Will the six major companies compete for the Hyperliquid stablecoin issuance rights to impact USDC?

Deng Tong, Golden Finance

On September 5, 2025, Hyperliquid announced the launch of the stablecoin USDH. After the network upgrade, validators will select the team best suited to build the native minting of the Hyperliquid stablecoin through an on-chain transparent voting mechanism. Interested teams can submit proposals in the forum.

Once the news broke, many crypto companies in the industry submitted proposals to support the HyperLiquid stablecoin USDH, and the competition for the issuance rights of the USDH stablecoin has become increasingly intense. Even Polymarket has launched related bets.

This article outlines which companies are participating in the competition for USDH issuance rights and discusses why USDH is so popular and whether it will impact USDC.

1. The Dispute Over USDH Issuance Rights Among Six Major Companies

• Native Markets

On September 5, 2025, just over an hour after the announcement from Hyperliquid, Native Markets, a company founded by Hyperliquid advocate Max Fiege, submitted a proposal, igniting the competition for the issuance rights of the USDH stablecoin. The plan was to issue USDH through Stripe's stablecoin payment processor Bridge, but it faced strong opposition from the community.

• Paxos

On September 7, 2025, the stablecoin issuer Paxos announced on platform X that it has submitted a proposal to support the HyperLiquid stablecoin USDH. If the proposal is approved, it means that USDH issued by Paxos will meet the standards of the GENIUS Act. Additionally, revenue sharing will promote the development of the protocol and validators, while clear regulation and global scale can also match HyperLiquid's growth. Paxos will allocate 95% of the interest from the reserves supporting USDH to repurchase HYPE and redistribute it to ecosystem programs, partners, and users.

• Frax

On September 8, 2025, Frax submitted a proposal. Frax launched the frxUSD stablecoin earlier this year and proposed to provide support for USDH at a 1:1 ratio, while frxUSD itself is backed by BlackRock's yield-generating BUIDL on-chain treasury fund. The core team of Frax stated that according to Frax's proposal, "100% of the underlying treasury bond yields will be programmatically forwarded on-chain to Hyperliquid users, with Frax's fees being zero." Frax defines this proposal as "community-first," aiming to "achieve seamless minting/redemption between frxUSD, USDC, USDT, and fiat currencies," and is compliant with GENIUS standards. Frax indicated that given the annual interest rate of treasury bonds is 4%, the current stablecoin deposits on Hyperliquid can yield $220 million annually. "We have no intention of manipulating USDH; we just want to provide the underlying stablecoin infrastructure. All our infrastructure is built around frxUSD, which makes it easier to support. USDH will inherit all these features, including multi-chain support, minting/redeeming capabilities, compliance, and future features such as card spending."

• Agora, Rain, LayerZero

On September 8, 2025, the stablecoin startup Agora proposed to jointly provide USDH stablecoin support for Hyperliquid in collaboration with infrastructure providers such as Rain and LayerZero. Agora committed to using all net income from USDH for HYPE buybacks and fund support, and to providing at least $10 million in initial liquidity. USDH will adopt a compliant structure, possess multi-jurisdictional issuance qualifications, and prioritize services for the Hyperliquid ecosystem, avoiding external platform lock-up or drainage.

• Sky (formerly MakerDAO)

On September 9, 2025, Sky (formerly MakerDAO) joined the competition for the issuance rights of the USDH stablecoin under Hyperliquid. Rune, co-founder of Sky, stated on the X platform: "Sky provides Hyperliquid with the main advantages of USDH: USDH will receive instant liquidity of $2.2 billion USDC for off-chain redemption; Sky can deploy its over $8 billion balance sheet to Hyperliquid; all USDH on Hyperliquid can earn a yield of 4.85%, which is higher than the yield on government bonds, and the 4.85% earnings generated from all USDH will be used for the HYPE buyback fund; Sky can provide $25 million in funding to create an independent Hyperliquid Star project to develop Hyperliquid DeFi autonomously; Sky can transfer its buyback system to Hyperliquid, utilizing over $250 million in annual profits to build USDH liquidity."

• Ethena Labs

On September 8, 2025, Ethena Labs, the issuer of the third largest USD stablecoin USDe, hinted at its upcoming competition for the issuance rights of the USDH stablecoin under Hyperliquid. Ethena Labs stated, "Dear Jeff (co-founder of Hyperliquid), I wrote to you, but you still haven't returned my call. I sent two USDH proposals last fall, and you must not have received them. Perhaps there was an issue with Discord or something else, sometimes I write the deployment address too hastily."

The next day, Ethena Labs officially released a proposal, requesting the community and validator groups to consider the inclusion of the USDH token identifier, proposing the launch of a stablecoin centered around the Hyperliquid platform. This stablecoin will integrate the professional experience and resources accumulated by Ethena and its partners in practical applications, with a strong emphasis on security, community co-construction, and compliance. Ethena promises to invest substantial funds and human resources to make USDH a benchmark, top-tier stablecoin among Hyperliquid users and developers. The core terms of the proposal include that USDH will initially be 100% backed by USDtb; Ethena commits to using at least 95% of the net income generated from USDH reserves for the Hyperliquid community; if the Hyperliquid community wishes to reprice the current trading pairs valued in USDC to USDH, Ethena will bear all the transaction costs of migrating USDC to USDH; the Ethena Labs research team will submit a proposal to the Ethena Risk Committee to apply for USDH to be listed as a compliant backing asset for USDe, etc.

Ethena showcased its collaboration with Anchorage Digital, a federally chartered digital asset bank, and Securitize, a real asset tokenization company backed by BlackRock. Anchorage is responsible for issuing Ethena's USDtb stablecoin, which is supported by BlackRock's tokenized fund BUIDL. Robert Mitchnick, the head of digital assets at BlackRock, stated in the proposal: "We are pleased to enable Ethena's USDtb to connect to Hyperliquid. USDtb is 100% supported by BUIDL and can provide institutional-grade cash management and on-chain liquidity for Hyperliquid users." According to Ethena's proposal, USDH will initially be supported by USDtb, thereby indirectly receiving support from BlackRock's BUIDL fund, which manages assets totaling $14 trillion. At least 95% of the earnings generated from the USDH reserves will be allocated to Hyperliquid's "assistance fund" and used for repurchasing HYPE tokens and distributions to validators.

2. Why is USDH so popular?

Paxos pointed out: The biggest opportunity in the Hyperliquid ecosystem lies in ensuring that the income generated from stablecoin balances and transaction fees can flow back to the builders and users of the ecosystem. USDH addresses this issue with its issuance scale and incentive mechanisms.

According to a post by Hyperliquid on X: Hyperliquid's buyback plan has absorbed over 30 million HYPE tokens. Hyperliquid's actions have tightened supply, increased token value, and indicated that Hyperliquid is committed to returning revenue to its ecosystem rather than external shareholders. Hyperliquid has strengthened the incentive loop around USDH, making the USDH stablecoin more attractive to traders seeking yield and governance risk.

Affected by the news of the USDH stablecoin, the market is once again generally optimistic about the market trends of the Hyperliquid ecosystem and HYPE. Recently, whales and institutions have been entering the HYPE market. On just September 8th, the whale "qianbaidu.eth" deposited 2.05 million USDC to purchase HYPE; qianbaidu.eth bought HYPE worth 12 million dollars; a certain smart money deposited 4.01 million USDC into Hyperliquid, of which 2.996 million USDC has already purchased 63,197 HYPE; Mike Dudas, co-founder of TheBlock and founder of 6MV, posted on X stating that 6MV has significantly increased its HYPE holdings, and the events this weekend clearly indicate that the Hyperliquid ecosystem is ready to take off; Nasdaq-listed Lion Group Holding Ltd. announced plans to convert all its SOL and SUI assets into HYPE.

The strong performance of HYPE reflects the confidence in the investment market. In the past 7 days, HYPE has been on an upward trend, especially after September 8, when the competition for HYPE issuance rights among several companies intensified. HYPE's rise is encouraging, reaching $55.03 at the time of writing, with a 7-day increase of 23.4%.

3. Will USDH impact USDC?

According to the U.S. "GENIUS Act", stablecoin issuers are prohibited from paying interest directly to holders. This creates a fundamental difference between USDH and Circle's USDC. This legal boundary means that, even in a low-interest-rate environment where U.S. Treasury yields shrink, Circle cannot compete on yields.

If USDH is successful, although it cannot directly pay interest to holders, it can return profits to the ecosystem in other ways. For instance, Paxos proposed to allocate 95% of the interest from the reserves supporting USDH to buy back HYPE and redistribute it to ecosystem plans, partners, and users. Frax also proposed to programmatically forward 100% of the underlying treasury bond yields to Hyperliquid users on-chain. This indirect profit distribution method allows USDH to provide certain economic incentives to users under the premise of compliance, which distinguishes it significantly from USDC. This could lead USDH to siphon off a large amount of liquidity from USDC, especially in the DeFi market that favors yield, potentially weakening Circle's position.

According to the MiCA Regulation, MiCA effectively prohibits yield-generating stablecoins by requiring a 1:1 reserve ratio, and algorithmic stablecoins are also banned due to a lack of reserves. Although MiCA does not directly use the term "prohibit" to refer to yield-generating stablecoins, the regulation aims to protect banking functions and prevent them from being too similar to banking products, making the issuance of yield-generating stablecoins incompatible with this framework.

As industry insiders discuss whether USDH will impact USDC, Circle has joined Hyperliquid to defend its position.

Jeremy Allaire, co-founder and CEO of Circle, stated in a post on X that one should not be misled by the hype. Circle will be a major player and contributor in the Hyperliquid ecosystem. It is great to see others purchasing the new USD stablecoin code and participating in the competition, but the USDC, with its deep liquidity and almost instant cross-chain interoperability, will definitely be warmly welcomed by the market. Circle is preparing to launch native USDC in the HYPE ecosystem, aiming to ensure its presence in the sector dominated by USDH.

This turns the competition between the two major stablecoin systems into a direct confrontation within the same platform:

• USDH is quite attractive due to its advantages such as yield, user incentives, and new governance.
• USDC has attractions such as scale, liquidity, regulatory trust, and interoperability.

4. Opinions of Industry Insiders

Bernstein analysts believe that the launch of USDH and other stablecoins should create a more competitive environment, but the impact on Circle will not be immediately apparent. "Injecting liquidity into new stablecoins is not easy, especially for crypto capital market products like futures, where position size and execution efficiency are crucial. Hyperliquid may choose to collaborate with more stablecoin partners (including Paxos) to enhance the resilience of its platform, but building liquidity on its futures products is a gradual process."

"With the beginning of the interest rate cut cycle, we expect the digital asset cycle to shift towards risk-driven, further driving the demand for USDC (as well as the demand for USDC on-chain yields). Additionally, as Circle continues to expand its USDC financial ecosystem, the integration of payment and financial services into stablecoins remains in its early stages."

Jamie Elkaleh, Chief Marketing Officer of Bitget Wallet, stated in a report: "By anchoring native stablecoins, Hyperliquid reduces reliance on external assets such as USDC or USDT, while strengthening the integration of trading, settlement, and liquidity within its derivatives platform. In many ways, USDH is less about directly competing with Tether, USDT, or USDC, and more about redefining how stablecoins align with the core economic mechanisms of various protocols."

Bitget's Chief Analyst Ryan Lee pointed out: "This stablecoin has been positioned as a major competitor to USDC, its issuance will help concentrate liquidity, thereby further driving up the price of HYPE. Ultimately, the entire industry is optimistic about HYPE's growth potential, as well as its confidence in being among the top five cryptocurrencies in the long term."

Conclusion

The competition for the issuance rights of USDH stablecoin may have a profound impact on the current landscape of the stablecoin sector, and the revenue mechanism of USDH may provide important insights into how stablecoins can seek a balance between "compliance and yield."

With the dust settling on the issuance rights dispute of the USDH stablecoin, whether HYPE can enter the ranks of mainstream coins, whether USDH can compete with USDC, and whether USDC can maintain its market share are all points worth paying attention to in the future.