In a groundbreaking event shaping the future of decentralized finance (DeFi), Hyperliquid, a dominant force in decentralized perpetual trading, is launching its own stablecoin, USDH. Unlike typical stablecoin launches, Hyperliquid is pioneering an unprecedented competitive bidding process where six major organizations vie for the right to issue USDH. The winner will be determined by a decisive validator vote scheduled for September 14th, marking what could be the largest stablecoin auction in DeFi history. Here's an in-depth exploration of this historic vote, the key players involved, and the broader implications for the DeFi ecosystem.
Why This Vote Matters
Hyperliquid is no ordinary DeFi platform. Handling an enormous $378 billion in monthly trading volume, it controls nearly 80% of the decentralized perpetual futures market and generated around $320 million in revenue in August alone. However, despite its dominance, Hyperliquid currently relies almost exclusively on Circle’s USDC stablecoin for deposits, which total about $5.6 billion—roughly 7.5% of USDC’s entire supply.
This creates a major revenue disconnect. At current Treasury yields of about 4%, the $5.6 billion in USDC deposits generates around $220 million annually, all of which benefits Circle rather than Hyperliquid or holders of its native HYPE token. By launching USDH and replacing USDC, Hyperliquid stands to reclaim this significant income, potentially redirecting up to $220 million per year back into its ecosystem — nearly three times the revenue from its current HLP vault.
The stakes could not be higher. Not only does this move threaten Circle’s stablecoin dominance, but it has also caught Wall Street’s attention, with analysts revising stock outlooks due to the threat posed by USDH’s potential market disruption.
The Strategic Choice: Competitive Bidding Over Building In-House
Instead of building USDH internally with a small team of 11, Hyperliquid has taken the rare and strategic decision to outsource stablecoin issuance via competitive bidding. There are several important reasons behind this approach:
- Regulatory Compliance: With increasing regulatory scrutiny around stablecoins—especially following the implementation of the Genius Act in the US—partnering with established firms allows Hyperliquid to leverage existing compliance expertise and infrastructure, reducing legal risks.
- Speed to Market: Developing a fully compliant stablecoin from scratch could take years, whereas outsourcing issuance enables Hyperliquid to launch USDH much faster.
- Community Governance: Instead of a top-down decision, the winner will be selected through a transparent, on-chain vote by Hyperliquid’s validators. Notably, the Hyperliquid Foundation has pledged neutrality by abstaining from voting, ensuring a genuinely community-driven outcome.
Meet the Contenders
Six major organizations are competing for the right to issue USDH, each bringing unique strengths and proposals:
1. Native Markets
- Strategy: A new player created specifically for this competition, Native Markets is led by Max Figer, a Hyperliquid advisor and investor.
- Backings: Proposes backing USDH with reserves managed by BlackRock and utilizing Stripe’s bridge platform for issuance.
- Revenue Model: Plans to allocate 50% of interest earned for HYPE token buybacks, with the remaining 50% toward USDH’s growth.
- Market Odds: Poly Market gives an 84% chance of victory.
- Concerns: Community concerns revolve around reliance on Stripe’s bridge since Stripe is developing its own blockchain (Tempo), possibly leading to conflicts of interest.
2. Paxos
- Background: A heavyweight institutional player behind PayPal USD and Global Dollar.
- Partnership: Recently unlocked a secret weapon — collaboration with PayPal.
- Benefits: USDH would be integrated into PayPal and Venmo, include HYPE listings on these platforms, and receive $20 million in ecosystem incentives.
- Revenue Model: Committed to directing 95% of interest earned towards HYPE buybacks.
- Potential: PayPal’s vast 400 million user base could massively accelerate USDH adoption if Paxos wins.
3. Athena Labs
- Achievements: Creator of USDE, which became the world’s third-largest stablecoin in under 10 months.
- Proposal: Back USDH with their USDTB token, itself backed by BlackRock’s Bidd fund.
- Revenue Commitment: Promises 95% of net revenue to the Hyperliquid community.
- Incentives: Proposes at least $75 million in ecosystem incentives, potentially doubling to $150 million.
- Endorsements: BlackRock’s Robert Mitchnik has publicly expressed excitement about enabling Athena’s proposal.
4. Sky (formerly MakerDAO)
- Approach: Focused on delivering high yields and deep liquidity.
- Offerings: 4.85% yield on USDH held on Hyperliquid, $2.2 billion in instant redemption liquidity, and $25 million for DeFi growth projects.
- Credentials: Holds an $8 billion balance sheet, the first-ever credit rating for a DeFi protocol, and a well-established name in crypto.
5. Agora
- Coalition Model: Led by Nick Vanek, partnering with major players including State Street and VANC.
- Revenue Model: Promises 100% of net revenue toward HYPE buybacks.
- Partnerships: Collaborations with RAIN for global card coverage and Layer Zero for interoperability.
6. FRA Finance
- Positioning: Markets itself as the community-first option.
- Backing: Will issue USDH against its FRXUSD stablecoin, also backed by BlackRock’s Biddle Fund.
- Revenue Model: Returns 100% of treasury yields back to users with zero take rate.
- Community Questions: Some skepticism surrounds FRA’s alignment with Hyperliquid and its long-term commitment.
The Selection Process and What’s Next
The proposal deadline was September 10th, with validators declaring their preferences by September 11th. The final voting takes place on September 14th, with the community eagerly awaiting which bidder will secure the issuance rights.
The outcome will shape the competitive landscape of stablecoins and digital dollars for years to come. Should USDH capture even a fraction of Hyperliquid’s massive $5.6 billion in deposits, it will not only enhance returns for the platform’s community but also challenge established players like Circle in a significant way.
Conclusion: The Future of Stablecoins in DeFi
Hyperliquid’s USDH vote represents a landmark moment in DeFi governance, innovation, and competition. Its novel community-driven bidding approach reflects a mature, decentralized ethos while addressing pressing regulatory and market dynamics. As the crypto and DeFi ecosystem watches closely, the implications extend well beyond Hyperliquid, signaling potential shifts in power among stablecoin issuers and the broader financial ecosystem.
For stakeholders and observers alike, staying informed about the vote and the evolving competitive landscape is crucial. History may well be made on September 14th, when the next chapter in DeFi stablecoins begins.
Disclaimer: This article is for educational purposes only and should not be considered financial advice.
By Wolfy Wealth - Empowering crypto investors since 2016
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