is not financial advice. Always do your own research.

An Overview of USDH

At the center of DeFi’s liquidity engine, Hyperliquid is attempting to rewrite who captures its economics. The platform’s plan to launch a native stablecoin, USDH, directly targets the roughly $220 million in annual yield generated by its ecosystem but currently flowing to external issuers, primarily Circle. That figure, based on the potential yield from Hyperliquid’s $5.5 billion in stablecoin balances, underscores the significance of this shift: it is a direct challenge to the prevailing economic model of DeFi.

With Hyperliquid processing $6.7 billion in daily trading volume and holding a commanding 73% market share in decentralized perpetuals, its transition to a native stablecoin marks a pivotal moment for both the platform and the broader stablecoin sector. The initiative has ignited a high-stakes competition for the USDH ticker, with proposals from institutionally-backed Paxos, DeFi-native Frax Finance, and coalition-led Agora. Hyperliquid’s experiment reflects a broader industry trend: dominant platforms are no longer content to grow someone else’s stablecoin—they are moving to internalize the value they generate.

The $220 Million Problem Leaking Value from DeFi

Hyperliquid’s meteoric rise has created an unprecedented concentration of liquidity — but also revealed a structural flaw in DeFi’s value chain. The platform’s success, marked by more than $1 trillion in cumulative trading volume and a TVL above $5 billion, has paradoxically enriched external issuers more than its own ecosystem in one critical area: stablecoin yield.

Today, about 95% of Hyperliquid’s $5.6 billion in deposits sit in USDC, issued by Circle. Those balances are fully backed by cash and U.S. Treasuries, which generate steady returns. Yet none of that interest flows back to Hyperliquid’s users, validators, or token holders. Instead, it flows to Circle’s corporate balance sheet.

Put simply: roughly $220 million per year in yield is being siphoned out of Hyperliquid’s economy. Traders pay fees, supply liquidity, and build volume, but the passive income from their deposits never returns to them. It subsidizes an external institution that contributes little to the ecosystem’s growth.

This “value leak” is more than a missed opportunity — it’s an ongoing tax on the community. And it explains why USDH exists at all. The native stablecoin initiative is designed to reclaim that yield, recycle it into HYPE buybacks, validator rewards, and fee reductions, and convert Hyperliquid from a tenant of someone else’s currency into the owner of its own.

How Native Stablecoins Create a Value Flywheel in DeFi

Hyperliquid’s answer to the $220 million value leak is USDH — a native, protocol-owned stablecoin that redirects yield from its massive deposit base back into the ecosystem. At its core, USDH transforms what is now passive value extraction into an active flywheel for Hyperliquid growth.

For Hyperliquid as a platform, USDH marks the step from being a derivatives venue to becoming a full-stack financial ecosystem. By issuing its own stablecoin natively on HyperEVM and HyperCore, Hyperliquid eliminates dependence on Circle and external issuers. Instead of paying fees to Bridge in USDC, users will be able to trade, settle, and move capital in a stablecoin that is designed for Hyperliquid’s own infrastructure. This creates a moat — one that makes the exchange not just the market leader in perps, but also the owner of its own monetary layer.

For HYPE token holders and validators, the design is even more direct. USDH proposals all commit some or all of the reserve yield to the Assistance Fund, which is used for HYPE buybacks and validator rewards. At 4% yields on $5.5 billion in deposits, that’s $220 million annually that could be funneled back into the ecosystem instead of Circle’s balance sheet. The effect is a self-reinforcing loop: more USDH adoption → more reserves → more revenue → more buybacks → stronger HYPE price and validator rewards → more incentive to keep the system healthy.

For the everyday trader and community, USDH unlocks immediate, tangible benefits:

• Lower costs — up to 80% fee reductions on USDH spot pairs compared to other stablecoin pairs.
• Safer rails — no Bridge risk, since USDH is native to HyperCore and HyperEVM.
• Transparency — proposals commit to public proof-of-reserves, bankruptcy-remote custody, and regulated structures under the GENIUS Act.
• Broader access — coalition and alliance partners plan to expand USDH into wallets, cards, and vaults, making it not just a trading asset but a payment and settlement currency.

In short: USDH is not just another stablecoin. It is a mechanism to internalize value creation, align incentives across validators, token holders, and users, and position Hyperliquid as the first major venue to capture the full economics of its own liquidity.

Governance and Decision Process

IMPORTANT NOTE FROM THE Hyperliquid FOUNDATION:

“To reiterate, this vote is just for the USDH ticker. USDH does not gain any special privileges by nature of its ticker name. Hyperliquid’s native financial primitives and general programmability comprise a chain uniquely optimized for stablecoin issuance and payments. There will continue to be multiple stablecoins on the Hyperliquid blockchain and new stablecoin teams who join the Hyperliquid ecosystem. USDH will be only one of many such stablecoins. As shared previously, becoming a quote asset will become permissionless pending technical implementation."

The choice of who will issue USDH isn’t made by the crowd — it lies with just 21 validators. Compared to Ethereum’s validator set of more than 40,000, Hyperliquid’s governance is extraordinarily concentrated. The Hyper Foundation alone controls around 60% of staked HYPE, meaning a handful of decisions could sway the outcome.

The process itself is fast and tightly choreographed:

• September 5 — Proposals opened.
• September 10 — Submissions closed at 11:59 p.m. UTC.
• September 10–14 — A public review window in the Hyperliquid Discord (#usdh-proposals) allowed discussion, critique, and validator feedback.
• September 14 — Validators cast their votes to select the issuer.
• Post-vote — The winning team must acquire sufficient HYPE in a gas auction to secure the “USDH” ticker before launching contracts.

Because the validator set is so small and foundation-heavy, critics argue that personal relationships and private discussions matter more than public forums in shaping the outcome. Supporters counter that this concentrated model allows for decisive governance, avoiding the paralysis often seen in broader ecosystems.

Comparing the Proposals: What’s Shared, What’s Different

Shared Baselines

All credible USDH proposals must meet the same technical and regulatory minimums:

• 100% backing by Treasuries and cash (no algo components).
• Bankruptcy-remote custody and proof-of-reserves.
• Native deployment on HyperEVM and integration with HyperCore order books.
• GENIUS Act compliance in the U.S. and readiness for MiCA in Europe.

Key Differences

Revenue Split

• FRAX & Agora: 100% yield to HL.
• Paxos: 95% yield to HL, 5% ops.
• Native: 50/50 split between HL and growth.
• Sky: 4.85% yield to HL buybacks (above T-bills); potential future user-directed sUSDH.
• Ethena: ≥95% yield to HL; KPI-based milestone approach with validator flexibility.

Compliance & Licensing

• Paxos: NYDFS-chartered trust; longest regulatory track record.
• Agora: Coalition model; GENIUS-compliant; neutral issuer.
• FRAX: Permissionless DeFi roots; now adds Tier-1 partners (BlackRock, Fidelity, WisdomTree).
• Native: GENIUS compliance via Bridge (Stripe-owned; conflict concerns).
• Sky: Decentralized protocol; inherits MakerDAO/Sky governance; S&P-rated; Basel III risk models.
• Ethena: Anchorage Digital Bank (OCC charter, GENIUS-compliant); only federal bank in the race.

Custody & Reserves

• Paxos: Multi-bank custody (incl. State Street); 100% cash + Treasuries.
• Agora: State Street custodian; VanEck asset manager; on-chain PoR via Chaos Labs.
• FRAX: Diversified collateral across BlackRock BUIDL, Fidelity, WisdomTree, Superstate.
• Native: Bridge-managed reserves; BlackRock, Superstate, BNY Mellon, Fidelity.
• Sky: $13B diversified collateral; PSM with $2.2B instant USDC; Basel III frameworks.
• Ethena: USDH backed 100% by USDtb (BlackRock BUIDL + Anchorage custody).

Distribution Footprint

• Paxos: Deepest TradFi rails — PayPal, Venmo, Revolut, MercadoLibre.
• FRAX: 50+ DeFi integrations (Curve, Aave, Balancer); frxETH momentum; new TradFi alliance.
• Agora: Rain (global cards), LayerZero, MoonPay, EtherFi, Centrifuge; $10M day-one liquidity.
• Native: HL-native builders (Liquity, Uniswap alumni); embedded team + HL history.
• Sky: Stars system (Spark $1.2B TVL); LayerZero multichain; $25M Hyperliquid Genesis Star.
• Ethena: $13B balance sheet (USDe + USDtb); validator guardian network; HIP-3 integrations (hUSDe, equity perps).

What Matters Most

For validators, the decision boils down to:

• Maximizing ecosystem yield (100% vs 95% vs 50%).
• Regulatory safety vs. DeFi purity.
• Execution credibility (proven issuers like Paxos vs. coalitions vs. HL-natives).
• Conflict of interest (Stripe/Bridge vs. neutral issuers).

Proposal Showdown: Expanded Profiles

Paxos Labs — The Regulatory Fortress

Design & Reserves

Paxos Labs would issue USDH as a fully reserved, fiat-redeemable, bankruptcy-remote stablecoin, modeled on its existing products from Paxos: USDP, PayPal’s PYUSD, and PAXG (tokenized gold). Paxos pioneered regulated commodities tokens in 2019 and continues to publish monthly attestations by Withum. Reserves are held strictly in cash and short-term Treasuries, segregated and bankruptcy-remote.

Offer

Paxos proposes to direct 95% of all reserve yield to Hyperliquid’s Assistance Fund and validator-aligned programs, while retaining 5% to cover compliance, audits, and operational sustainability. They argue this margin ensures USDH can scale without relying on subsidies or deferred costs.

Compliance & Licensing

Paxos is a NYDFS-chartered trust company, one of the most heavily regulated entities in crypto. It was issuer of BUSD, which peaked at ~$23B supply before NYDFS ordered a halt in 2023 (no reserves were lost, and redemptions continued seamlessly). Paxos is the exclusive issuer of PayPal’s PYUSD, one of the most prominent corporate-backed stablecoins, and was the first company to receive a U.S. OCC no-action letter for crypto custody in 2021. Paxos has a long track record of navigating SEC and NYDFS scrutiny without user losses — unique among stablecoin issuers.

Custody

Paxos employs a multi-bank custody model, historically working with Tier-1 custodians like State Street. For USDH, a similar structure would apply, paired with proof-of-reserves and independent attestations.

Distribution

Paxos’ distribution footprint is unmatched among competitors. It powers PayPal and Venmo’s stablecoin programs, has integrations with MercadoLibre, Nubank, Interactive Brokers, and Revolut, and services institutions across fintech and TradFi. In August 2025, Paxos also acquired Molecular Labs, the Hyperliquid-native team behind LHYPE and WHLP, which had previously issued wrapper tokens to bootstrap HL liquidity. This acquisition was widely read as Paxos embedding itself directly into HL culture rather than approaching solely as an outsider.

Track Record

Founded in 2012 by Charles Cascarilla (CEO) and Rich Teo (Co-founder), Paxos has issued more than $120B in stablecoins cumulatively, with zero reserve shortfalls. It has weathered every major crisis — Terra’s collapse, FTX’s implosion, and the BUSD wind-down — without failing redemptions. Its record of compliance and solvency is arguably the strongest of any issuer in crypto.

Positioning

As Bhau from Paxos Labs put it:

“The Paxos USDH proposal didn’t include specific partners because we aren’t trying to make exclusive coalitions. Our goal is to provide the infrastructure that makes USDH the most liquid and cost-efficient asset in the ecosystem, open for everyone — on/off-ramps, DeFi protocols, fintech apps, and payment providers. And yes, we already work with partners like Rain and LayerZero.”

Risks

Validators may question the 5% retention compared to 100% yield pass-through rivals. Others may prefer coalition-led approaches with visible HL-native distribution, while Paxos’ infrastructure-first stance could be seen as less community-aligned.

Conclusion

Paxos frames itself as the safe, regulated, and proven choice. Its infrastructure-first approach avoids exclusive coalitions, instead positioning USDH as open for all partners to build on. With more than a decade of regulatory trust and billions issued without a single reserve loss, Paxos is the most battle-tested issuer in this contest. The trade-off is alignment: its 95/5 revenue split is less generous than 100% offers, and some validators may prefer more visible HL-native partnerships. The question for HL governance is whether stability, compliance, and trust outweigh maximal yield capture.

Frax Finance — The DeFi Purist (Now Leading an Institutional Alliance)

Design & Reserves

FRAX began as a fractional-algorithmic stablecoin that balanced collateral with governance token seigniorage. Following the collapse of UST in 2022, FRAX governance shifted to CR=100%, fully collateralized by cash, T-bills, and tokenized RWAs. In early 2025, the DAO passed FIP-418, enshrining BlackRock’s BUIDL fund via Securitize as part of its collateral stack.

Offer

FRAX commits to 100% of yield flowing to Hyperliquid.

Compliance & Licensing

Historically, FRAX operated in a permissionless DeFi-first model, but in September 2025 it announced the Frax-led USDH Alliance:

• BlackRock (BUIDL fund backing)
• Fidelity (asset management backing)
• WisdomTree (tokenized assets backing)
• Superstate (RWA backing, tokenized Treasuries)
• Securitize (transfer agent, RWA integration)
• LayerZero (cross-chain interoperability)
• Stablecoin Inc. (alliance orchestration)
• Tier-1 institutions TBA

This partnership signals FRAX’s pivot into institutionally credible rails while keeping its DAO-driven governance and yield-sharing ethos intact.

Custody

Collateral and issuance would be diversified: BlackRock/Fidelity/WisdomTree/Superstate (asset managers), Securitize (transfer agent). This multi-party structure rivals Paxos and Agora in credibility.

Distribution

FRAX remains deeply integrated across 50+ DeFi protocols (Curve, Aave, Balancer, Fraxswap). Its frxETH token is the #2 liquid staking derivative by Curve TVL. Through its Alliance partners, FRAX adds potential TradFi distribution rails that extend USDH beyond HL.

Track Record

Founded by Sam Kazemian and Travis Moore, FRAX peaked at $2.9B supply in 2022 and remains ~$600M today. It survived the Terra implosion with peg stability intact, pioneered Algorithmic Market Operations (AMOs) to manage on-chain liquidity, and launched frxETH (a core LSDfi product).

Risks

The Alliance brings governance complexity across multiple Tier-1 institutions. FRAX also lacks an HL-native footprint (unlike Paxos or Native), leaving execution risk in onboarding directly into HL. Validators must weigh whether the combination of 100% yield + institutional credibility outweighs these operational uncertainties.

Conclusion

FRAX has transformed its image from a DeFi purist into the leader of a TradFi–DeFi alliance. By uniting BlackRock, Fidelity, WisdomTree, Superstate, and LayerZero, FRAX presents the broadest institutional coalition in the race. Its 100% yield-sharing pledge is the most validator-friendly, but it comes with complexity: governance across multiple Tier-1 partners and no direct HL-native presence. FRAX’s bet is that the validator set values scale, alignment, and credibility enough to accept those risks — positioning USDH as both decentralized in ethos and institutionally compliant in execution.

Agora Coalition — Maximum Alignment, Maximum Complexity

Design & Reserves

Agora proposes USDH as a Hyperliquid-native, fully collateralized stablecoin with reserves held in short-dated U.S. Treasuries, Overnight Reverse Repo, and cash. Custody is provided by State Street (>$49T AUC/A), while reserves are managed by VanEck ($130B+ AUM). Liquidity management is supported by Cross River Bank and Customers Bank, both of which provide settlement and on/off-ramps for the largest stablecoin market makers. Proof-of-reserves would be published on-chain through Chaos Labs.

Offer

Agora commits to 100% of net revenue flowing back to Hyperliquid’s Assistance Fund and HYPE buybacks. Unlike Paxos’ 95%, Agora pledges the maximum possible yield distribution — with “net” defined as after custody and operational expenses.

Compliance & Licensing

Agora’s infrastructure is designed to be GENIUS-compliant from day one and holds licenses across multiple jurisdictions to pave the way for institutional adoption. It positions itself as a neutral, prudentially licensed issuer — unlike Paxos (which also runs its own brokerage and settlement rails) or Stripe/Bridge (which Agora argues is conflicted by its own Tempo blockchain and wallet infrastructure).

Custody & Infrastructure

• Custodian: State Street — GSIB-scale, $49T AUC/A.
• Asset Manager: VanEck — $130B AUM, run by the VanEck family including coalition leader Nick van Eck.
• Liquidity Management: Cross River & Customers Bank for fast settlement.
• Proof-of-Reserves: On-chain, powered by Chaos Labs.

Distribution

Agora is built as a coalition of top-tier partners:

• Rain — global cards and fiat rails, enabling payments across 5 continents.
• LayerZero — cross-chain interoperability for minting and liquidity migration.
• MoonPay — 20M+ verified users, licensed globally, consumer rails.
• EtherFi — LSDfi protocol (~$500M TVL), providing vault integrations and DeFi-native user base.
• Centrifuge — RWA protocol supporting collateral expansion.

At launch, Agora commits $10M in day-one liquidity for USDH pairs, seeded directly into Hyperliquid markets to maximize the impact of fee incentives.

Track Record

Coalition led by Nick van Eck, drawing on VanEck’s decades of TradFi credibility. Partners like Rain, MoonPay, and LayerZero are proven leaders in their fields, with combined reach across consumer payments, cross-chain messaging, and DeFi. Keith Grossman of MoonPay emphasized that MoonPay “has more licenses and KYC’d users than both Stripe and Bridge,” underscoring its advantage in global consumer coverage.

Positioning

From Nick van Eck:

“If Hyperliquid relinquishes their canonical stablecoin to Stripe, a vertically integrated issuer with clear conflicts, what are we all even doing?”

Agora argues its neutrality is critical: it does not run its own chain, brokerage, or settlement network, making it a Hyperliquid-first, Hyperliquid-aligned issuer. Its proven white-label infrastructure would ensure USDH is branded as Hyperliquid’s own stablecoin, not as a redeployed token from another ecosystem.

Risks

Agora’s coalition model means governance is spread across multiple firms, which could create coordination overhead compared to Paxos’ single-issuer structure. The definition of “net yield” also remains slightly ambiguous. Critics argue the complexity of the partnership could slow decision-making, though supporters counter that this breadth is exactly what ensures institutional-grade scale.

Contrast with Stripe/Bridge. Agora is outspoken against choosing Bridge (Native’s issuer):

Insufficient financial scale — Bridge’s provider has <$2B balance sheet vs. State Street’s $49T.Vendor capture — Stripe owns Bridge and Tempo L1, creating long-term competitive conflicts with Hyperliquid.Lack of DeFi experience — Agora argues it is the only team with both deep blockchain experience and infra ready for global scale.

Conclusion

Agora frames itself as the obvious choice for long-term institutional-grade success: deep reserves, GSIB custodian, Tier-1 asset management, on/off-ramp partners with billions in users, and the strongest consumer rails. The coalition promises not just to issue USDH, but to scale it globally — with no conflicts of interest.

Native Markets — The HL-Native Pitch

Design & Reserves

Native proposes USDH as a Hyperliquid-native stablecoin issued directly on-chain, backed by Treasuries and cash. Reserves and compliance rails are handled by Bridge, a Stripe-acquired stablecoin infrastructure platform. According to Bridge founder Zac Abrams, 90%+ of reserves will be custodied at BlackRock and Superstate, with additional reserve support from BNY Mellon, Fidelity, and others as the program scales. Proof-of-reserves and bankruptcy-remote structures would ensure transparency.

Offer

Native commits to splitting yield 50% to Hyperliquid’s Assistance Fund and 50% toward ecosystem growth — including liquidity incentives, HYPE buybacks, and long-term roadmap funding.

Compliance & Licensing

Bridge provides full GENIUS Act compliance and payments-scale infrastructure, with on/off-ramps, debit card issuing, and integration across both HyperCore and HyperEVM. Zac Abrams emphasized:

“We fundamentally believe ecosystems like Hyperliquid should control their money. Using someone else’s dollar will permanently subordinate your interests; building with your own stablecoin ensures full economic alignment and roadmap control.”

Distribution

Native’s advantage lies in its HL-native focus. With Bridge as its partner, Native gains access to billions in monthly payment infrastructure, orchestration, and compliance services already used by brands like MetaMask, Stripe, and FelixPago.

Team & Support. Native’s leadership includes:

• Max Fiege (@fiege_max): DeFi builder, Liquity alum, HL contributor. Co-Founding Native Markets to “reclaim this value leakage for the ecosystem and kickstart Hyperliquid’s next chapter.”
• MC Lader (@Mclader): Former COO of Uniswap Labs, ex-BlackRock (energy trading).
• Anish Agnihotri: Paradigm alum, researcher, MEV and perps specialist.

Crucially, Native’s bid carries the full technical and public endorsement of Bridge, led by founder Zac Abrams. Bridge powers billions in monthly payment volume and supports major brands like MetaMask, Stripe, and FelixPago. Abrams has been explicit about Bridge’s commitment to HL:

“The Hyperliquid community deserves more than the Flashlight App of stablecoins. Dedicated teams will deliver the best products. We’re incredibly excited about the proposal from Max and the Native Markets team — they are 100% focused on a stablecoin tailor-made for Hyperliquid.”

This direct backing positions Native not just as a local HL builder team, but as a partnership between HL-native developers and one of the leading global stablecoin infrastructure providers.

Positioning

Proponents argue that dedicated, HL-focused builders will deliver a better stablecoin than coalition models. As Abrams framed it:

“Stablecoins are products, just like mobile apps or websites. Adding a new ticker to someone else’s stablecoin is no different than putting a new logo on someone else’s generic iPhone app.”

This distinguishes Native’s bid as ecosystem-first, not an AUM grab. While others pitch cross-ecosystem expansion, Native’s sole focus is on Hyperliquid and compounding improvements for USDH over time.

Context

Native’s proposal initially sparked debate because its deployer address was funded just hours before submissions opened, and the bid landed within an hour of the announcement. Critics suggested insider advantage, but supporters highlight that Native has been preparing for months as HL-native builders.

Risks

Stripe’s ownership of Bridge raises long-term questions about vendor capture, especially since Stripe is developing its own blockchain (Tempo). Still, Bridge insists HL is a “priority chain” with dedicated orchestration, and Native maintains full roadmap control.

Conclusion

Native Markets makes the case for being the HL-native alternative: a purpose-built stablecoin, developed by HL builders, with Bridge providing institutional-grade reserves, compliance, and public endorsement from Zac Abrams. For validators who prioritize alignment with HL’s culture and long-term control, Native’s focus on community ownership and tailored design offers a compelling path — even if the economics are less aggressive than rivals.

Sky Protocol — The Balance Sheet Behemoth

Design & Reserves

Sky proposes USDH as a Hyperliquid-native stablecoin backed by one of the most diversified balance sheets in DeFi. With more than $13 billion in collateral across Treasuries, RWAs, CLOs, and DeFi positions, Sky brings unmatched scale and diversification. USDH would also inherit the Peg Stability Module (PSM), offering 2.2 billion USDC in instant redemption liquidity. This structure ensures users can frictionlessly exit to USDC while maintaining deep peg stability.

Offer

Sky pledges a 4.85% return on all USDH held on Hyperliquid, higher than Treasury yields, thanks to its diversified portfolio and Basel III-style risk framework. 100% of this yield would be funneled into HYPE buybacks and the Assistance Fund, aligning growth directly with ecosystem incentives. Sky also proposes a $25M “Hyperliquid Genesis Star” to bootstrap DeFi innovation on Hyperliquid, modeled after Spark, which today holds $1.2B in TVL.

Compliance & Licensing

Sky is the only decentralized stablecoin protocol with an official S&P credit rating (B-), obtained in August 2025. Its risk management framework is adapted from Basel III banking standards, applied both to RWAs (e.g., Treasuries, CLOs) and DeFi collateral. While USDH would not launch fully GENIUS-compliant, Sky emphasizes that its Generator Agent model allows USDH to evolve into a GENIUS-compatible asset over time.

Custody & Infrastructure

Collateral is spread across institutions like BlackRock, Fidelity, Superstate, and BNY Mellon, with live proof-of-collateral dashboards at info.sky.money. LayerZero provides multichain interoperability, ensuring USDH can move seamlessly across chains while retaining HyperCore and HyperEVM integration.

Distribution

Sky offers immediate reach through its existing stablecoins, DAI and USDS, with more than 8B in circulation today. USDH would integrate natively with Sky’s PSM and its Sky Savings Rate (currently 4.75%), offering users permissionless yield. The Sky team commits to moving its native Buyback Engine (which deploys $250M in annual profits for SKY token liquidity) onto Hyperliquid, setting a precedent for protocol-native buybacks.

Track Record

Sky, formerly MakerDAO, is the longest-operating decentralized stablecoin protocol, with 7+ years of continuous uptime and no losses for holders. Its Lindy effect, combined with its diversified balance sheet, make it arguably the safest and most tested issuer in this contest.

Positioning

Sky frames USDH as more than a stablecoin: it’s a balance-sheet-as-a-service, offering Hyperliquid the scale, safety, and credibility of the fourth-largest stablecoin project globally. Its Lindy effect, credit rating, and proven buyback systems create a moat unmatched by other bidders. Sky emphasizes that it is not offering a “bribe,” but rather a sustainable economic alignment: while Hyperliquid would capture nearly all the economics, Sky retains a small spread (10bps) to ensure the model’s durability.

Risks

Complexity may be the biggest drawback. Sky’s proposal spans Stars, Generator Agents, multichain PSMs, and advanced collateral management. Validators may worry about governance overhead or difficulty tailoring USDH specifically for Hyperliquid’s culture. Critics also note that Sky’s scale could overshadow HL-native teams, creating dependence on an external balance sheet.

Conclusion

Sky offers the most scale, the deepest reserves, and the longest track record of any USDH contender. Its 4.85% guaranteed yield, $25M Genesis Star, and $2.2B instant redemption liquidity set a high bar. While governance complexity and external alignment remain concerns, Sky positions itself as the safest long-term partner. For validators, the choice is whether Hyperliquid should entrust USDH to a proven balance sheet behemoth — or take a bet on leaner, HL-native or coalition-driven models.

Ethena — Security-First, GENIUS-First, Hyperliquid-First

Design & Reserves

USDH launches 100% backed by USDtb, issued with Anchorage Digital Bank (OCC-chartered; GENIUS-compliant). USDtb reserves are ~100% in BlackRock BUIDL (via Securitize). Future optional diversification to USDe or hUSDe would require a separate validator vote.

Offer

≥95% of net reserve revenue goes to Hyperliquid (HYPE buybacks/Assistance Fund and, subject to a later vote, optional distributions to staked HYPE/validators). Ethena will cover migration costs for USDC→USDH if pairs are redenominated.

Compliance & Governance

Anchorage’s OCC bank charter provides the clearest immediate path to GENIUS. Ethena proposes a guardian network of elected HL validators (e.g., LayerZero has signaled willingness) empowered to freeze/reissue USDH in emergencies—mitigating multisig/Bridge or issuer-side risks.

Custody & Infrastructure

Reserves custodied on HyperEVM in public, segregated wallets (Anchorage primary). Securitize deploys tokenization stack on HyperEVM; native USDtb will be live on HyperEVM to make USDH create/redeem fast and low-cost.

Liquidity

USDtb has strong CeFi/DeFi/OTC liquidity and direct redeem. Ethena will seek to whitelist USDH in USDe’s $5B+ USDC/USDT backing for near-zero-cost swaps to market makers, improving USDH/USDC spreads and perps microstructure on HL.

Distribution & Ecosystem

Ethena will push HIP-3 markets (reward-bearing collateral, prime brokerage/portfolio margin, and equity perps), and has set aside $75M–$150M in incentives for HIP-3 front-ends. Partners include Based (builder codes exchange), Liminal (delta-neutral; launching hUSDe on HL), Unit (tokenization), and Securitize (RWA rails).

Track Record

Ethena has minted/redeemed >$23B across USDe + USDtb with zero downtime or security incidents; USDe ~$13B supply ranks among the largest digital dollars. USDtb is already a top-10 stablecoin by supply.

Positioning

Ethena's pitch centers on security, compliance, and scale (Anchorage + BUIDL), validator-controlled safety levers, and expanding HL’s TAM (HIP-3, equity perps). Ethena argues it is uniquely positioned to backstop liquidity and accelerate growth far beyond USDH’s base yield.

Risks

Validator scrutiny on future backing changes (USDe/hUSDe optionality), plus reliance on centralized custodians and an active governance layer (guardian network design and elections). Execution spans many initiatives; prioritization will matter.

Conclusion

Ethena offers a GENIUS-first launch with Anchorage + BUIDL, ≥95% revenue to HL, strong liquidity pathways, and a plan to grow HL’s markets (HIP-3, equity perps). The trade-off: more moving parts and policy choices for validators to steward (guardian design, KPI-based economics, optional diversification later).

Bastion — Neutral, GENIUS-Compliant, Infrastructure-First

Design & Reserves

USDH would launch as a full-stack stablecoin (not a wrapper) with its own legally segregated, bankruptcy-remote reserves. Backing includes cash, short-duration U.S. Treasuries, overnight RRP, and tokenized MMFs via BlackRock BUIDL (Securitize) and WisdomTree. Structure designed to be GENIUS-compliant at inception.

Offer

95% of reserve yield distributed to HL: 50% Assistance Fund, 40% trader/builder/liquidity incentives, 5% for USDH/HYPE growth. 5% retained for ops. Flexibility for allocations to evolve with community governance. Mint/redemptions in USD = free; other fiat/stablecoin pairs vary by jurisdiction.

Compliance & Governance

Bastion operates under a New York limited-purpose trust charter (NYDFS) with dozens of money transmitter licenses and MSB registration at FinCEN. Its regulatory posture is closest to GENIUS equivalence at the state level, mapping directly to the new federal standard. Unlike issuers with conflicts (own stablecoins or chains), Bastion stresses neutrality: it does not run a competing coin, chain, or exchange.

Custody & Infrastructure

Reserves are bankruptcy-remote and custodied with major U.S. banks. Full transparency and regulatory oversight under NYDFS supervision. Bastion partners with Rain, LayerZero, Securitize, and Borderless for cross-chain interoperability, tokenization, and fiat ramps. Global coverage spans 50+ countries with ACH, Wire, SWIFT connectivity.

Liquidity

Day-one liquidity programs seeded via Bastion and partners. Integration with Rain and LayerZero enables cross-border ramps and multichain transferability. Global fiat access designed to make USDH “spendable” out of the box, from card rails to exchanges.

Distribution & Ecosystem

Bastion’s role is infrastructure-as-a-service: neutral rails for issuance, liquidity, and compliance. The model: USDH as the base stablecoin (L1 of money), with other partner stablecoins issued as wrappers on top of USDH. Focus on growing adoption through regulated fiat channels and ecosystem incentives (liquidity mining, swaps, builder code rewards).

Track Record

Team combines deep regulatory, compliance, and product experience across a16z, Meta Libra, Anchorage, Kraken, DOJ, Capital One, Ripple, Cash App, Coinbase, Goldman Sachs and more. Members previously launched stablecoins (e.g., PayPal PYUSD), built custody banks, and designed compliance/risk programs for global institutions.

Positioning

Bastion’s pitch: the most regulatory-derisked option, ready to be GENIUS-compliant on day one. No competing coin or ecosystem — purely an enabler. Emphasis on security, transparency, and giving maximum economics back to HL (95%) while covering costs for long-term sustainability.

Risks

Slower go-to-market vs. DeFi-native issuers due to regulatory processes and approvals. Less flashy ecosystem integration (compared to FRAX or Ethena) — Bastion focuses on rails and compliance, not DeFi-native growth mechanics.

Conclusion

Bastion offers the safest compliance pathway, with NYDFS charter credibility, neutral posture, and a 95% revenue share to HL. Its pitch resonates for validators prioritizing regulatory certainty and neutrality over complex ecosystem plays. The trade-off: slower innovation and less optionality, but maximum assurance that USDH remains a secure, sovereign, GENIUS-compliant asset.

Notable Companies in the Conversation

Circle — The Incumbent Defends Its Turf

Circle, issuer of USDC, has the most to lose. With $5.5 billion in USDC balances on Hyperliquid — around 7% of global USDC supply — the platform represents an estimated $220 million annually for Circle, or 10–12% of its total revenue.

Rather than oppose USDH outright, Circle responded with defensive cooperation:

• Deploying native USDC on HyperEVM.
• Launching Cross-Chain Transfer Protocol v2 (CCTP v2) to eliminate Bridge risk.
• Promising deeper integration with Hyperliquid’s settlement layer.

Circle’s statement signaled its awareness:

“Don’t Believe the Hype. We are coming to the HYPE ecosystem in a big way.”

Community reaction has been mixed. Some traders see Circle’s presence as safe and liquid, while others argue it underscores just how much value HL has been leaking.

Circle’s defensive entry shows that USDH has already shifted the balance of power. Even if USDH stumbles, HL has forced the world’s largest stablecoin issuer to respond, clawing back leverage for the ecosystem.

M0 Protocol — Neutral Infrastructure

M0, a distributed stablecoin issuance stack, explicitly chose not to bid for USDH. Instead, it has pledged to support any credible USDH issuer with its modular infrastructure. M0 already powers USDhl (~$10M supply )earlier in 2025.

M0’s statement captured its stance:

“M0’s distributed issuance stack is made for ecosystems like HL, and we intend to support every credible project building in the space. Innovation and alignment will have to be proven over the years and not during a weekend of self-referencing virtue signaling on X.”

This neutrality preserves relationships with multiple bidders while ensuring its rails remain indispensable regardless of the vote’s outcome.

M0 is the Switzerland of this contest — staying neutral but already embedded in HL’s stablecoin experiments. Its absence from the vote signals confidence that, whichever team wins, M0 infrastructure will still capture value.

Implementation Reality

Winning the validator vote—scheduled for September 14, 2025—is merely the first hurdle in Hyperliquid's USDH stablecoin rollout. The selected issuer (among frontrunners like Paxos, Frax, Agora, Sky, and Native Markets) must navigate a demanding sequence of technical, financial, regulatory, and operational milestones. These steps ensure USDH's seamless integration into Hyperliquid's ecosystem, spanning HyperCore and HyperEVM, amid a projected $5 billion reserve scale. Below is a briefer expansion on each milestone.

• Secure the Ticker — Acquire sufficient HYPE in a gas auction to control the “USDH” ticker.This mandatory post-vote step requires the winner to bid aggressively with HYPE tokens in Hyperliquid's spot deployment gas auction on Layer 1 to claim the USDH symbol. It decentralizes allocation and boosts HYPE demand, potentially surging its price by 3-5%, as issuers like Paxos and Agora plan pre-auction buys. Without it, USDH can't deploy on spot markets or integrate with HyperCore, enforcing economic commitment from the issuer.
• Deploy Contracts — Launch smart contracts on HyperEVM and integrate directly with HyperCore order books.The issuer deploys USDH's core contracts on HyperEVM, including minting/burning logic and oracle integrations, targeting 2-4 weeks post-vote with testnet stress-testing. Native bridging to HyperCore enables USDH as collateral for perpetuals, replacing USDC to cut fees, with multichain support via LayerZero. Proposals from Frax and Sky emphasize HyperCore-ready designs to avoid oracle risks in sub-millisecond trading.
• Custody & Reserves — Establish bankruptcy-remote custody arrangements and begin allocating reserves to Treasuries and cash.Reserves must be overcollateralized (100-105%) in segregated, bankruptcy-remote accounts via regulated custodians like U.S. banks, prioritizing Treasuries and cash for ~4-5% yields. Issuers like Paxos and Agora commit to $5B+ capacity from day one, with legal SPVs for isolation and initial funding from grants or capital. This setup, per Basel III frameworks, funnels yields back as HYPE buybacks to prevent depegging like Terra's collapse.
• Proof-of-Reserves — Publish on-chain attestations or audits (monthly or real-time) to meet transparency commitments. Issuers pledge real-time or monthly attestations using Merkle trees and oracles like Chainlink PoR, verifying 1:1 backing on HyperEVM dashboards. Paxos plans SOC 2 audits by Deloitte, while Frax and Sky focus on on-chain verifiability with zero-knowledge proofs for privacy. Due within 30 days of launch, this shares 95-100% reserve revenue to HYPE, building trust for perps adoption.
• Liquidity Bootstrapping — Seed deep liquidity into USDH pairs, with some proposers (e.g., Agora) committing $10M day one.To avoid slippage, issuers seed USDH pairs on spot and perps markets via AMMs, with Agora at $10M and Sky at $25M day-one commitments. Incentives like yield boosts and liquidity mining (e.g., Frax's alliance) target 0.1% slippage on $10M trades over weeks 1-4. Validators monitor metrics to grant full HyperCore collateral status, driving USDH toward USDT-level volume.
• Compliance Infrastructure — Implement GENIUS Act and MiCA-aligned procedures for KYC, AML, and global issuance.USDH requires GENIUS Act and MiCA compliance from launch, with KYC/AML via rails like Paxos' NYDFS framework or Stripe integrations for whitelisted minting. Geo-fencing and monitoring tools (e.g., Elliptic) enable global rollout, with optional U.S.-only toggles per Sky's proposal. This positions USDH for institutional inflows, enforced by validators to avoid fines or blacklisting.
• Security Audits — Undergo independent contract audits to mitigate risk of exploits. Pre-launch audits by firms like Trail of Bits cover reentrancy and oracle vulnerabilities, with multiple rounds mandated (e.g., Paxos' internal plus external). Sky leverages its hack-free history and Basel models, followed by $1M bug bounties via Immunefi and code open-sourcing. Validator sign-off gates deployment, critical given Hyperliquid's TVL and past DeFi exploits like Ronin.

Execution risk is real: HL’s user base is large, volumes are high, and traders will only adopt USDH if it matches or exceeds the safety and liquidity of USDC. This rollout will test not just the winning team’s credibility, but the entire premise of a protocol-owned stablecoin.

Closing Thesis: The Era of Protocol-Owned Stablecoins

Market signals and early validation

The market has already voted with its feet. HYPE jumped on the USDH announcement, and prominent voices framed Hyperliquid as a “decentralized Binance” with perps dominance now converging with stablecoin and spot liquidity. The clearest tell: Circle chose cooperation over confrontation, committing native USDC and upgraded transfer rails—an implicit acknowledgment that venue-native stablecoins are no longer hypothetical but competitive.

The protocol-owned stablecoin thesis (revenue and user upside)

USDH isn’t a feature—it’s a cash-flow rerouting mechanism that keeps value inside the Hyperliquid economy.

• Reclaiming yield at scale. With $5.5B in stablecoin balances, even conservative T-bill rates (4%) translate to about $220M/year that can fund HYPE buybacks, validator rewards, audits/security, liquidity programs, and product velocity—instead of exiting to an external issuer.
• Fee relief for users. Proposals explicitly tie that revenue to cheaper trading, including up to 80% fee reductions on USDH spot pairs, while deepening native liquidity and eliminating Bridge risk. That’s a day-one UX win for traders.
• Alignment and resilience. A fully reserved, proof-of-reserves stable integrated with HyperCore + HyperEVM reduces third-party dependencies, tightens risk management, and aligns incentives: more USDH → larger reserves → more yield → stronger buybacks & rewards → better markets.
• Broader access. With issuers/coalitions bringing cards, on/off-ramps, and DeFi integrations, USDH can become a payment & settlement currency, not just a base asset on order books.

Why USDH strengthens the moat

Owning the monetary layer turns Hyperliquid from “exchange with collateral” into platform with its own currency. That unlocks atomic settlement, unified collateral efficiency across spot/perps/DeFi, and predictable programmatic funding for growth—all of which are hard to replicate and compound over time.

Execution risks & what to watch

These aren’t deal-breakers; they’re the dials to monitor so USDH delivers what’s promised.

• Liquidity migration. If depth stays on USDC, spreads/slippage suffer. Watch: daily book depth and % of volume in USDH pairs; time-to-fill vs. USDC.
• Convertibility/peg operations. Even with T-bills, ops lags or custody frictions can stress redemptions. Watch: redemption SLAs, cadence/quality of PoR, named banks/custodians.
• Regulatory UX friction. KYC/transfer-agent rules can blunt UX for some segments. Watch: issuer licensing footprint, policy docs, permissioned vs. permissionless flows.
• Coalition coordination (if chosen). More parties can mean slower decisions. Watch: clear ownership (reserves/issuance/PoR/incidents), RACI, escalation paths.
• Vendor capture. Vertically integrated providers may misalign incentives later. Watch: no-lock-in covenants, exit ramps, COI mitigations.
• Subsidy durability. Fee cuts funded by yield compress if rates fall. Watch: policy for fee schedules across rate regimes; retained earnings for down-cycles.
• Liquidity fragmentation. Running USDC + USDH can split depth. Watch: market-maker programs/routing that consolidate depth without killing choice.
• Governance concentration. Small validator set can move fast—and break trust if misused. Watch: published guardrails, quorum/thresholds, Foundation posture.
• Reputation standard. USDH will be judged against USDC’s “always-on” bar. Watch: transparent incident reports; time-to-resolution.

The precedent and the stakes

Regardless of who wins the mandate, the precedent is the story: venues with sufficient scale can own their monetary base, recycle yield to users and builders, and lower costs while deepening native liquidity and transparency. If USDH executes, expect copycats across major venues; users stand to benefit from lower fees, tighter markets, and clearer proof-of-reserves.

The Future is Protocol-owned Economics

USDH isn’t just a governance vote—it’s a proof point for a bigger shift in DeFi economics. For the past decade, protocols built the markets while external issuers captured the yield. That model made sense in an early industry dependent on outside infrastructure. It makes far less sense now that platforms like Hyperliquid are systemically important in their own right.

The move from protocol-owned liquidity to protocol-owned stablecoins is the natural progression. In practice, this means:

• The venue that generates liquidity also owns the unit of account.
• The revenue loop closes: usage → reserves → yield → incentives → more usage.
• Communities directly benefit from the capital they create, not external shareholders.

If USDH succeeds, it will demonstrate that exchanges can function not only as markets, but as monetary systems with their own currencies. That’s a shift with implications far beyond HL: dYdX, GMX, Vertex, and others will be pressed to follow suit. Regulators, investors, and users alike will begin to expect venues to capture and recycle their own economics.

This is why the stakes extend beyond HL. The vote on September 14 is about one stablecoin on one exchange—but the precedent could reshape how DeFi protocols define sovereignty, sustainability, and alignment for the next decade.

Disclaimer & Update Note:

This analysis is for informational purposes only. It is not financial, investment, tax, or legal advice. Always do your own research and consider your own risk tolerance before making decisions. This article was produced with the assistance of AI research tools (including OpenAI’s ChatGPT 3.5 and 4, Anthropic’s Claude 4.1, and xAI’s Grok/SuperGrok) and then reviewed and edited by our editorial team. We strive to ensure accuracy and validate all information against reliable sources, but errors or omissions may occur, and circumstances may change over time. We are an independent media outlet delivering news, research, and data. Our goal is to provide clear and well-sourced analysis, but readers should treat this as contextual information, not as professional advice. Last updated: September 9, 2025. This is a living document and may be revised as proposals evolve, partners are disclosed, or market conditions change.

Follow the Conversation

This section is designed to capture the evolving discussion around USDH — across Twitter/X, Spaces, podcasts, and community calls — so you don’t have to scroll the timeline.

Instead, you’ll find a curated feed of content to dive deeper into the story.