Paxos, Frax, and Agora compete to issue Hyperliquid's native stablecoin, USDH, leading to potential shifts in decentralized finance.

Executive Summary

Several major players in the cryptocurrency space, including Paxos, Frax, and Agora, are vying to issue Hyperliquid's native stablecoin, USDH. This auction highlights the strategic importance of stablecoins within decentralized finance (DeFi) and the potential for innovative revenue-sharing models. The outcome could impact the value of HYPE tokens and reduce Hyperliquid's reliance on centralized stablecoins like USDC.

The Event in Detail

Hyperliquid, a perpetual trading platform, is auctioning off the ticker "USDH" for its native stablecoin. This has attracted significant interest, with bids from Paxos, Ethena, Frax, Agora, and Native Markets. Each bidder is proposing various incentives for the Hyperliquid community, including profit sharing and HYPE token buybacks. The final decision will be determined by a vote on September 14th.

Notably, Hyperliquid's monthly perpetual contract trading volume is near $400 billion, generating $106 million in fees in August and dominating 70% of the decentralized perpetual market. This significant trading volume makes securing the USDH ticker a potentially lucrative opportunity.

Paxos proposes directing 95% of earned interest from USDH reserves towards buybacks of Hyperliquid's HYPE token. Frax plans to back USDH with frxUSD and offer zero commission, potentially generating annualized returns of $220 million. Agora pledges to return 100% of net revenue to the ecosystem. Agora's proposal, led by Nick van Eck, involves a coalition of top-tier providers, including State Street as custodian ($49 trillion in assets under custody) and VanEck managing $130 billion in assets, to ensure scalability and reliability.

Market Implications

The introduction of USDH could lead to a new stablecoin model where profits are shared with the community, potentially increasing the value of HYPE. It could also reduce Hyperliquid's dependence on centralized stablecoins such as USDC. This move could trigger similar actions from other platforms seeking to capitalize on the stablecoin market.

The competition for USDH also underscores the increasing institutional interest in DeFi and the growing importance of regulatory compliance. Paxos is positioning USDH as one of the first stablecoins explicitly structured to meet both the U.S. GENIUS Act and Europe's MiCA framework.

Expert Commentary

According to Paxos, USDH reserves will direct 95% of earned interest toward buybacks of Hyperliquid's HYPE token, recycling value to users, validators, and developers. Paxos stated that its experience issuing BUSD, which at its peak exceeded $25 billion in circulation, equips it to deliver a stablecoin designed to meet GENIUS and MiCA standards.

Broader Context

The battle for USDH comes amid Hyperliquid's rising prominence in the decentralized derivatives market. The platform has captured approximately 70% market share among leading perpetual trading platforms, outpacing competitors such as Jupiter and Orderly Network. The platform's success stems from its layer-1 blockchain HyperEVM architecture, which delivers high performance and reduced transaction costs for traders.

Hyperliquid's zero-gas model and on-chain architecture distinguish it from traditional centralized platforms. The HYPE token utilizes a buyback-and-burn model that reduces supply, potentially supporting price growth. However, competition from emerging platforms and regulatory scrutiny could challenge its market position.