DeFi Governance Goes to Auction: Hyperliquid Bets $5B on Stablecoin Democracy

Hyperliquid, the dominant decentralized exchange in the perpetuals market with a 75% share, is challenging Circle’s USDC by proposing USDH, a new dollar-pegged stablecoin that could redirect up to $5 billion in deposits from USDC back into Hyperliquid’s ecosystem. The move is designed to decentralize control over yield generation and align it more closely with the community, reducing reliance on a centralized stablecoin issuer. Hyperliquid has initiated an on-chain auction for USDH, where validators will vote on the winning issuer based on compliance, yield sharing, and infrastructure value. This represents a significant shift in how decentralized protocols negotiate with traditional financial entities, setting a precedent for open, transparent procurement in the DeFi space.

Hyperliquid’s platform processes hundreds of thousands of trades per second and saw $400 billion in trading volume in August 2025 alone. Nearly 95% of its assets are currently denominated in USDC, making it one of the largest single users of Circle’s stablecoin. This heavy reliance has allowed Circle to earn nearly $150–200 million annually through interest on USDC reserves. However, the introduction of USDH threatens to disrupt that model. If Hyperliquid successfully migrates these deposits into its own stablecoin, Circle could face a significant revenue loss, potentially up to 10% of its total annual earnings. The risk is compounded by delays in deploying native USDC and CCTP on Hyperliquid, which have created an opening for USDH to gain traction.

The USDH auction has attracted major players in the stablecoin market. Paxos, with its long-standing regulatory compliance and infrastructure experience, has emerged as a leading contender. Its proposal includes a 95% yield share with Hyperliquid, full GENIUS Act and MiCA compliance, and integration with PayPal, Venmo, and other platforms. Frax Finance, a decentralized stablecoin issuer, has offered to back USDH with its own frxUSD and share 100% of the yield with Hyperliquid users. Agora, backed by venture capital and institutional partners, pledged 100% of net revenue back to Hyperliquid, with plans for institutional-grade custody and cross-chain interoperability. These competing proposals highlight the growing institutional interest in stablecoin issuance and the potential for decentralized platforms to leverage multiple stablecoin options to optimize yield and compliance.

Bernstein analysts have downplayed immediate concerns for Circle, noting that the bootstrapping of new stablecoins in the DeFi space is inherently slow. They argue that Hyperliquid may choose to integrate multiple stablecoin partners to maintain liquidity and avoid disruptions to its trading platform. While USDH could create a more competitive environment, the impact on Circle’s dominance is not expected to be abrupt. Bernstein also pointed out that Circle has gained market share in recent quarters, with USDC now commanding a 30% share of the stablecoin market, up from 28%. Analysts believe Circle is well-positioned to adapt by expanding its USDC ecosystem and capitalizing on growing demand for stablecoins in financial services and on-chain yield generation.

The USDH initiative marks a broader shift in the DeFi landscape, where governance is evolving from symbolic token voting to concrete, high-stakes decision-making around capital allocation. Hyperliquid’s auction model introduces a new standard for transparency and competition in stablecoin issuance, allowing decentralized communities to dictate how their reserves are managed and how profits are distributed. This could lead to more robust, community-aligned financial ecosystems, where protocols retain control over their capital rather than relying on centralized entities. For Circle, the situation underscores the need to innovate and retain users, as the DeFi market increasingly demands alternatives that align with the ethos of decentralization and community governance.

The outcome of the USDH vote, scheduled for September 14, will not only determine the future of Hyperliquid’s stablecoin layer but also set a precedent for how decentralized platforms can structure financial partnerships in the future. Whether Circle retains its hold on Hyperliquid’s deposits or loses them to a decentralized alternative, the broader crypto industry is watching closely to see how governance and capital allocation will be reshaped in the years ahead.

Source:

[1] Multichain USDC | Experience the power of ... (https://www.circle.com/multi-chain-usdc)

[2] Circle's Revenue At Risk As Hyperliquid Opens Auction For ... (https://www.forbes.com/sites/tomerniv/2025/09/08/circles-revenue-at-risk-as-hyperliquid-opens-auction-for-usdh/)

[3] Bernstein confident Circle sustains growth, unconcerned ... (https://www.theblock.co/post/369871/bernstein-confident-circle-sustains-growth-unconcerned-by-hyperliquid-stablecoin)

[4] Paxos, Frax, and Agora fight for Hyperliquid's USDH ... (https://www.theblock.co/post/369720/paxos-frax-and-agora-fight-for-hyperliquids-stablecoin-contract-with-more-bids-likely-incoming)

[5] Paxos Proposes to Issue USDH Stablecoin for Hyperliquid ... (https://finance.yahoo.com/news/paxos-proposes-issue-usdh-stablecoin-113000004.html)

[6] Hyperliquid Moves Forward to Launch Proprietary ... (https://www.coindesk.com/tech/2025/09/05/hyperliquid-moves-forward-to-launch-proprietary-stablecoin)

[7] Stripe presenta Tempo, su blockchain para pagos globales ... (https://icobench.com/es/news/stripe-presenta-tempo-su-blockchain-para-pagos-globales-con-stablecoins/)