Recently, an eye-catching stablecoin battle took place on the decentralized derivatives trading platform Hyperliquid. On September 5, Hyperliquid officially announced the upcoming auction of the "USDH" ticker, which is a native stablecoin serving the Hyperliquid ecosystem. The proposal deadline is September 10 at 10:00 UTC, and as of the deadline, multiple institutions such as Paxos, Ethena, Frax, Agora, and Native Markets have already submitted proposals, competing to become the issuer of Hyperliquid's on-chain native stablecoin USDH.

This round of participants not only includes well-known compliance institutions and emerging DeFi projects but also teams with backgrounds from reputable investment institutions. The reason for such a high-profile competition lies in the rapid rise of Hyperliquid as a burgeoning decentralized trading platform, with a monthly perpetual contract trading volume approaching $400 billion and a high August monthly fee income of $106 million, accounting for about 70% of the decentralized perpetual market.

Currently, the USD liquidity on Hyperliquid's chain mainly relies on external stablecoins like USDC, with a circulating supply reaching approximately $5.7 billion at one point, accounting for about 7.8% of the total USDC supply. The Hyperliquid team's approach implies that the annual interest income potential of possibly hundreds of millions of dollars will be directly distributed to the community.

Therefore, whoever obtains the issuance rights of USDH not only signifies a significant market share but also relates to the dominance over this substantial potential revenue. With multiple heavyweight players competing, this bidding war has been full of tension from the start, and the on-chain vote for stablecoin issuance ownership will be decided within one hour from 10:00 to 11:00 UTC on September 14.

Hyperliquid-first, Hyperliquid-aligned

Behind the stablecoin bidding war of this scale on Hyperliquid is a significant shift in the platform's stablecoin strategy. Earlier this year, the Hyperliquid team considered issuing a native USD stablecoin and reserved the "USDH" ticker for this purpose, temporarily prohibiting others from registering this symbol through an on-chain domain auction mechanism.

Hyperliquid's unique Ticker Auction system allows anyone to bid to register a new asset symbol, but USDH, as a potential platform-exclusive stablecoin, was initially reserved by the team and not made available. The community once thought that the official team would directly launch the USDH stablecoin.
However, after careful consideration, the team chose to "delegate" the issuance rights of USDH to the ecosystem by introducing multiple bidding proposals and letting the community vote to determine ownership. Previous events and controversies made the community question Hyperliquid's centralization, and this decision is seen as a crucial signal of the platform's ecosystem governance shifting towards community openness and mutual benefit. The official team has relinquished the opportunity to monopolize stablecoin issuance revenue and instead, through a bidding process, has handed over this opportunity to the bidding party that can best benefit the community. The operation model with multiple stablecoins will also bring broader expansion channels to Hyperliquid.

This transformation has a clear motivation and background. On the one hand, the changing interest rate environment has made stablecoin reserve interest a significant source of income. Based on the current estimated risk-free rate of around 4%-5%, the nearly $6 billion stablecoin deposits on the Hyperliquid chain can generate over $200 million in interest income annually. In the past, most of these profits flowed to centralized issuers like USDC, with the Hyperliquid ecosystem not directly benefiting. As the platform scales, this situation of "making a wedding dress for others" becomes increasingly hard to ignore.

On the other hand, overreliance on USDC also brings about excessive centralization and compliance risks. Hyperliquid aims to introduce a platform-native stablecoin to enhance its autonomy, integrate interest income and minting tax revenue into the on-chain system, thereby strengthening the value support for the HYPE token and the ecosystem's vitality.

Therefore, when the team decided to open USDH bidding, they also set a clear value orientation of "Hyperliquid-first, Hyperliquid-aligned," prioritizing solutions that can return most of the profits to the community and enhance the Hyperliquid token's value. It is worth noting that the Hyperliquid Foundation currently holds a significant amount of HYPE equity, with an official commitment not to use this portion of voting rights and ultimately abide by the community's voting results.

However, the influence of the team's founder, Jeff Yan, as a key figure, remains significant. The community generally believes that the official stance tends towards selecting a solution that benefits the community the most financially. This special decision-making mechanism to a certain extent ensures that the bidding outcome aligns with Hyperliquid's long-term interests and sets an implicit bid for bidders—those who can contribute the most revenue to the Hyperliquid ecosystem have a higher chance of winning.

What strategies have various institutions employed in their bids?

Around the issuance rights of USDH, competitors have shown their prowess, each offering chips to attract the Hyperliquid community. Paxos, Frax, Agora, Native Markets have successively submitted detailed proposals, with other projects like Ethena eager to participate. Despite their different backgrounds, these proposals all coincidentally highlight a common theme: aligning interests and giving back to the ecosystem.

Paxos (Compliance Advantage and Buyback Model)

Long-standing compliance stablecoin institution Paxos (previously issued USDP and PayPal USD) was the first to submit a proposal. Paxos promises to make USDH the "first launch" of Hyperliquid, a compliant USD stablecoin fully compliant with the U.S. "GENIUS Stablecoin Innovation Act" and EU MiCA regulatory standards. Technically, USDH will be operated by Paxos Labs and native on both of Hyperliquid's chains (HyperEVM and HyperCore).

In terms of profit distribution, Paxos has put forward a bold commitment to allocate 95% of the interest generated by the USDH reserve to be used for HYPE token buybacks on the secondary market, with the repurchase proceeds being returned to the ecosystem projects, validators, and users.

It is estimated that if USDH completely replaces the existing approximately 5.7 billion USDC supply on Hyperliquid, this mechanism will bring nearly $190 million in annual buyback pressure for HYPE.

Furthermore, Paxos will leverage its deep-rooted traditional financial network resources to drive the integration of the HYPE asset among dozens of financial institutions it serves, such as PayPal, Venmo, MercadoLibre, Nubank, Interactive Brokers, enhancing the mainstream reach of the Hyperliquid ecosystem. Paxos also commits to providing a free one-click conversion channel between USDC and USDH to ensure a smooth user migration experience.

Overall, the Paxos proposal is built on a foundation of compliance and trust, complemented by a massive buyback and broad channel resources, being evaluated as "sincere," catering to both legal compliance and early liquidity access while directly empowering HYPE and even bridging the fiat and traditional financial cooperation space.

Frax (Full Revenue Payment & DeFi Native)

The decentralized dollar-pegged stablecoin protocol Frax Finance has swiftly submitted a proposal as well. Frax's proposal focuses on "ultimate altruism" and on-chain governance, committing to return 100% of the underlying revenue of USDH to the Hyperliquid community.

In concrete terms, USDH will be pegged 1:1 to Frax's existing stablecoin frxUSD as a reserve asset, with frxUSD backed by high-quality bond assets from the Blackstone Group's BUIDL Fund generating revenue. Frax proposes to use all the interest earned from holding these bonds to reward HYPE holders. Additionally, Frax supports free exchange between USDT, USDC, frxUSD, and fiat currencies, offering a level of convenience comparable to centralized institutions.

It is worth noting that the Frax proposal emphasizes HYPE governance of USDH liquidity and distribution, rather than being led by Frax itself, thereby avoiding conflicts of interest. Compared to Paxos, Frax offers more attractive terms, choosing not to take a cut, charge fees, or demand token or revenue sharing. Through the FraxNet account layer, 100% of the underlying sovereign bond revenue will be programmatically distributed to Hyperliquid users, with the current $5.5 billion stablecoin deposits at a 4% annual sovereign bond interest rate, meaning $220 million in annual revenue will flow back into Hyperliquid.

However, the downside is that Frax falls slightly short in traditional reserve management, regulatory licenses, and financial institutional network. In other words, Frax embodies the radical DeFi approach, maximizing benefits to the community, but lacks the strong regulatory endorsement and traditional industry support seen in Paxos.

Agora (Neutral Alliance with Full Revenue Sharing)

Emerging stablecoin infrastructure company Agora (founded by Nick van Eck with a Wall Street asset management background) has also joined the fray. Agora recently completed a $50 million funding round led by Paradigm in July, with its first stablecoin AUSD having a market capitalization of around $130 million.

A key feature of its proposal is the introduction of the concept of a "stablecoin issuance alliance," with Agora providing on-chain issuance technology, Rain Company offering compliant fiat on/off-ramp solutions, and LayerZero cross-chain communication protocol ensuring multi-chain interoperability of USDH.

The President of Moonpay also announced joining the alliance a few hours ago, perhaps in response to a somewhat "FOMO" tweet by community leader mlm regarding Agora from Dragonfly partner Rob, and specifically announced requesting Paradigm co-founder Matt Huang to recuse himself from this vote (Paradigm is an investor in Stripe, Tempo, MoonPay, and Agora Finance).

In terms of revenue sharing, Agora has pledged to share 100% of the USDH reserve interest income with the Hyperliquid ecosystem, which can take various forms such as HYPE buybacks or contributions to community aid funds.

At the same time, Agora emphasizes its "neutral" positioning, focusing on serving Hyperliquid and not using USDH for connecting to other payment networks, brokerage businesses, or cross-chain issuance, and refraining from any actions that would compete with or conflict with the interests of the Hyperliquid ecosystem. This stance is seen as a response to Paxos, implying that large issuers like Paxos may have issues with impure profit distribution in their multi-chain, multi-institution layout.

However, community feedback suggests that although Agora's concept aligns closely with Hyperliquid's interests, the proposal lacks the same level of transparency in details regarding interest redistribution and ecosystem synergy as the first two. The external incremental resources it can bring are also relatively limited. In short, Agora offers a concept of a "custom stablecoin led by Hyperliquid," but currently does not have the same level of influence as Paxos in terms of scale and resources.

Native Markets (Differentiation through Local Teams)

The proposal from Native Markets was put forward by Max, a community leader who previously spearheaded the listing of Hyperliquid DAT and is also the most discussed proposal among community members.

The team is led by Mary-Catherine Lader, former President and COO of Uniswap Labs, and builder Anish Agnihotri, among others. Native Markets also pledges that USDH complies with US GENIUS regulatory standards and inherits the team's issuing party Bridge's global compliance qualifications and fiat channels.

Last year, Bridge was acquired by the payment giant Stripe, and Native plans to leverage Bridge to establish stablecoin fiat channels. However, this may lead to potential conflicts, as Stripe recently partnered with Paradigm to develop its own stablecoin chain, Tempo. Bridge's involvement may imply conflicting interests, which has also been called into question by the Agora Alliance.

In terms of revenue sharing, the Native proposal intends to inject reserve interest profits into Hyperliquid's community aid fund, similar to Agora's focus on ecosystem feedback. Overall, as the least known bidder, Native Markets' strengths lie in the team's deep cultivation of the Hyperliquid chain and a profound understanding of the local ecosystem. However, its brand appeal and external cooperation opportunities for Hyperliquid are relatively limited.

Ethena Labs

Additionally, projects like Ethena Labs are rumored to be potential bidders. Ethena is a newcomer in decentralized derivative stablecoins, and its founding team claims to have submitted a USDH proposal to Hyperliquid as early as autumn but has yet to receive a response.

The Twitter "Intern" of Hyperliquid, after the bidding announcement, even posted a tweet in the form of a meme using Eminem's STAN, calling out Hyperliquid founder Jeff, complaining that the proposal they submitted seemed to have gone unnoticed (The essence of the Stan song is that an Eminem fan, after not hearing back from his idol for a long time, eventually chooses to commit suicide with his wife and son).

This brief episode indirectly reflects Hyperliquid's initial reservation towards the bidding party and also piques the community's curiosity about Ethena, a platform utilizing LSD and perpetual hedging to build a non-USD reserve stablecoin, and what different path it would propose if it joins.

When Institutions "Serve" the Community, the Stablecoin 2.0 Era Is Coming

Faced with several appealing proposals, the Hyperliquid community has recently engaged in heated discussions, with overall sentiment leaning towards supporting proposals that offer high discounts and enhance the token's HYPE value. Many token holders have responded positively to the proposals from Paxos and Frax, considering both to align with the "community-first" approach.

Among them, Paxos has garnered another faction of supporters due to its compliance reputation and substantial resources. Although only promising a 95% interest discount, its indirect empowerment through buyback of HYPE may bring more sustained token demand support. Additionally, Paxos' channels are expected to introduce traditional finance incremental users to Hyperliquid. However, some also point out the uncertainty in the Paxos proposal's execution details of reallocating buyback proceeds to ecosystem partners, expressing concerns that the actual benefits flowing into the community may be discounted.

On the other hand, Frax's approach of directly redistributing all proceeds back to users is seen as the ultimate example of "trustless, zero fee," distributing earnings through on-chain HYPE governance transparently and efficiently. In contrast, in the Frax model, earnings are distributed directly to HYPE stakers through the contract, with less room for operation, earning more trust from the crypto-native community. Many prefer Frax's model, which can directly allocate rewards to users on-chain.

This bidding war has also attracted a wider range of industry participants. Circle's CEO Jeremy Allaire, issuer of USDC, took the lead by voicing on Platform X, welcoming competition and stating, "Do not believe in hype; Circle will also significantly enter the HYPE ecosystem."

The USDH auction this time is most likely to have the biggest impact on Circle, which has forced Circle to begin implementing some schemes favorable to Hyperliquid. Their first proposed plan is to directly issue native USDC on the Hyperliquid chain (previously mostly cross-chain).

Some analysts believe that if the new issuer of USDH successfully rises, the monopoly position of USDC on Hyperliquid will be broken, which is undoubtedly a further blow to USDC's market share decline. However, for the Hyperliquid community, the more important concern is whether the final solution can fulfill the commitment to HYPE holders' interests and whether the platform can thereby break away from excessive reliance on centralized stablecoins to achieve a true internal value circulation.

As the vote approaches, the ownership of the USDH issuance right is about to be revealed. This competition is no longer just a game among a few institutions, but a touchstone for the evolution of stablecoin models in the current crypto market. Regardless of who ultimately wins, it is certain that stablecoin issuance is moving from a situation where a few dominate to a new stage where major trading platforms and ecosystem giants compete.

Recently, new chains like Arc launched by Circle, Tempo Chain by Stripe in collaboration with Paradigm, decentralized stablecoins like Converge by Ethena, and mUSD by Metamask have emerged one after another, setting an unprecedentedly high heat in the stablecoin race, with innovative models emerging one after another.

In the case of Hyperliquid, we see the stablecoin issuer willing to give up almost all profits in exchange for scenario distribution, which was hard to imagine in the past. It can be foreseen that once USDH successfully goes online and verifies the "returning profits to the community, feeding back value to the ecosystem" positive cycle, other trading platforms or public chains may follow suit one after another, triggering a major change in the stablecoin strategy of the industry. Perhaps the "Stablecoin 2.0 era" is about to begin.

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