Guests: Sam Quaian, Founder and CEO of FRA Finance; Kavita Gupta, Founder of Delta Blockchain Fund; Alex Thorne, Member of House Galaxy
Host: Steve Erlick, Executive Editor of Unchained
Podcast Source: Unchained
Original Title: Bits + Bips: Does USDH Prove DAOs Aren’t Dead? & Why DATs Are Broken
Broadcast Date: September 12, 2025
Compiled & Organized by: Luke, Mars Finance
Key Points Summary
The Stablecoin Battle of Hyperliquid and the Future of Digital Asset Treasuries
In this episode, Sam Quaian from FRA Finance, Kavita Gupta from Delta Blockchain Fund, and Alex Thorne from House Galaxy join host Steve Erlick to discuss two major hot topics in the current crypto world: the "bidding war" for Hyperliquid's official stablecoin code USDH, and the challenges and evolution facing Digital Asset Treasuries (DATs).
The program delves into the multiple implications behind Hyperliquid's competition: it is not only a battle among major stablecoin issuers for important distribution channels but also a public stress test of DAO governance models. The guests discuss the importance of branding, yield, and distribution in the stablecoin world and envision two possible futures for the stablecoin landscape—one dominated by large issuers or a flourishing of branded stablecoins.
At the same time, the discussion also focuses on the current state of the DATs market. The guests believe that the DATs market is experiencing the pains of a bubble burst, facing multiple pressures such as market saturation, declining investor enthusiasm, and increasing regulatory scrutiny. Future DATs need to move beyond simple "coin hoarding" models and create actual value for the ecosystem (such as staking, validation, development, etc.) to achieve differentiation, but this also comes with significant risks.
Additionally, this episode includes an important counterpoint: why current centralized Ethereum L2 solutions are not ideal for tokenized assets like regulated stocks.
Highlights of Insights
Sam Quaian: "Imagine this thought experiment: if I told you that you are the only stablecoin issuer compatible with the Genius Act… but the cost is that you can never earn any yield or charge any minting/redemption fees… would you accept this privilege? I certainly would… because there are many other intangible, immeasurable but valuable things, not just on-paper income."
Kavita Gupta: "I feel like the bubble of digital asset treasuries is being pricked somewhere, if not completely burst… Most people (holders) have started to play the market in and out like a three to four-month game."
Alex Thorne: "A single sequencer Rollup that can negligently or maliciously affect securities settlement fees or trading capabilities looks a lot like NASDAQ. And NASDAQ is heavily regulated… Unless Layer 2 becomes more decentralized or is strictly regulated, I don't think Ethereum L2 is ready for tokenized stocks."
Steve Erlick: "This also reminds us that, while the community is pleased with the SEC's 180-degree turn… this is something happening in a centralized world that pretends to be decentralized or claims to be decentralized. And I think it's just a good reminder for people to always remember that the original design of cryptocurrency was to prevent such things from happening."
Hyperliquid's Stablecoin "Bidding War"
Steve Erlick: Hello everyone, welcome to Bits and Bips. Sam, you mentioned in your opening remarks that there seems to be a bidding war going on related to Hyperliquid, one of the most prominent or hottest projects in the crypto space, and its stablecoin creators. Can you give us an overview of what's happening?
Sam Quaian: Sure. A few days ago, the Hyperliquid Foundation team suddenly announced that they would hold a competition for who can obtain the USDH code, which is commonly referred to as the Hyperliquid stablecoin. This is essentially the start of a competition regarding who can participate in the issuance, operation, and distribution of profits.
From a macro perspective, there are two views on the post-Genius Act era and the tokenization of everything. One view is that large issuers like Tether and Circle will be ubiquitous; the other view is that there will be a plethora of branded stablecoins, such as USDH, Starbucks USD, or Walmart stablecoin, etc. What’s really important here is that Hyperliquid is one of the largest ecosystems in the entire crypto industry, so they are interested in creating their own stablecoin and capturing all the profits. This is what we are watching to see if Circle will intervene at the last minute and publicly state, 'Hey, we will give you all the profits.' Is that enough? Or do they want this branding and unification?
FRA has submitted a bid to issue or assist in the issuance and management of the entire infrastructure, and we are collaborating with partners like LayerZero and Superstate. One of our collateral infrastructure pipelines that complies with the Genius Act is Superstate USDB, managed by BNY. We have very professional partners.
Kavita Gupta: I feel like this has become such an exciting new narrative. Everyone is trying to create their own Layer 1 or Layer 2 for stablecoins and have their own independent stablecoin. I think this will bring a lot of issues, such as liquidity fragmentation. We now have so many cryptocurrencies, and we will also have so many different stablecoins. For Hyperliquid, auctioning off the rights to a certain code is both interesting and engaging. But at the end of the day, to me, it feels like a meme coin joke. You know, putting a lot of money into getting that code. But we also need to gain adoption; we need to gain a lot of liquidity. But my question is, aside from being interesting and possibly attracting some attention, what will the adoption of the stablecoin we see at Hyperliquid look like on the consumer side?
The Battle for Issuance Rights: Yield, Branding, and Distribution Channels
Alex Thorne: Yes, they are auctioning off the namespace, which is the code. USDC is still the largest stablecoin on Hyperliquid. If they don't get the USDH code, I don't think it will necessarily put them at a disadvantage. The most interesting thing to me is that this is actually a distribution issue. The adoption of stablecoins largely depends on distribution. If you return 0% of the income earned from the tokens to holders, versus 100% returned to holders, that still doesn't leave much design space in my view. So in my mind, the game boils down to distribution. While it’s not yet clear that USDH will become the largest stablecoin on Hyperliquid, it is very likely. Therefore, for any issuer, the grand prize on the table is to capture it.
Sam Quaian: Alex's point about 100% yield is very good. Currently, there are basically three finalist proposals: Paxos, the Agora Consortium, and our proposal with partners at FRA. FRA was the first to state that we would provide 100% yield with no management fees. Shortly after, I think everyone followed suit, with even the lowest Paxos proposal reaching 95%. So the main point here is that yield is essentially the entry ticket. So if it’s not about obtaining yield, what is everyone competing for?
What is truly at stake is the ability to access the capital flows and distribution of one of the most important L1s in the DeFi space, Hyperliquid. The real question is who will become the best manager of these capital flows and be able to create the most value for the Hyperliquid community, for themselves, and for their business.
Steve Erlick: I find it particularly interesting how USDC competes in this world. And in the world where everyone expects Wall Street stablecoins to emerge after the Genius Act passes. The cryptocurrency space is so tribal that in a world like Hyperliquid, users have a high loyalty to specific brands. Being able to connect with the ongoing growth of this ecosystem is like a very large reward. PolyMarket is similar; they have such a loyal user base. When and if they launch their own blockchain will be key.
Kavita Gupta: I completely agree that distribution will be the decisive factor. But if I were Circle, considering survival and expansion, I would be worried about Instagram having its own stablecoin. We really underestimate PayPal's stablecoin. If all the online shopping giants have their own stablecoins, like Instagram having its own stablecoin, even if it's just for distribution on their platform, that would be a more powerful competition than anything else. Additionally, from a banking perspective and loyalty standpoint, if a checking account could offer a 4% or 5% yield, it would attract a lot of people.
The "Baking Contest" of DAO Governance
Alex Thorne: I think this is a story about the power that Hyperliquid now holds. All the largest stablecoins have come in. This is also a new "baking contest" of DAO governance, which is interesting. I hope that ultimately the validators of Hyperliquid can vote on this. The foundation controls the vast majority of shares in Hyperliquid, and I believe they have said they will abstain.
Steve Erlick: How decentralized is this governance? I have written a lot about the performative nature of DAO governance in the past. In many cases, the votes are pre-socialized, and they are not really genuine voting activities. What can you say to those who are concerned about this DAO governance process to convince them that this is a truly free and open voting system?
Sam Quaian: To be honest, I had my doubts at first. A few months ago, I spoke with members of the Hyperliquid team about their stablecoin strategy. I think one of the proposals, whoever publishes it first, suddenly had a website, which is a bit interesting. So I don't know if anyone thinks they knew in advance. Putting that aside, what really impresses me is that they have entrusted most of the foundation's Hype to community-operated validators. And I am sure these are real groups, real community members, who have genuine values and will vote in the interests of token holders and the ecosystem. I think the structure of what is happening is very interesting, and it will lay the foundation for future branded stablecoin competition.
Steve Erlick: What are the next steps?
Sam Quaian: This is a very fast process. Submissions will close within 48 hours. Then validators will have a chance to vote in a few days. So by next week, there may be an official winner.
Is the Digital Asset Treasury (DAT) Bubble Bursting?
Steve Erlick: Kavita, I want to shift to the topic of Digital Asset Treasuries (DATs). What are you seeing?
Kavita Gupta: I feel like the bubble of digital asset treasuries is being pricked somewhere, if not completely burst. First, everyone is doing this, the market is saturated, ranging from $100 million to $2 billion. Second, that excitement is fading because most holders have started to play the market in and out like a short-term game. Third, when DATs emerged, the idea was that these treasuries would buy cryptocurrencies from the market, driving up prices. But what we see is that many treasuries, after raising a lot of funds, do not have a clear buying timetable. They are engaging in various ancillary trades or their own investments. And now that the SEC has started to intervene and request shareholder agreements, the situation is different.
Alex Thorne: We are definitely in a phase of evolution. I would say we are probably still at the end of the beginning, rather than the beginning of the end. I think very few DATs can simply "stack tokens" like Michael Saylor. You will start to see some companies that can bring real value to these ecosystems begin to emerge. Especially in the proof-of-stake world, some of the largest validators will be DATs, and they may provide RPC access or even start their own development, similar to the collaborations Multicoin, Galaxy, and Jump have on Solana.
Kavita Gupta: The packages from sponsor groups are completely crazy, with 15% to 20% returns going to those who are merely organizers, which greatly undermines the long-term incentives of the management team. Secondly, when you see people raising so much money sitting idle, while most crypto investors will exit within four to six months. I feel that rather than calling it a digital asset treasury, these companies are now raising funds to do whatever they want without providing clear governance for investors.
The Evolution of DATs: From "Coin Hoarding" to Risk Management
Sam Quaian: The whole reason you buy a DAT is that the value per token should go up. People believe that one team can better increase the price per token than other DATs. For Bitcoin, it does not generate income; you basically need a very savvy, knowledgeable financial giant who can obtain loan leverage, and Saylor is the textbook example of such a person. For Ethereum, the way to maximize ETH per share is to ensure it is staked and not lose APY. You cannot just hold ETH; you need to do something important and risk-controlled in DeFi. So the best ETH DAT will have people who understand these things. The more crowded it gets, the more you need to convince the market that we are the team capable of maximizing the value per token without imploding.
Steve Erlick: I can also see this happening, where companies may start to leverage their balance sheets, they start to re-mortgage their cryptocurrencies, and they begin to put funds into DeFi protocols that promise high APY until they get hacked. How do you try to sniff out those projects that will stick to orthodox principles?
Alex Thorne: I think there is definitely risk, especially in the process of seeking differentiation, some digital asset treasury companies will expand their risks and try to go further on the risk spectrum. There are hundreds of such companies, and they certainly are not as skilled in financial engineering and risk calculation as Michael Saylor. You can see the risk hierarchy: staking on ETH has low risk; then liquidity staking, another level of risk; then re-staking through Lido; then you might be lending… Ultimately, it could go wrong. I think investors should be very cautious in examining what the companies they are investing in are doing. Do your due diligence, read the documents, and understand what they are doing.
Sam Quaian: As you said, Steve, I think these are like banks; equity tokens essentially represent a bank note. It’s a bit like the Wild West banking era in the U.S. Back then, it was like: this note has this much yield, and then another bank says, "We will offer 10% yield." You really don’t know what they are doing; it gets further and further out on the yield curve. This is actually similar to DeFi summer. An important point about DATs is that at least they are in a relatively regulated environment; as long as there is proper disclosure, you invest in the risk projects you want, and don’t complain if it implodes.
Counterpoint: Why Ethereum L2 is Not Suitable for Tokenized Stocks?
Alex Thorne: I want to mention why Galaxy is not doing tokenization on Ethereum L2. While Ethereum optimistic Rollups may be secure enough for native assets like ETH (because in the case of a central sequencer censoring your transactions, you can replay transactions directly on L1 and exit unilaterally), this does not hold for issued assets like stocks.
Another thing is that a central sequencer, a single sequencer optimistic Rollup (which is basically how all Rollups are today) can reorder your transactions, charge arbitrary fees, and delay your transaction settlements at will. Today, that is Coinbase or Arbitrum. A single sequencer Rollup that can negligently or maliciously affect securities settlement looks a lot like NASDAQ. And NASDAQ is heavily regulated to ensure it does not negatively impact shareholders and has recourse.
I believe that unless Layer 2 becomes more decentralized to the point where no single party is liable when issues arise in securities trading, or they are registered and strictly regulated, I do not think Ethereum L2 is ready for tokenized stocks. This influenced our decision to focus specifically on Layer 1 blockchains.
Steve Erlick: That is a very important point. Every L2 is basically centralized because there is only one sequencer. Whether malicious or negligent, things can go wrong. L2 is exciting and interesting, but people should not be mistaken; they are completely centralized. This may not significantly impact ETH transactions on L2, but for stock trading, even if the economic impact is small, it could have consequences.
The Centralized "Decentralization" Illusion
Steve Erlick: Finally, I want to quickly mention the uproar caused by the World Liberty Financial team freezing Justin Sun's WLF tokens. This is really interesting because I have written reports about Justin Sun. I think this also serves as a reminder that while the community is pleased with the support from the government and the president for this industry, as well as the SEC's 180-degree turn, this is something happening in a centralized world that pretends to be decentralized or claims to be decentralized. And I think it’s just a good reminder for people to always remember that the original design of cryptocurrency was to prevent such things from happening; it should be able to succeed regardless of who is in the White House or who is chasing it.
Sam Quaian, Alex Thorne: Thank you very much for joining us.
Steve Erlick: Thank you all, and have a great weekend.
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