The stablecoin market is witnessing a potential transformation as Hyperliquid, a leading decentralized exchange, embarks on an ambitious journey to redefine how stablecoins operate. At the center of this movement is a newly proposed stablecoin, USDH, which aims to address a critical issue prevalent in the current stablecoin environment: the distribution of profits from reserve holdings.
Currently, in popular stablecoins like USDC and USDt, issuers such as Circle and Tether maintain reserves in secure assets like US Treasurys or cash to back every circulating token. The yields generated from these reserves typically benefit the issuers instead of the users. This profit-centric model has led to calls for a more equitable alternative that would allow users to reap some of the benefits from the yields.
Hyperliquid is poised to change this dynamic with the introduction of USDH. As one of the leading platforms for decentralized futures trading, handling nearly 70% of that market, Hyperliquid’s innovative approach intends to return the yield directly into its ecosystem rather than allowing it to flow out to external issuers. This is enabled through mechanisms such as buybacks, incentives, and rewards designed to benefit the Hyperliquid community.
To bring USDH to life, Hyperliquid has reached out to potential partners for the issuance and management of this new stablecoin. Paxos, a regulatory-compliant entity known for its collaborations with major platforms like PayPal and Binance, has emerged as the frontrunner, presenting a compelling proposal that prioritizes regulatory adherence and user benefits.
Paxos’ proposal for USDH underscores three key pillars: yield optimization, robust infrastructure, and a strong regulatory framework. The plan aims for approximately 95% of the yield generated from US Treasurys, cash, and repos to be reinvested back into Hyperliquid through HYPE buybacks, with only 5% allocated for operational costs. This innovative yield strategy positions Hyperliquid to create additional value for its users.
Moreover, USDH is set to launch on both the HyperCore on-chain order book and the HyperEVM layer, ensuring interoperability across trading and DeFi applications. This dual-chain deployment promises to deliver both speed and flexibility, enhancing user experience and broadening trading opportunities.
On the regulatory front, Paxos’ established licensing history offers a significant advantage. The proposal aligns with vital compliance frameworks like the GENIUS Act in the U.S. and the Markets in Crypto-Assets (MiCA) regulation in Europe, which will not only help build trust but also enhance oversight of the new stablecoin. Furthermore, the inclusion of PayPal USD (PYUSD) in its reserve structure aims to bolster transparency and credibility.
If successful, the launch of USDH could greatly reduce Hyperliquid’s reliance on existing stablecoins such as USDT and USDC, streamlining the trading process for users and potentially attracting institutional interest seeking a compliant trading infrastructure. As the project evolves, the direction taken by Hyperliquid and Paxos could set a new standard in the stablecoin arena, facilitating a fairer distribution of profits while enhancing the trading ecosystem.
As this partnership develops, the broader cryptocurrency community will be closely watching how USDH is received and whether it indeed catalyzes a shift in the market, transforming more than just trading venues but also the fundamental economics of stablecoins.
