📝 usncan Note: Circle’s Revenue At Risk As Hyperliquid Opens Auction For USDH
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Hyperliquid
Hyperliquid Bets on USDH to Rewrite the Stablecoin Game
Hyperliquid, the lightning-fast decentralized exchange that has captured more than 75% of the DeFi perpetuals market, is making its boldest move yet. Powered by its custom HyperCore chain, the platform can settle trades in under a quarter of a second and process hundreds of thousands of orders per second – performance that fueled $400 billion in trading volume in August 2025 alone. But Hyperliquid now wants more than just speed and liquidity – it wants control of the stablecoin layer at the heart of its ecosystem.
That ambition takes shape with USDH, a proposed dollar-pegged stablecoin designed to redirect yield from the nearly $5 billion in deposits that currently enrich Circle’s USDC back into Hyperliquid’s own community. Instead of issuing the coin itself, Hyperliquid has turned the process into a public on-chain auction: issuers must openly compete, disclosing how much of the yield they will share, their compliance strategy, and the infrastructure they bring. Validators, acting as the decision-makers, will deliberate in public and then cast binding votes on-chain.
This is more than a cost-saving move – it’s a DeFi governance experiment. Hyperliquid is effectively importing procurement practices from traditional finance into DeFi, forcing would-be issuers to compete on transparency, economics, and trust. The signal is unmistakable: USDH is being built to serve Hyperliquid’s community first, not an outside issuer’s bottom line.
Circle’s USDC: From Growth Engine to Liability
Until now, Hyperliquid’s rise has been fueled by USDC, Circle’s widely adopted dollar-backed stablecoin. Roughly 95% of the assets sitting on Hyperliquid are denominated in USDC, making the exchange one of Circle’s largest institutional “clients.” That amounts to nearly 7–8% of all USDC in circulation, a share so large it rivals major centralized exchanges.
The revenue implications are enormous. Circle earns virtually all of its income by investing USDC reserves in short-term treasuries and money-market funds. According to public filings, more than 99% of Circle’s $1.68 billion in 2024 revenue came from this interest spread.
If those reserves migrate into USDH, Circle faces a sudden loss of $150–200 million per year – roughly 10% of its business. That risk is amplified by timing. Circle has been working to launch native USDC and its cross-chain transfer protocol (CCTP) on Hyperliquid, but delays left a window for USDH to seize the spotlight. The result: Circle, once the indispensable backbone of on-chain finance, now finds itself on the defensive.
USDH: A Stablecoin Designed for Hyperliquid’s Community
The USDH initiative isn’t just about reclaiming yield – it’s about rethinking how a decentralized protocol negotiates with its partners. By opening a public auction, Hyperliquid is treating the role of stablecoin issuer like a high-stakes procurement contract.
Every bidder must explain how reserves will be managed, how much of the interest will flow back to the community, and what extra services they bring. The process mirrors corporate RFQs and government bond auctions, except that here it all plays out transparently on-chain. Validators, who stake HYPE tokens to secure the network, are the hiring committee. Their vote will determine not only who mints USDH but also how billions in yield are redistributed.
For Hyperliquid, the motivation is straightforward. Why let Circle capture the spoils when those same billions could fund HYPE buybacks, validator rewards, and liquidity incentives? For DeFi at large, it is a glimpse of how governance can evolve from token votes on fee switches to community-controlled negotiations over billion-dollar contracts.
The USDH Bidding Wars
Several issuers have thrown their hats into the ring, but three frontrunners stand out – each offering validators a different trade-off between trust, ethos, and firepower.
Paxos: The Compliance Titan
- Track record: Former issuer of BUSD, which peaked at $25B in circulation.
- Compliance: Full adherence to the U.S. GENIUS Act and EU MiCA standards.
- Reserves: Short-term Treasuries, repos, and cash equivalents, custodied by Paxos Labs.
- Yield split: 95% of interest returned to HYPE buybacks; 5% retained for costs.
- Distribution: Promises to list HYPE on Paxos-powered networks like PayPal, Venmo, and MercadoLibre.
Frax Finance: The DeFi Native
- Track record: Issuer of FRAX and frxUSD, with infrastructure spanning 20+ chains.
- Model: USDH backed 1:1 by frxUSD and Treasuries managed by asset managers like BlackRock.
- Yield split: 100% of yield shared directly with Hyperliquid users.
- Redemption: Seamless swaps with USDC, USDT, frxUSD, and fiat.
- Governance: Full control left to Hyperliquid validators.
Agora: The Institutional Heavyweight
- Backers: Led by Nick van Eck, with $62M raised including $50M from Paradigm. Partners include MoonPay, Rain, and EtherFi.
- Reserves: Custody with State Street, management by VanEck, proof-of-reserves by Chaos Labs.
- Yield split: 100% of net revenue redirected to HYPE buybacks and assistance funds.
- Liquidity: At least $10M in day-one liquidity plus fiat on-ramps via Cross River and Customers Bank.
- Distribution: Integration with Rain’s card network and LayerZero’s cross-chain minting.
The Main Proposals Compared
ELI5 DeFi
Smaller entrants such as Native Markets and Konelia also submitted designs, but they have drawn limited validator support. The real decision lies between Paxos’ compliance clout, Frax’s community-first ethos, and Agora’s institutional scale.
What’s at Stake: Circle on Defense, DeFi on Offense
For Circle, the outcome could be devastating. Losing Hyperliquid’s billions would erase up to 10% of its revenue overnight, exposing its dependence on interest income and underscoring its vulnerability to client defection. CEO Jeremy Allaire has argued that USDC’s liquidity and interoperability will preserve its dominance, but the market isn’t convinced. Hyperliquid has demonstrated that if a protocol can align stablecoin incentives with its users, loyalty to USDC is far from guaranteed.
Jeremy Allaire’s X Post.
Jeremy Allaire
For DeFi, the process is arguably more significant than the outcome. Hyperliquid has created a model where protocols can force vendors to compete in the open – on yield, compliance, liquidity, and governance. Instead of relying on closed-door deals, decentralized communities can now decide for themselves who manages their reserves.
Conclusion: A Blueprint for Crypto’s Next Phase
The USDH saga is a turning point in how decentralized platforms negotiate with centralized issuers. Hyperliquid has leveraged its balance sheet to flip the script, making issuers fight for access to its ecosystem and share their profits with the community.
For Circle, it’s a wake-up call: the days of capturing billions in risk-free yield without sharing are numbered. For Hyperliquid, it’s a chance to transform USDC dependence into a self-reinforcing growth engine. And for the broader crypto industry, it’s a blueprint for how governance can evolve from symbolic token votes to billion-dollar procurement battles fought transparently on-chain.
On September 14, Hyperliquid’s validators will decide which bidder mints USDH. Whichever way the vote goes, the precedent has been set: in the new era of DeFi, power flows to the protocols that control the capital – and they’re no longer willing to give it away for free.
