Hyperliquid's Stablecoin Issuance Bidding War: Paxos, Frax and Others—Genuine Competition or Preselection Theater?

Sep 09, 2025

Original Author | Frank,PANews

Compiler | WuBlockchain Aki

Original Source Link:

https://www.panewslab.com/zh/articles/e2c19fbb-c46c-436c-be4f-46044e11a171

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The red-hot on-chain derivatives exchange Hyperliquid has announced plans to issue a native, on-chain stablecoin named USDH. In a departure from industry convention—where issuers are typically "pre-selected" or built in-house—Hyperliquid has chosen an unprecedented route: a public, on-chain RFP in which the issuing partner will be determined by a validator vote.

The news immediately galvanized the stablecoin heavyweights. Paxos, Frax Finance, and Agora have already submitted highly competitive proposals, and other issuers are reportedly preparing to participate. An online bidding war for Hyperliquid's seigniorage mandate has begun.

At the center of the contest is roughly $5.6 billion in USDC currently parked on Hyperliquid. If swapped into USDH, the reserves are expected to generate over $220 million per year in U.S. Treasury bill interest. Rather than flowing to an external issuer, that income would accrue to the Hyperliquid ecosystem. Following the announcement, Hyperliquid's native token HYPE jumped nearly 10%.

What incentive logic underpins this scramble? Why would major issuers "forgo" such readily available yield? And who will ultimately prevail in this complex game? PANews unpacks the answers below.

A New Revenue Stream Beyond the HLP Vault

The most immediate driver behind Hyperliquid's plan to issue its native stablecoin, USDH, is the substantial economic upside.

At present, roughly $5.6 billion in stablecoins sit on the Hyperliquid platform, about 95% of which is USDC. The reserves backing these balances are managed by the issuer, Circle, which earns interest by investing in U.S. Treasuries and other low-risk instruments—value that is captured entirely by an external party. As the venue that creates the usage and demand for these funds, Hyperliquid has, so far, captured none of that yield.

By issuing USDH, Hyperliquid aims to internalize this value. At a short-term U.S. Treasury yield of roughly 4%, reserves of $5.6 billion could generate about $220 million per year. This would surpass the current annual revenue of the HLP vault (≈ $75 million), making it one of Hyperliquid's largest on-chain revenue streams and, without question, a stronger source of community incentives.

Beyond economics, ecosystem stimulation appears to be another motivation. In the official announcement, the first stated rationale was: "To improve liquidity and reduce user friction, spot pairs quoted in either of the two designated quote assets will see an 80% reduction in taker fees, maker rebates, and adjustments to how user trading volume contributes [toward fee tiers]." For an exchange, lowering trading fees is a direct lever to sharpen core competitiveness. For Hyperliquid in particular, spot volume lags perpetuals, which is a gap it urgently needs to close.

Put simply, increasing spot activity deepens order books. With better spot depth, the venue is also better positioned to deter price-manipulation episodes like prior incidents involving tokens such as XPL.

Based on the official announcement and the bidding workflow, Hyperliquid's core requirements for the issuer can be distilled into three points:

1. A USD-pegged, compliant stablecoin.

2. Native minting on Hyperliquid (i.e., suitable for Hyperliquid-native issuance).

3. A Hyperliquid-first team.

Compliance is now the focal point—and effectively a prerequisite—for stablecoin issuance. The second point, emphasizing Hyperliquid-native minting, means USDH would not need to arrive via cross-chain bridges (unlike USDC), which lays the groundwork for lower cost and latency, simpler settlement, and reduced bridge risk for subsequent on-chain trading flows. Finally, "Hyperliquid-first team" can be read as a preference for teams that prioritize Hyperliquid and are deeply familiar with its stack, thus receiving priority consideration.

It is worth noting that Circle co-founder Jeremy Allaire commented on social media that he was pleased to see competition and would engage with the HYPE ecosystem in meaningful ways. However, judging from the link he shared, Circle's focus appears to remain on issuing native USDC, rather than competing to issue USDH.

A crowded field: Paxos, Frax Finance and others bring distinct strengths

This on-chain bidding round has drawn a slate of marquee stablecoin issuers. As of September 8, the principal participants include compliant, established issuers such as Paxos, Frax Finance, and Agora, alongside Hyperliquid-native teams like Native Markets and Hyperstable.

Among them, Paxos, Frax Finance, Agora, and Native Markets are especially representative.

As compliance standard-bearers, Paxos and Agora stand out. Paxos, a New York State Department of Financial Services (NYDFS)–regulated trust company with a compliance pedigree and the ecosystem advantage of PayPal, previously issued BUSD for Binance. In its proposal, Paxos states that 95% of reserve interest would be used to buy back HYPE, and it pledges to integrate HYPE into the brokerage-infrastructure services it provides to blue-chip clients such as PayPal. Paxos also recently acquired Molecular Labs, the development team behind the Hyperliquid ecosystem primitives LHYPE and WHLP.

Agora likewise emphasizes compliance: its reserves are custodied by State Street and asset-managed by VanEck. On revenue sharing, Agora proposes to distribute 100% of net income to the ecosystem. The operative qualifier is "net," which may be after custody fees, operating expenses, and other costs. By comparison, Paxos's "interest-funded HYPE buybacks" do not literally return cash proceeds to the community treasury, even though they are designed to support HYPE's value.

As a DeFi heavyweight, Frax Finance has advantages on the DeFi side. Its proposal states that USDH would be backed 1:1 by frxUSD—a stablecoin itself supported by RWA assets such as BlackRock's tokenized U.S. Treasury fund BUIDL—bringing strong compliance and safety characteristics. Frax Finance further commits to passing through 100% of the underlying T-bill yield directly to Hyperliquid users via smart contracts, with zero fees retained by Frax. Owing to design differences, Frax's yield may exceed that of other stablecoins, albeit with some trade-off in the safety score.

Native Markets stands out for native integration: it is a Hyperliquid-native project. On compliance rails, it says it will integrate the global compliance footprint and fiat ramps of the issuer Bridge (a Stripe subsidiary). On revenue sharing, Native Markets commits to contributing a large portion of reserve yield to an Assistance Fund (an automated on-chain HYPE buyback mechanism). However, this is not equivalent to direct cash returns to the community. On September 9, Native Markets submitted a supplemental proposal setting the cash-back share at 50%.

On September 9, another DeFi giant, Sky (formerly MakerDAO), also indicated plans to participate in issuing USDH. Sky's edge lies in liquidity support: it proposes providing $2.2 billion in immediate USDC liquidity and offers a clear quoted rate of 4.85%, which it says could translate into $250 million in annual revenue for Hyperliquid.

Overall, the bidders each bring distinct strengths—compliance posture, yield pass-through, and Hyperliquid-native integration, respectively. That said, judged purely on revenue-sharing / yield giveback, Frax Finance presently offers the most generous and straightforward terms.

Accusations of "Governance Theater" After an Alleged Preselection

For the community, choosing the issuer of USDH is more than a routine ecosystem upgrade; it bears directly on HYPE tokenomics, the competitive landscape of the stablecoin market, and even the broader outlook for DeFi.

For HYPE, as noted above, rebating the associated T-bill interest would become one of the ecosystem's largest revenue streams, further shaping value expectations. Indirectly, a high-yield, yield-bearing stablecoin could draw additional capital into the ecosystem—deepening Hyperliquid's trading liquidity and supplying a steady funnel for user conversion.

From the community's perspective, the decision is clearly favorable, and supportive voices have dominated forum discussions. Even so, some contend that the on-chain vote amounts to "governance theater" following a preordained outcome.

The most pointed objection comes from Hyperstable, another Hyperliquid-native stablecoin project. Hyperstable says that when it previously sought to use the USDH ticker, it was told the code had been blacklisted. In the current round, Native Markets published its proposal within an hour of the official announcement, which, Hyperstable suggests, may indicate advance notice.

Separately, some community members argue that the proposals are overly generic and have raised questions about concrete details in the stablecoin-issuance process—such as licensing specifics (federal vs. state licenses), technical particulars, and potential conflicts of interest. Given that the review window is only five days, they question the wisdom of selecting an issuer based solely on such high-level submissions.

Indeed, judging by the level of detail, the proposals on Hyperliquid typically run from a few hundred to just over a thousand words—lengths that, on other chains, might amount only to a preface or executive summary. In addition, beyond Native Markets filing within one hour of the official announcement, Frax published its proposal roughly ten hours later. This turnaround is well beyond the average cadence of DAO governance and naturally invites speculation that the team may have pre-consulted potential candidates.

Summary

In any case, the step Hyperliquid has taken is indeed a constructive move for the community. It reflects a clear focus on addressing the platform's current shortfalls in spot trading volume and order-book depth, as well as on maximizing value returned to the community. That said, even if USDH launches quickly, it is unlikely to fully replace USDC in the near term; as a more general-purpose stablecoin, USDC has a longer track record for trading stability and depth. As for who ultimately wins the mandate, it will be an exercise in balance. For the community, whether this process constitutes genuine governance or merely advisory input will serve as a litmus test of Hyperliquid's decentralized governance.

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