USDH is the ticker for a planned native, dollar-pegged stablecoin for the Hyperliquid decentralized exchange ecosystem. The issuer and final design of the stablecoin are being determined through a competitive bidding process, with the winning proposal selected by an on-chain vote of the network's validators.

Overview

The initiative to create USDH was driven by Hyperliquid's strategic goal to internalize value, enhance protocol sovereignty, and reduce security risks associated with its reliance on external, bridged stablecoins. ^[7] Prior to the proposal, the Hyperliquid platform held approximately $5.9 billion in USDC, which represented about 7.5% of the stablecoin's total supply. ^{[8] [12]} The yield generated from the U.S. Treasury reserves backing this capital flowed entirely to Circle, the issuer of USDC, resulting in an estimated annual revenue loss of $150 million to $220 million for the Hyperliquid ecosystem. This phenomenon was identified as significant "value leakage." ^[1]

Furthermore, dependence on a centralized, permissioned asset like USDC exposed Hyperliquid to potential censorship and asset freezes, which conflicted with its objective of operating as a permissionless financial system. The use of bridged assets also introduced an additional layer of security risk that a native stablecoin would eliminate. In response to this initiative, Circle announced plans to deploy native USDC on Hyperliquid and enable its Cross-Chain Transfer Protocol (CCTP) to compete with the forthcoming USDH and retain its market share. The USDH selection process has been viewed as setting a new precedent in the stablecoin market, shifting the dynamic from issuers offering a product to providing a service where they must compete on value-sharing with host ecosystems. ^[1]

Issuer Selection Process

Hyperliquid opted for a competitive bidding process to select the issuer for USDH, inviting established stablecoin firms and new teams to submit proposals by September 10, 2025. ^{[8] [13]} The stated goal was to find a "Hyperliquid-first, Hyperliquid-aligned, and compliant" asset. ^[9] The winning proposal is determined through a transparent, on-chain, stake-weighted vote by the Hyperliquid network's validators. The voting period was scheduled to begin with validator declarations on September 11, 2025, and conclude with a final vote on September 14, 2025. ^{[1] [8] [13]}

To ensure neutrality and community influence, the Hyperliquid Foundation pledged to abstain from voting. HYPE token holders were encouraged to delegate their staked tokens to validators whose choices aligned with their preferences, thereby influencing the outcome. In a significant governance change on September 11, 2025, Hyperliquid announced it would remove its team's staked HYPE tokens from the validator weighting calculation for the vote. This move was intended to create a "pure governance structure," reduce insider influence, and give greater control to community token holders. The decision directly impacted the vote's dynamics, reducing the leading contender Native Markets' voting weight from 75% to 66% and increasing the possibility of Paxos winning the bid. ^{[2] [12]}

Controversy

The announcement and bidding process were met with some controversy. The Hyperstable protocol, an existing stablecoin project on Hyperliquid, called the process "unfair." A representative for the project claimed that the USDH ticker had previously been blacklisted by the Hyperliquid Foundation, forcing their team to use the USH ticker instead. They argued that changing this policy after other projects had already launched was shifting the goalposts. ^[9]

Suspicions of foul play were also raised regarding the Native Markets proposal. Some community members noted that the proposal was submitted just over an hour after the official announcement, yet was long and thoughtfully written, suggesting the team may have been given a "heads-up." Further scrutiny revealed that the Native Markets deployer address was funded by a newly created wallet that had itself been funded only five hours before the announcement, leading to questions about the team's independence from the Hyperliquid Foundation. ^[9] Dragonfly co-founder Haseeb Qureshi called the process "a bit of a farce," arguing that it appeared insiders had already determined that Native Markets would win. Lilian Aliaga, COO of OAK Research, also suggested "bias is at play" when questioning how a newcomer like Native Markets could so quickly garner a majority of validator support. ^[12]

Competing Proposals

Eight teams initially submitted proposals to issue USDH, with a key differentiator being the revenue-sharing model. Most bidders pledged to return a significant portion of the yield generated from stablecoin reserves to the Hyperliquid ecosystem, primarily through buybacks of the native HYPE token. ^[12]

Paxos

Paxos, a prominent stablecoin issuer supported by PayPal, submitted a proposal on September 7, 2025, for a fiat-collateralized USDH. The initiative is led by its recently formed Paxos Labs entity, which acquired infrastructure firm Molecular Labs—the developer behind Hyperliquid primitives LHYPE and WHLP—to deepen its understanding of the ecosystem's on-chain architecture. The stablecoin would be backed by U.S. T-bills and repurchase agreements. The company pledged to direct 95% of the interest generated from reserves toward HYPE buybacks, redistributing the value to users, validators, and partner protocols, with no take-rate until the total value locked (TVL) reached $1 billion. The proposal highlighted that its stablecoin would be compliant with emerging regulations like the U.S. GENIUS Act and the EU's MiCA framework, aiming to bridge Hyperliquid to global banking rails and make it more attractive to institutional and fintech platforms. It would be deployed natively on both HyperEVM and HyperCore. Paxos also committed to a zero-fee transition from USDC to USDH and planned to add support for HYPE within its brokerage infrastructure, which powers platforms like PayPal, Venmo, and Interactive Brokers. As part of its bid, Paxos also announced an offer from the Kraken exchange to list both USDH and HYPE if its proposal were selected, which would provide users with a free on-ramp and off-ramp. ^{[1] [3] [8] [11] [14]}

Ethena Labs

Ethena Labs, which issues the USDe stablecoin, initially hinted at submitting a bid. ^[8] The firm later proposed a synthetic dollar model for USDH, to be backed by USDtb, a tokenized security linked to BlackRock’s BUIDL (BlackRock USD Institutional Digital Liquidity) fund. The proposal included returning 95% of the net revenue to the Hyperliquid community, committing a minimum of $75 million in incentives, and covering all costs associated with migrating liquidity from USDC. Despite being considered a strong contender by some market analysts, Ethena Labs officially withdrew its bid on September 11, 2025. ^{[4] [3]}

Sky (formerly MakerDAO)

Sky, the protocol behind the USDS and Dai (DAI) stablecoins, proposed an overcollateralized USDH backed by a mix of crypto and real-world assets. In a departure from the buyback model, Sky offered to provide a direct yield of 4.85% to all USDH holders on the Hyperliquid platform. The proposal also included a $25 million grant to fund a project dedicated to growing the DeFi ecosystem on Hyperliquid. Co-founder Rune Christensen stated that the stablecoin would be "natively multichain" through an integration with the LayerZero protocol and could be customized by the community to comply with U.S. regulations. ^{[5] [1]}

Agora

Agora, a firm co-founded by Nick van Eck, proposed a fiat-collateralized stablecoin backed by cash and short-term U.S. Treasurys held in a reserve administered by State Street and VanEck. The proposal was structured as a coalition effort involving partners such as investment firm VanEck, crypto fintech company MoonPay, on/off-ramp provider Rain, and interoperability protocol LayerZero. Agora pledged to channel 100% of the net revenue generated from reserves back into the Hyperliquid ecosystem through HYPE buybacks or contributions to the platform's Assistance Fund. The firm positioned itself as a neutral partner with no competing Layer 1 blockchain interests, a point van Eck used to argue against the Stripe-linked Native Markets proposal. ^{[10] [8] [14]}

Native Markets

Native Markets, a team founded by community advocate Max Fiege and including former Uniswap Labs President MC Lader and blockchain researcher Anish Agnihotri, was the first to submit a proposal and was considered a frontrunner, particularly after Ethena's withdrawal. The proposal outlined a GENIUS-compliant, fiat-collateralized USDH issued via Stripe’s "Bridge" payment processor. The reserves, consisting of cash and Treasuries, would be overseen by BlackRock and Superstate. The revenue model proposed using 50% of the interest earned on reserve assets to buy back the HYPE token, with the other 50% set aside to fund USDH growth. ^{[1] [3] [8] [14]}

Frax Finance

Frax Finance, a DeFi-native stablecoin protocol, proposed a fiat-collateralized model for USDH based on its frxUSD stablecoin, which is backed by BlackRock's BUIDL fund. The proposal did not specify a concrete revenue-sharing plan but suggested that interest earned on reserve assets could be used to boost HYPE staking yield, conduct HYPE token buybacks, or fund rebates for active traders and rewards for USDH holders. The bid emphasized Frax's existing multichain infrastructure via FraxNet, which would provide immediate interoperability for USDH, and framed the proposal as "community-first." ^{[1] [8] [14]}

Key Developments

Ethena Labs' Withdrawal

On September 11, 2025, Ethena Labs founder Guy Young announced the withdrawal of his firm's bid for USDH. The decision was attributed to feedback from the Hyperliquid community and its validators, who expressed a strong preference for a team native to the Hyperliquid ecosystem. Concerns were also raised that Ethena Labs, which operates multiple products, had broader ambitions that might not remain fully aligned with Hyperliquid's interests. Young acknowledged the community's sentiment and praised the process, stating, "It is a level playing field where emergent players can win the hearts of the community and are given a fair shot at succeeding." Following the announcement, Native Markets became the clear favorite to win the issuance contract, according to prediction markets. ^{[4] [6] [12]}

Market Impact and Reception

The competitive bidding process for USDH had a notable impact on the market, particularly on Hyperliquid's native token, HYPE. The focus of most proposals on using reserve yield for HYPE buybacks contributed to the token's price reaching repeated all-time highs in the period leading up to the vote. The initiative was widely seen as a direct challenge to the dominance of Circle's USDC, with a successful migration potentially removing over $5 billion of USDC from circulation. ^[1]

The vote also attracted attention from prominent figures in the crypto industry. Arthur Hayes, co-founder of Maelstrom, was observed making significant purchases of Ethena's ENA token ahead of the firm's withdrawal, acquiring nearly $1 million worth of the token in the week of the vote. While some interpreted this as an endorsement, others suggested it was a personal investment strategy. According to prediction market Polymarket, Native Markets was heavily favored to win the bid, with bettors giving the startup around 92% odds as of September 11, 2025. Data showed Native Markets holding over 30% of the delegated stake, with the next-largest contender, Paxos, holding 7.6%. ^{[3] [12]}

Risks and Considerations

The launch of USDH and the selection of its issuer present several risks and considerations. A primary challenge is the technical complexity and user adoption hurdles associated with migrating billions of dollars in liquidity from USDC to a new asset, which could lead to liquidity fragmentation. The evolving global regulatory landscape for stablecoins, including the GENIUS Act in the U.S. and MiCA in Europe, could also impact the long-term viability of the chosen USDH model. ^[1]

Concentrating issuance with a single entity creates a potential point of failure, and the community has expressed concerns over misaligned incentives. For instance, resistance to the Native Markets proposal emerged due to its partner Stripe's development of a competing Layer 1 blockchain, Tempo. ^{[8] [10]} Additionally, some governance participants warned that Native Markets' reliance on Stripe's Bridge for issuance could present a single point of failure. ^[14] Several bidders have also faced historical controversies that were noted during the selection process. Paxos previously received a Wells notice from the SEC regarding BUSD; Sky (as MakerDAO) experienced oracle failures during a 2020 market crash and faced criticism over governance centralization; Ethena's synthetic model drew comparisons to the failed Terra/UST project; and Frax's earlier algorithmic models were known for volatility. ^[1]