Hyperliquid’s USDH Stablecoin and the Battle for Issuers

Hyperliquid is preparing to launch USDH, a stablecoin designed to replace external settlement assets such as USDC within its own ecosystem. What makes this launch significant is not only the stablecoin itself but the process behind it. 

Validators will vote to decide which issuer gains control of USDH, making it one of the most competitive governance events in decentralised finance. 

The outcome will determine how billions in liquidity are managed and whether Hyperliquid chooses institutional credibility or DeFi-native innovation as its guiding principle.

Why Hyperliquid Wants a Native Stablecoin

The decision to launch USDH reflects Hyperliquid’s desire to capture value within its own system rather than outsourcing it to external providers. At present, markets on Hyperliquid rely heavily on USDC as the primary stable asset. 

While this arrangement works, it ties the exchange to decisions made by a centralised issuer and prevents revenues from circulating back into the network itself.

By creating USDH, Hyperliquid aims to keep liquidity and revenues aligned with its Layer 1 chain. This design would allow validators and token holders to benefit from reserve yields rather than seeing them flow to an outside institution. 

Estimates suggest that if USDH were to capture around fifteen percent of stablecoin liquidity, it could recycle as much as 5.5 billion dollars in capital and generate over 200 million dollars annually for holders of Hyperliquid’s native token.

The launch also has governance implications. Rather than simply choosing a partner behind closed doors, Hyperliquid has placed the decision in the hands of its validator community. 

The foundation has pledged not to exercise its own vote independently but to mirror the majority of non-foundation validators, giving the process legitimacy. This reinforces the idea that governance is not an afterthought but a central feature of Hyperliquid’s model.

Beyond economics, USDH raises questions of identity. Should Hyperliquid align with regulated issuers that provide institutional credibility, or should it favour decentralised teams that keep control closer to the community? 

The competing proposals reflect both sides of this divide, and the validator vote will decide which direction takes priority.

Read also: Ethena Shakes Up Hyperliquid With Bold USDH Bid 

The Contenders for the USDH Mandate

The bidding process has attracted a wide range of proposals, highlighting the importance of the mandate. Each contender brings a different mix of incentives, governance models, and commitments.

Ethena, now the third-largest stablecoin issuer globally, has presented one of the most detailed proposals. 

It plans to issue USDH through its USDtb token, which is backed by BlackRock’s BUIDL fund and distributed by Anchorage Digital Bank. 

Ethena pledged to return ninety five percent of reserve revenues to Hyperliquid, cover migration costs from USDC, and provide at least 75 million dollars in incentives, potentially rising to 150 million. 

To address concerns about centralisation, it proposed a validator guardian network for oversight and also suggested launching a synthetic stablecoin, hUSDe, to expand liquidity.

Paxos, known for its regulatory credentials, emphasised compliance and enterprise reliability. Its plan includes directing ninety five percent of yields into HYPE token buybacks, creating predictable returns while maintaining a conservative structure. With its track record in traditional markets, Paxos presents itself as the safest institutional option.

Frax Finance offered a more DeFi-native vision, proposing zero take rates with all treasury bill yields flowing directly to Hyperliquid. This aligns with decentralisation but raises questions about scalability compared to larger institutional issuers.

Sky, the successor to MakerDAO, put forward a multi-collateral model with instant redemptions from a pool of 2.2 billion USDC. It promised a yield of 4.85 percent returned via HYPE buybacks, blending decentralised governance with stability.

Agora, backed by VanEck and MoonPay, made perhaps the boldest commitment by pledging to return one hundred percent of revenues to the Hyperliquid community. 

By positioning itself as the most user-aligned choice, Agora appeals directly to those who value community benefit over issuer profits.

Native Markets, founded by a long-time supporter of Hyperliquid, proposed issuing USDH through Stripe’s Bridge processor. 

This approach seeks to connect crypto with fintech infrastructure, but it has drawn criticism from some who argue that relying on a payment processor could limit Hyperliquid’s independence.

Other teams, including Curve and Bastion, submitted variations ranging from collateralised debt systems to hybrid regulated models. The diversity of options reflects both the importance of the role and the different philosophies shaping stablecoin design.

Read also: VanEck Backs Hyperliquid with Bold Staking ETF Move!

What the Decision Means for DeFi

The competition for USDH issuance is more than a contest between issuers. It is a test of how governance functions in practice when significant financial stakes are involved. 

Validators must weigh short-term incentives against long-term strategy, deciding whether regulatory credibility, decentralised alignment, or direct community benefit should carry more weight.

Prediction markets have even opened around the outcome, with traders betting on which issuer is most likely to win. 

Early speculation favoured Native Markets, though recent odds suggest that Ethena and Paxos are now the frontrunners. Observers note that the final decision will likely set a precedent for future governance contests in DeFi.

The choice also reflects broader themes in the crypto industry. One path ties Hyperliquid closer to traditional finance through regulated institutions such as Paxos or Ethena. This could improve credibility with external partners but may limit flexibility. 

The other path leans toward community-first models such as Frax, Sky, or Agora, which prioritise decentralisation but may face challenges in scaling against institutional players.

Whichever option is chosen, the implications are substantial. USDH could provide Hyperliquid with a sustainable source of revenue, reduce reliance on external stablecoins, and strengthen its independence. 

At the same time, the governance process itself demonstrates how decentralised platforms can make collective decisions about assets worth billions of dollars.

For DeFi as a whole, this represents a moment of maturity. Stablecoins have long been essential for trading and settlement, but they have often been controlled by external issuers. 

By internalising stablecoin issuance and making governance central to the decision, Hyperliquid is showing how protocols can take greater ownership of their financial foundations.

Read also: Hyperliquid XPL Market Crash Exposes Risks and Sparks

Conclusion

The launch of USDH is more than a technical step for Hyperliquid. It is a governance experiment, a financial strategy, and a statement about the platform’s direction. 

By asking validators to choose between institutional stability and DeFi-native innovation, Hyperliquid is highlighting the competing forces that shape today’s decentralised finance. 

Whether USDH becomes a bridge to traditional markets or a flagship for community-driven models, the decision will set the tone for Hyperliquid’s future. 

For traders seeking to participate in crypto with less complexity and greater security, Bitrue remains an accessible platform that provides an easier and safer environment for trading digital assets.

FAQ

What is Hyperliquid USDH?

USDH is a planned stablecoin for Hyperliquid’s ecosystem. It will serve as a settlement asset, reduce reliance on external stablecoins, and recycle revenues back into the network.

Why does Hyperliquid want its own stablecoin?

The aim is to keep value within the platform by capturing reserve yields and strengthening independence from issuers like USDC, while giving governance power to validators.

Who are the main contenders to issue USDH?

Proposals have come from Ethena, Paxos, Frax Finance, Sky, Agora, Native Markets, and others. Each offers a different mix of revenue sharing, governance models, and incentives.

How will the issuer be chosen?

Validators will vote to decide the winning proposal. The foundation will abstain from exercising its own influence and align with the majority of non-foundation validators.

What does the decision mean for DeFi?

The outcome will show whether DeFi governance prefers regulatory partners or community-first models. It could set a precedent for how stablecoin infrastructure is managed in future protocols.

Investor Caution 

While the crypto hype has been exciting, remember that the crypto space can be volatile. Always conduct your research, assess your risk tolerance, and consider the long-term potential of any investment.

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