USDH: Hyperliquid’s Stablecoin to Rival USDC and USDT

Stablecoins are the backbone of decentralized finance, powering liquidity, settlements, and trading on global platforms. 

Yet, their control is concentrated in the hands of a few issuers like Circle (USDC) and Tether (USDT), creating systemic risks and funneling billions in profits away from user communities.

Hyperliquid, a fast-growing decentralized perpetual futures exchange, is now challenging this status quo with the launch of USDH, a purpose-built stablecoin designed for its ecosystem. 

Instead of issuing USDH directly, Hyperliquid is holding an open on-chain auction where top firms such as Paxos, Frax, Sky (formerly Maker), Agora, and Ethena are competing to issue and manage the stablecoin.

This approach combines decentralization, compliance, and incentive alignment, creating a stablecoin that is not just pegged to the dollar but deeply integrated into the Hyperliquid economy with benefits flowing back to users, validators, and developers.

What is USDH?

USDH is a stablecoin designed specifically for the Hyperliquid exchange, pegged to the U.S. dollar and collateralized by a mix of on-chain and off-chain assets. 

Unlike existing stablecoins, its primary mission is to strengthen Hyperliquid’s financial independence while channeling revenue from reserves back into the community.

The coin will operate on HyperCore and HyperEVM, Hyperliquid’s proprietary blockchains, ensuring high-speed performance, seamless integration, and superior liquidity for traders.

Read Also: Fireblocks Debuts New Stablecoin Payments Network to Boost Efficiency

Why Hyperliquid is Launching USDH

At present, Hyperliquid relies heavily on USDC, with $5.5 billion in deposits tied up as collateral on its exchange. This accounts for about 7.5% of USDC’s total supply, a concentration that both benefits Circle and introduces dependency risks for Hyperliquid.

USDH changes the dynamic by:

• Reducing reliance on Circle’s USDC and Tether’s USDT

• Reinvesting yield from backing reserves into the Hyperliquid ecosystem

• Supporting HYPE token buybacks, validator rewards, and developer funding

• Establishing a compliant, scalable, and exchange-native stablecoin

This creates a stablecoin that is owned by the community, not external issuers.

How USDH Will Work

Collateralization Models

Bidders in the auction propose unique approaches for collateral backing:

• Paxos: Fully fiat-backed reserves such as short-term U.S. Treasury bonds and treasury bills, leveraging regulated infrastructure.

• Sky (formerly Maker): Over $13 billion in collateral, mixing crypto assets with real-world Treasuries and liquidity pools.

• Ethena: A USDtb-backed model indirectly supported by BlackRock’s BUIDL fund, plus $75–150 million in ecosystem incentives.

• Frax & Agora: Hybrid collateral structures, blending decentralized CDPs (collateralized debt positions) with tokenized Treasuries.

This diversified approach ensures liquidity, compliance, and institutional-grade risk management for USDH.

Governance Framework

Governance will be validator-led, ensuring community oversight:

• Validators vote on which firm issues and manages USDH.

• Ethena proposes a “guardian validator network” to intervene in emergencies.

• Revenue from reserves will be shared with the community through HYPE buybacks and ecosystem incentives.

This framework creates a balance between decentralization and operational oversight, giving users confidence in USDH’s stability and fairness.

Read Also: Stablecoin Volume Hits $2.5T as Supply Peaks, But Fragmentation Remains

Compliance and Regulatory Standards

To ensure global adoption, USDH will integrate compliance with:

• The GENIUS Act in the United States

• The MiCA standards in the European Union

These measures position USDH as a future-proof stablecoin able to expand across markets without facing the regulatory bottlenecks that constrain many competitors.

Community and Ecosystem Incentives

Bidders are also competing through ecosystem growth packages:

• Ethena: $75–150 million in liquidity mining, validator incentives, and developer funding.

• Sky, Paxos, and Agora: Community pools, infrastructure support, and compliance tools.

This intense competition underscores the strategic importance of USDH, with major firms viewing it as a gateway to DeFi’s next growth phase.

Read Also: Ripple Stablecoin RLUSD Hits $700M as Expansion Moves Into Africa

Why USDH Matters for DeFi

USDH is more than just another stablecoin experiment. It represents:

• Validator-driven governance instead of centralized control

• Revenue redistribution to the community through HYPE buybacks and rewards

• Regulatory alignment for long-term sustainability

• A new model for exchange-native stablecoins that could inspire other platforms

By combining decentralization with compliance and incentive alignment, USDH could mark a turning point in stablecoin infrastructure within DeFi.

Impact on Circle and USDC

USDH could reshape Circle’s USDC footprint within Hyperliquid. If users migrate from USDC to USDH, Circle faces an estimated $150–200 million in annual revenue losses, or around 10% of its business.

This is because Circle profits primarily from investing USDC reserves in short-term U.S. Treasuries. Losing $5.5 billion in deposits from Hyperliquid would directly cut into this revenue stream.

Still, analysts remain cautious about USDH’s broader impact. While USDH will compete strongly within Hyperliquid, USDC’s global adoption remains resilient, with demand for regulated stablecoins continuing to grow.

In short, USDH pressures Circle in specific markets but is unlikely to dethrone USDC’s global dominance in the near term.

Read Also: Bank of China Hong Kong Eyes Stablecoin Issuer License by 2025

FAQ

What makes USDH different from USDC or USDT?

USDH is community-governed, exchange-native, and designed to reinvest yield into Hyperliquid rather than external issuers.

Who decides which firm will issue USDH?

Hyperliquid validators vote on competing proposals from bidders like Paxos, Frax, Sky, Agora, and Ethena.

How will USDH be backed?

Collateral will include U.S. Treasuries, tokenized bills, stablecoins like USDtb, and crypto assets depending on the winning proposal.

What benefits does USDH bring to Hyperliquid users?

Yield-sharing, HYPE token buybacks, validator rewards, and ecosystem incentives like liquidity mining and developer funding.

Will USDH compete with USDC globally?

Not immediately. USDH will primarily target Hyperliquid’s ecosystem, but its validator-led model could influence the broader stablecoin market.

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