The competitive landscape in the stablecoin sector is heating up as major players vie for the opportunity to develop Hyperliquid’s highly anticipated in-house stablecoin, USDH. With Hyperliquid now positioned as the largest on-chain derivatives venue, the stakes have never been higher. The platform saw nearly $400 billion in perpetual trading volume last month, commanding over 80% of market share in the decentralized finance (DeFi) derivatives space.
Currently, Hyperliquid’s market operations primarily utilize USDC, with deposits totaling around $5.4 billion, which makes up approximately 7.5% of USDC’s total supply. This concentration poses risks and revenue potential for Hyperliquid, motivating the push for its own stablecoin. The development process for USDH began with a validator vote, scheduled for September 14, with proposal submissions due by September 10 and validator signaling set for September 11.
Several notable proposals have emerged:
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Paxos, known for its compliance with regulations, proposed a “Hyperliquid-first, compliant” USDH that aims to route up to 95% of reserve interest back into buybacks and ecosystem support.
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Frax Finance introduced a “community-first” design where USDH would mirror frxUSD, ensuring that 100% of the underlying yield is passed to users without any deductions, supported by tokenized Treasuries.
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Sky (formerly Maker), promised 4.85% returns on USDH held on Hyperliquid, claiming substantial liquidity and cross-chain capabilities, alongside a significant investment to develop the DeFi ecosystem.
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Agora proposed returning all net revenue to Hyperliquid for buybacks or fund assistance while developing integrations for quick access to their services.
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Ethena asserted that USDH would be entirely backed by USDtb and pledged substantial revenue redirection into the Hyperliquid ecosystem.
Hyperliquid’s unique architecture, which combines layer one capabilities with an on-chain order book, offers a level of depth akin to centralized exchanges while maintaining the benefits of decentralized settlement. The adoption of USDH could be transformative, creating significant brand equity for issuers and potentially altering the market dynamics for stablecoins.
The competitive nature of this landscape raises questions about the motivations for participation. Proposals indicate that while there may be trade-offs in terms of yield given back to Hyperliquid, issuers stand to benefit from enhanced reputation, integrations, and overall brand strength. Thus, claiming the title of the issuer behind USDH is not just about immediate returns; it’s about establishing a long-term foothold within one of the fastest-growing sectors in crypto.
The implications for competitors, most notably Circle, the issuer of USDC, are substantial. If a significant portion of USDC holdings were to transition to USDH, Circle could lose a considerable revenue stream tied to reserve Treasury interests. In response, Circle is planning to launch native USDC on Hyperliquid and enhance its cross-chain capabilities, highlighting the competitive pressures in play.
Governance activities are set to accelerate as the proposal deadline approaches. With various proposals on the table, the next few days will be pivotal in determining who will take the reins on developing USDH and how it will influence the broader stablecoin ecosystem. As the market watches closely, the countdown to the decisive vote on September 14 promises to be one of the most significant events in the DeFi space this year.
