Introduction

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In the world of decentralized finance, one upstart exchange has taken center stage with a bold experiment that could reshape the stablecoin landscape. Hyperliquid, a high-performance, layer-1 trading protocol is holding a first-of-its-kind auction to determine who will issue its new native stablecoin USDH. The prize is enormous: Hyperliquid currently holds about $5.5 billion in USDC deposits, and whichever issuer wins the USDH contract will effectively inherit one of the largest single stablecoin user bases in crypto. This stablecoin showdown not only puts hundreds of millions in annual revenue up for grabs, but also highlights Hyperliquid’s meteoric rise and the growing power of on-chain communities to shape their own financial infrastructure.

Hyperliquid’s Meteoric Rise

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It’s no coincidence that major stablecoin providers are clamoring to partner with Hyperliquid. In just over a year since its launch, Hyperliquid has exploded to the top of DeFi derivatives markets. The exchange processes hundreds of billions of dollars in trading volume each month, a level that rivaled and even surpassed many traditional retail brokers. Hyperliquid’s custom blockchain architecture combines their HyperCore order book engine and an EVM-compatible layer for smart contracts, enabling centralized-exchange-like speed and throughput, executing trades with sub-second latency and minimal fees. This potent design has translated into rapid growth: Hyperliquid now commands roughly 70–80% of the decentralized perpetual futures market share, with an annualized revenue run rate around $1 billion from trading fees. Such success has driven the native HYPE token to all-time highs and attracted an active community of traders and builders to the platform.

But with growth comes new challenges. Until now, Hyperliquid’s ecosystem has been heavily dependent on Circle’s USDC stablecoin as the primary trading and settlement currency. Roughly 95% of all stablecoins on Hyperliquid are USDC, meaning billions of user deposits are effectively bolstering Circle’s treasury holdings (and revenue). This reliance became increasingly untenable for Hyperliquid’s community and team. Not only due to the centralization risk of leaning on an external company, but also because all the yield from those reserves (U.S. Treasury interest) was flowing to Circle rather than to Hyperliquid users. This set the stage for Hyperliquid to consider launching its own USDH stablecoin, turning what was once a revenue stream for Circle into a growth and sustainability opportunity for the Hyperliquid ecosystem itself.

The USDH Auction: A New Model for Stablecoin Issuance

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Rather than simply create a stablecoin internally or partner in a backroom deal, Hyperliquid took a novel approach befitting its decentralized ethos: it opened the floor to public competition. In an on-chain governance process, various organizations have been invited to bid for the right to issue USDH, each presenting a proposal that outlines their planned stablecoin structure, how they’d manage the reserves, and how they’d share the spoils (the interest income and any other benefits) with Hyperliquid stakeholders. Hyperliquid’s validators, community members who secure the network by staking HYPE tokens, will vote on September 14 to choose the winning proposal. Notably, the Hyperliquid Foundation has said it will abstain from voting, leaving the decision entirely to the distributed validator community. This transparent “auction” format has electrified DeFi observers: it flips the script on traditional partnerships by forcing stablecoin issuers to openly compete and sweeten the deal for the community, rather than the protocol quietly courting a single company.

At stake is not only the estimated $150–$200 million in yearly revenue that the $5+ billion in stablecoin deposits can generate, but also control over a critical piece of Hyperliquid’s infrastructure. The issuer of USDH will influence how the stablecoin is managed, how easily users can move in and out of it, and how integrated it becomes across the Hyperliquid chain and its DeFi applications. In effect, Hyperliquid is outsourcing its “central bank” role, and doing so via a decentralized request for proposal where the best bid wins. It’s a landmark experiment in community-driven negotiation that could set precedent for other DeFi platforms seeking to reduce dependence on external corporations. No matter which bid prevails, Hyperliquid’s approach is already being hailed as a win for decentralization and user empowerment, as it forces competition on terms that are rarely seen in traditional stablecoin deals.

Meet the Contenders: Five Bids and a Late Entrant

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The prospect of powering Hyperliquid’s USDH has drawn a who’s-who of crypto finance into the race. Initially five major contenders emerged, and a sixth has now joined, each with a unique vision for USDH. Here’s a quick look at the proposals vying for Hyperliquid’s favor:

• Sky (MakerDAO Ecosystem) – DeFi veteran with a massive balance sheet. Sky, a project led by MakerDAO founder Rune Christensen (and effectively the newly rebranded MakerDAO ecosystem), entered the fray with the heft of an $8 billion balance sheet behind it. Sky’s proposal offers Hyperliquid a generous 4.85% yield on all USDH deposits, exceeding even current U.S. Treasury rates, which would be used to buy back HYPE tokens and fund Hyperliquid’s Community Assistance Fund. They also pledge deep liquidity: up to $2.2 billion in instant redemption capacity via Maker’s Peg Stability Module, so that large traders can convert USDH to other assets at will. As a kicker, Sky promised a $25 million ecosystem investment (“Hyperliquid Genesis Star”) to help bootstrap new DeFi apps on Hyperliquid, and even plans to bring its own robust token buyback engine (which generates $250M+ annually for Maker) over to Hyperliquid. In short, Sky leverages Maker’s years of stablecoin experience to position itself as a compliant yet community-aligned issuer that can supercharge Hyperliquid’s growth.
  
  
• Paxos – Regulated stalwart, playing the compliance card. New York-based Paxos, known for issuing USDP and running crypto infrastructure for companies like PayPal, is emphasizing trust and simplicity. Paxos promises to back USDH 100% with cash and U.S. Treasury bills held by its regulated custodian, and to pass 95% of all reserve interest back to Hyperliquid (in the form of HYPE token buybacks distributed to the ecosystem). It also offered to handle the transition from USDC seamlessly with zero fees on migrating liquidity. With a decade-long track record in stablecoins and regulatory approvals across jurisdictions, Paxos pitches itself as the safest pair of hands for Hyperliquid’s “dollar”, assuring the community that USDH would be globally compliant from day one (including adhering to U.S. GENIUS Act rules, MiCA in Europe, and more). The message: Hyperliquid can gain a revenue stream and independence without sacrificing credibility or legal security.
  
  
• Frax – DeFi purist, maximizing user yield. Frax Finance, creator of the FRAX stablecoin, entered a bid with a “community-first” philosophy. Frax proposes a wrapper model where USDH would effectively be FRAX under the hood, but all of the Treasury yield would be passed directly to Hyperliquid users holding or using USDH. In other words, 100% of the yield benefits the community, with Frax taking no cut for itself. This contrasts with the other bids that allocate a portion of yield to token buybacks or company revenue. Frax’s approach could mean lower profits for Hyperliquid’s treasury in the short term, but much higher stablecoin appeal to users who might earn interest simply by holding USDH. It’s a play to make USDH the most competitive stablecoin in DeFi for end users, aligned with Frax’s image as a decentralized, user-centric protocol. Frax also touts its on-chain transparency and algorithmic expertise, though it will need to convince validators that a zero take model is sustainable and that its tech is rock-solid.
  
  
• Agora (with MoonPay) – TradFi-backed “neutral” coalition. Agora is a newer entrant backed by heavyweights in traditional finance and fintech: think State Street and VanEck alongside crypto payment firm MoonPay. Co-founded by Nick van Eck, Agora brands itself as a neutral infrastructure provider rather than a DeFi protocol with its own token interests. Its proposal promises that 100% of net revenue from USDH reserves would go toward HYPE buybacks or Hyperliquid’s funds, effectively matching Frax’s community-first economics, but with the polish of institutional backing. Agora highlights that it brings regulatory compliance and payment network integrations (via MoonPay) while not being a direct competitor in the exchange or stablecoin business. This stance is meant to assure Hyperliquid that Agora would focus solely on making USDH successful on Hyperliquid, without hidden agendas. Perhaps most notably, the Agora/MoonPay coalition has been outspoken against one rival bid’s potential conflicts, specifically, they warn against “ceding control” of USDH to any issuer closely tied to a large Web2 company. The subtext: choose an issuer that strengthens Hyperliquid’s sovereignty, not one that could dilute it.
  
  
• Native Markets (Stripe’s Bridge) – Controversial fintech-linked proposal. Native Markets is the bid that has sparked the most debate in the community due to its affiliations. Backed in part by Stripe’s crypto arm (Bridge) and led by ex-Wintermute trader Max Fiege, this proposal suggests an internally developed stablecoin solution with yield split between community funds and growth initiatives (e.g. half of reserve interest to Hyperliquid’s Assistance Fund, and half to programs growing USDH adoption via other apps and markets). On paper, that sounds reasonable, but skeptics argue this plan effectively hands the keys of Hyperliquid’s monetary layer to Stripe, a Web2 payments giant that is simultaneously building its own blockchain (Project Tempo) and already owns a key wallet infrastructure (having acquired Privy). Competing bidders like Agora’s Nick van Eck have openly criticized Native Markets’ bid, saying giving Stripe such influence over a foundational DeFi component undermines the spirit of decentralization, akin to letting a “competitor” or outside corporation capture Hyperliquid’s economy. Some community members echo these concerns, noting that potential conflicts of interest abound if a private fintech company gains control of USDH issuance. While Native’s team touts their expertise and promises aggressive growth for USDH, the pushback has put this proposal on the defensive. Validators will have to weigh the appeal of Stripe’s resources and technology against the principle of maintaining Hyperliquid’s autonomy.
  
  
• Ethena – Newcomer with BlackRock on board. Ethena, a DeFi protocol known for its innovative approach to stablecoins, jumped into the race at the last minute and it brought some big guns. Ethena’s USDH bid centers on using its own fully-backed stablecoin token called USDtb, which is issued in partnership with federally chartered bank Anchorage Digital and uniquely backed by BlackRock’s tokenized money market fund BUIDL. In essence, Ethena offers Hyperliquid a stablecoin that is 100% collateralized by ultra-safe assets managed by the world’s largest asset manager. To sweeten the deal, Ethena pledges 95% of net revenue from USDH reserves straight back to Hyperliquid’s ecosystem (mirroring Paxos’ 95% offer), and even offers to cover the costs of migrating all existing USDC trading pairs on Hyperliquid over to USDH. The involvement of BlackRock gives Ethena’s proposal a stamp of credibility. For the Hyperliquid community, Ethena’s entry provides an intriguing option that blends DeFi innovation with TradFi stability. It shows that the auction has become so high-profile that even major Wall Street-linked players are eager to participate. Ethena’s bid will be evaluated alongside the rest, making the final choice even more complex for voters.
  
  

Each of these proposals brings a distinct philosophy for USDH. While rival offerings differ in structure, the common thread is that all are offering Hyperliquid a generous share of the pie, plus various perks like funding, liquidity guarantees, or technical support. It’s a testament to Hyperliquid’s importance that these companies are willing to bend over backwards, even at the cost of short-term profit, to win this contract. Hyperliquid’s move shows that large DeFi platforms won’t passively feed revenue to third parties if they have the leverage to negotiate better terms for their communities.

What’s at Stake: Impact on Stablecoin Landscape

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The outcome of this auction will reverberate far beyond Hyperliquid. If USDH succeeds in replacing USDC on this platform, it could dent Circle’s stablecoin business significantly. Hyperliquid’s USDC holdings represent about 7–8% of all USDC in circulation, and Circle relies on earning interest from those reserves for the bulk of its income. A loss of perhaps $150M or more annually from Hyperliquid users switching to USDH would be a notable hit to Circle’s revenue, illustrating how quickly fortunes can change in the stablecoin game. It’s a wake-up call for incumbent issuers: large crypto ecosystems may start demanding better revenue sharing or launching their own alternatives rather than accepting the status quo. We might be witnessing the first major example of a DeFi protocol flexing its bargaining power to challenge the USDC/Tether duopoly. In that sense, Hyperliquid’s USDH is not just another stablecoin, it’s an experiment in economic decentralization. Proving that communities can collectively choose who gets to profit from their liquidity.

There are also governance implications to watch. Hyperliquid’s validators must carefully weigh complex trade-offs: trust and compliance vs. decentralization ideals, immediate user benefits vs. long-term platform revenue, established track records vs. innovative approaches. The decision will set a precedent for how decentralized communities make “business deals” in an on-chain manner. A successful auction could inspire other protocols to hold similar competitive bids for services like stablecoin issuance, liquidity provisioning, or insurance. On the flip side, whichever partner is chosen will immediately become a linchpin in Hyperliquid’s ecosystem, meaning the community will need to hold that issuer accountable to their promises. If an issuer pledged to share 95% of yield or fund development grants, the follow-through will need to be transparent. This is where on-chain data and monitoring become crucial in the post-auction phase.

Data-First Insights: Monitoring the USDH Era with Elementus

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At Elementus, we believe that data is the key to understanding and managing the risks and opportunities in scenarios like Hyperliquid’s stablecoin transition. Hyperliquid’s chain doesn’t exist in isolation, it’s connected to multiple other networks through its HyperUnit cross-chain bridges. The moment USDH goes live, we can expect large flows of capital as users swap billions of USDC into USDH and as liquidity moves across chains. This is where a comprehensive blockchain analytics platform proves its worth. Our tools can track deposits and withdrawals across all chains Hyperliquid supports, giving a bird’s-eye view of how funds migrate when the new stablecoin enters circulation. By tagging and identifying entities behind addresses, we can observe who is moving capital when & where. From market intelligence to compliance, whether following large flows or nefarious actors, the power of entity attribution helps all parties manage risk and seize opportunity.

Counterparty risk and smart contract monitoring will be especially important in this new chapter. Whichever issuer wins, USDH will rely on a reserve mechanism (custodied assets, or on-chain collateral). Proper tools can help monitor those reserves on-chain and who holds them, while tracking smart contract bridges and associated liquidity pools for unusual activity. The goal is to spot early warning signs of trouble: whether it’s a sudden outflow of funds, an integration with a suspicious address, or a divergence in peg stability.

From a compliance and investigations standpoint, Hyperliquid’s adoption of USDH doesn’t eliminate the need for vigilance, it heightens it. A new stablecoin might attract new users and potentially new risks. Elementus can assist exchanges, regulators, and the Hyperliquid community itself by providing data on capital flows: identifying if any wallets involved in USDH liquidity have ties to known illicit actors, or if laundering patterns emerge. In the fast-moving world of DeFi, holistic monitoring is like an early-warning radar, helping participants and builders alike to navigate safely.

Analytics can yield insights into market trends. By watching on-chain data, we will be able to tell in real time how the market is reacting to USDH: How quickly are users adopting it? Is it preferred over other stables for arbitrage or yield farming on Hyperliquid’s HyperEVM side? For data-first companies these patterns are invaluable. They not only validate (or challenge) the expectations set during the bidding war, but also help forecast future behavior. If USDH starts gaining traction beyond Hyperliquid, we’ll see those flows and can gauge the broader impact. All of this reinforces an important point: decision-making in DeFi doesn’t end after a vote. It’s an ongoing process of evaluation, and having the right data at your fingertips is critical to making that process successful. 

Conclusion

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Hyperliquid’s USDH auction is a landmark moment for DeFi, a rare intersection of high-stakes finance, community governance, and strategic game theory. By leveraging its phenomenal growth and engaged community, Hyperliquid has compelled some of the biggest crypto and fintech players to compete on its terms. The coming days will reveal which proposal the validators favor, but in a broader sense Hyperliquid has already demonstrated a powerful lesson: decentralized platforms can assert control over their destiny and even challenge dominant industry norms when armed with strong user support. Elementus is excited to provide that data-first perspective as Hyperliquid enters this new era. For the broader analytics community, events like these highlight why on-chain data matters.

The story doesn’t end with announcing a winner – it begins a new chapter of measuring outcomes, managing risks, and seizing opportunities as capital flows in new directions. Hyperliquid is turning a page not just for its own platform but potentially for how all DeFi ecosystems engage with stablecoin issuers and other service providers. And as this story unfolds we’ll be watching the data, ready to help make sense of it all. In the ever-evolving dance between crypto innovation and financial pragmatism, Hyperliquid has charted a new course for stablecoin innovation and everyone is paying attention. The message is clear: community choice and data empowerment are defining the future of finance. Hyperliquid’s stablecoin showdown is proof positive of that future arriving.