On September 5, the decentralized exchange Hyperliquid announced plans to launch its native stablecoin USDH and elect the issuer through on-chain governance voting.
Currently, six major stablecoin issuers have submitted proposals to participate in the competition, including Sky (formerly MakerDAO), Paxos, Frax, Ethena, Agora, and Native Markets. Sky proposed to offer an annual yield of 4.85%, which is higher than treasury bonds, and the earnings will be specifically used for HYPE buybacks and assistance funds; Paxos emphasized compliance and plans to integrate PayPal and Venmo for USDH transactions; Ethena promised to return 95% of the earnings to the Hyperliquid ecosystem; the competitive highlight proposed by Native Markets is to peg USDH to cash and U.S. Treasury reserves managed by BlackRock.
As of September 11, Native Markets is leading in the voting with 30.8% of the delegated shares, but 57% of the shares remain undistributed. The governance vote will take place on September 14, and the winner will gain the right to issue USDH.
In the decentralized finance (DeFi) space, Hyperliquid has become an important player. As a decentralized exchange (DEX) built on its own Layer 1 blockchain, Hyperliquid combines the high-performance characteristics of centralized exchanges with the self-custody advantages of decentralized systems. The platform currently accounts for about 70% of the decentralized perpetual contract market, with monthly derivatives trading volume nearing $400 billion and monthly revenue exceeding $100 million.
However, this success also comes with significant dependency risks. Hyperliquid's liquidity is almost entirely reliant on external stablecoins, with total deposits around $5.6 billion, of which 95% is USDC issued by Circle. This dependency brings three strategic challenges.
First is the issue of value outflow. The massive USDC deposits on Hyperliquid are invested by the issuer Circle in interest-bearing assets like treasury bonds, and the generated earnings flow entirely to Circle, leaving the Hyperliquid ecosystem with almost no economic benefits.
Second is the issue of sovereignty and risk. Relying on centralized, restricted assets like USDC poses potential scrutiny risks for Hyperliquid if the assets are frozen by the issuer, which contradicts its goal of building a permissionless, decentralized financial system.
Third is the bridging security risk of cross-chain stablecoins. Although USDC has mitigated some risks by issuing native USDC on Hyperliquid and supporting CCTP cross-chain transfers, there are still potential security vulnerabilities in bridging.
By issuing its own stablecoin, Hyperliquid hopes to internalize the value created by the ecosystem, transforming the platform from a mere capital trading venue into an economy with its own currency system, where the profits generated by the ecosystem can directly support the platform's sustainable development.
According to CoinMarketCap, the total market capitalization of the global stablecoin market is nearly $300 billion, with Tether (USDT) and USD Coin (USDC) accounting for about 80% of the market share, at $169 billion and $72 billion, respectively. Additionally, many traditional financial institutions are also trying to get a piece of the stablecoin market. For example, PayPal launched PYUSD in 2023 and has already deployed it on blockchains like Ethereum, Solana, and Arbitrum, with plans to launch on the Stellar network.
In terms of regulation, the U.S. GENIUS Act was just signed into effect in July, requiring stablecoin issuers to hold full reserves and undergo regular audits. This regulation brings greater transparency and compliance to the market but also increases compliance costs for new issuers.
In this fiercely competitive and increasingly regulated environment, the challenges of Hyperliquid launching the USDH stablecoin should not be underestimated, but it still possesses significant competitiveness in the market. The most important point is that USDH can leverage Hyperliquid's mature decentralized trading platform and cross-chain liquidity network to achieve efficient and low-cost circulation across different blockchains, distinguishing it from traditional fiat-backed stablecoins that rely on a single chain.
Furthermore, if USDH successfully launches, hundreds of millions of dollars in annual interest income will directly belong to the community rather than external issuers. If this model is emulated by other leading protocols, it could fundamentally reshape the value distribution mechanism of stablecoins, driving profits back from issuers' balance sheets to the DeFi ecosystem that truly creates value.
The launch of USDH may enhance Hyperliquid's development, but it also comes with numerous risks. For instance, concentrating the issuance of the platform's native currency in a single entity may introduce single point of failure risks. Additionally, migrating billions of dollars in liquidity from established assets (like USDC) to the new USDH faces technical and adoption challenges, which could lead to liquidity fragmentation, affected user experience, and trader resistance.
Moreover, it is worth considering that although many proposals aim to comply with emerging regulatory frameworks, such as the U.S. GENIUS Act and the EU MiCA regulations, the global regulatory environment for stablecoins is still evolving. Future legislation may impose new requirements on reserve asset composition, profit distribution mechanisms, or issuer qualifications, all of which could impact the feasibility of the USDH model.
The launch of USDH presents both opportunities and challenges for Hyperliquid. Through its own stablecoin, the platform is expected to internalize the value created by the ecosystem, allowing interest income to flow directly back to the community, reducing reliance on external stablecoins like USDC, and achieving a more autonomous and sustainable economic model. However, centralized risks, liquidity migration challenges, and the ever-changing regulatory environment may still pose tests for the implementation and operation of USDH.
Overall, USDH is not only an important step for Hyperliquid towards economic autonomy but also provides a reference for the entire DeFi industry regarding stablecoin issuance, value distribution, and cross-chain innovation.
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Original: “New Player in the Stablecoin Race: Can USDH Gain Traction?”
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