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The Fight for Hyperliquid's House Dollar

Olivia Capozzalo & Camila Russo
September 09, 2025

gm, Defiers!

Today’s big story:

  • The world’s most recognizable stablecoin issuers are competing to develop Hyperliquid’s in-house stablecoin, USDH.

In other news:

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Today’s Big Story

Hyperliquid’s USDH Showdown: The Battle for the House Dollar

Here’s the short version of a very big story: Hyperliquid has become the biggest on-chain derivatives venue and now the world’s most recognizable stablecoin issuers, ranging from DeFi natives to regulated heavyweights, are competing to power its in-house dollar, USDH.

The stakes are obvious in the numbers: Hyperliquid processed nearly $400 billion in perps trading volume last month, consistently topping the DeFi perps leaderboard, and has at times exceeded 80% market share in the category.

Why Everyone Wants USDH

Hyperliquid’s spot and perps markets are still quoted primarily in USDC, with about $5.4 billion of USDC deposits, or approximately 7.5% of USDC’s total supply. That concentration risk (and the revenue attached to parking billions in T-bills) is why HL wants to issue its own stablecoin. But it wants to outsource the work. Hyperliquid has reserved the USDH ticker and is assigning development of the new stablecoin via a validator vote.

The vote confers the ticker only, no special protocol privileges, and is scheduled for Sept. 14, with proposals due Sept. 10 and validator signaling Sept. 11.

The proposals (in brief):

  • Paxos (issuer of MiCA-compliant USDG) pitched a “Hyperliquid-first, compliant” USDH, promising to route up to 95% of reserve interest into HYPE buybacks and ecosystem distributions. Paxos frames this as aligning the stablecoin with Hyperliquid’s token economics and governance.
  • Frax Finance offered a “community-first” design: USDH would be 1:1 against frxUSD (itself backed by tokenized Treasuries) and pass through 100% of the underlying yield to users with zero take, GENIUS-compliant, LayerZero for crosschain, Stripe/Bridge for orchestration.
  • Sky (formerly Maker) arrived with a balance-sheet flex: 4.85% returns on all USDH held on Hyperliquid, $2.2 billion instant redemption liquidity, natively multi-chain thanks to LayerZero, capacity to deploy $8B balance sheet into Hyperliquid, and a $25 million funding for “Genesis Star” to bootstrap DeFi on the derivatives DEX. Plus, optional GENIUS-compliance.
  • Agora proposes 100% of net revenue back to HL via HYPE buybacks or the Assistance Fund, and is assembling integrations (MoonPay, LayerZero) for distribution and interoperability, fast on/off ramps via Cross River and Customers Bank.
  • Ethena, another DeFi-native heavyweight, offers USDH fully backed by USDtb, anchored by BlackRock’s BUIDL (same deal as the MegaETH stablecoin we just reported on), 95% of net revenue redirected to the Hyperliquid ecosystem via HYPE buybacks or validator distributions, and has also posted that it would cover migration costs if HL redenominates quote pairs from USDC to USDH.

Why Hyperliquid Is Such a Big Deal

Besides raw volume, Hyperliquid’s vertically-integrated L1 + on-chain orderbook architecture has delivered CEX-like depth with on-chain settlement. DefiLlama’s dashboard shows $300 billion+ monthly perps volume and $100 million+ monthly earnings in recent weeks, a scale that makes being the issuer of the “house dollar” a major prize, and one that goes beyond just branding.

But if in most proposals issuers give away the yield, what’s in it for them?

Distribution, reputation, and optionality. Part of it is brand: becoming the issuer of USDH signals they’re behind the canonical dollar on the fastest-growing perps chain and one of the biggest crypto projects, period. If billions flow into USDH, people will naturally associate that liquidity with the issuer’s broader ecosystem.

That strengthens their brand, deepens integrations, and drives spillover adoption (e.g. Frax boosting frxUSD, Sky funneling into Stars). While most yield goes back to Hyperliquid or HYPE buybacks, the issuer can still collect fees for issuance/redemption (bps on billions in volume) and manage the balance sheet (a position of power in DeFi).

Owning the canonical dollar on the fastest-growing perps chain is a moat: again, the issuer gains brand equity (“the USDH issuer”), plus deep relationships with Hyperliquid builders, and transaction flow for its broader products (brokerage rails, custody, cross-chain liquidity).

Paxos’ proposal explicitly pitches alignment and compliance as features; Frax’s plan trades issuer margin for mindshare and dominance among power users; Sky’s offer leverages its liquidity and program design to lock in stickiness. In each case, the issuer can still earn from flows, redemptions, and ecosystem services while capturing the industry narrative.

What Hyperliquid (and HYPE Holders) Get

By outsourcing issuance, HL avoids regulatory and operational baggage while potentially diversifying away from USDC dependence. Most bids funnel reserve income back to HL’s economy, typically via HYPE buybacks or ecosystem funds, creating a flywheel if USDH captures a material share of deposits.

Circle’s Stake in the Game

That brings us back to Circle. No one has more to lose from USDH’s success than USDC’s issuer. If even half of the $5.4 billion of USDC currently in Hyperliquid migrated to USDH, Circle could forfeit a revenue stream worth hundreds of millions annually, since interest on reserve Treasuries is USDC’s primary business model.

Unsurprisingly, Circle isn’t standing still: the company has pledged to launch native USDC on Hyperliquid along with an upgrade to its Cross-Chain Transfer Protocol (CCTP v2), betting that seamless interoperability and brand trust will keep users loyal, even as USDH dangles higher yields.

What’s Next

Governance moves fast from here. Proposals close Sept. 10, validators are asked to declare stances on Sept. 11 so delegators can align, and the on-chain vote runs Sept. 14. Regardless of the winner, the USDH ticker does not displace other stables by decree, adoption must be earned in the market.

With love,

Cami, founder of The Defiant

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