DeFi’s Governance Revolution: Validators to Choose Next Stablecoin Overlord

Hyperliquid has announced a public on-chain auction to determine the issuer of its new stablecoin, USDH, in a move that could redefine DeFi governance and competition. The auction invites bidders to compete for the right to issue USDH, with each proposal disclosing its yield-sharing model, compliance strategy, and infrastructure offering. Validators will play a central role in the decision-making process, casting binding on-chain votes to determine the winning bidder [1].

USDH aims to replace USDC, which currently dominates Hyperliquid’s liquidity and represents nearly $5 billion in deposits. This transition could redirect the yield from these assets back into the Hyperliquid community, with potential uses including HYPE token buybacks, validator rewards, and liquidity incentives [1]. The initiative marks a significant shift in how DeFi protocols negotiate with stablecoin issuers, effectively importing corporate procurement practices into decentralized governance models [1].

Among the leading bidders, Sky (formerly Maker) has emerged as a notable contender with a proposal offering a 4.85% yield on USDH, significantly higher than the average T-Bill rate. Sky also pledged $25 million to support the growth of DeFi on Hyperliquid, including the development of exclusive tokens that could generate substantial revenue for the protocol. This bid is one of five major proposals, alongside submissions from Paxos, Frax, Agora, and Native Markets [4].

Paxos, a well-established stablecoin issuer, proposed a 95% yield-sharing model, with plans to back USDH with U.S. Treasury Bills and repurchase agreements. The proposal also outlined integration with existing platforms like PayPal and Venmo. Frax, a DeFi-native protocol, aims to back USDH with its own stablecoin, frxUSD, and has suggested that the yield could be used for HYPE staking rewards or trader rebates. Agora, backed by VanEck and MoonPay, proposed a 100% yield-sharing model and the use of institutional-grade custodians like State Street [3].

Hyperliquid’s move signals a broader industry trend toward self-sufficient DeFi ecosystems. By reducing dependency on external stablecoins, Hyperliquid aims to capture a portion of the revenue generated from reserve assets. This shift could reshape the financial dynamics of DeFi, where protocols increasingly control the capital flows within their networks. For Circle, the potential loss of Hyperliquid’s deposits represents a significant risk, with estimates suggesting a potential $150–200 million annual revenue loss [1].

The final decision will be made by Hyperliquid’s validators following the platform’s next network upgrade, a date yet to be announced. Whichever issuer is selected, the USDH initiative marks a turning point in how DeFi protocols engage with stablecoin infrastructure. The process introduces a level of transparency and community-driven governance previously unseen in the stablecoin market, setting a precedent for future decentralized finance innovations [2].

Source: [1] 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/) [2] Hyperliquid Moves Forward to Launch Proprietary ... (https://www.coindesk.com/tech/2025/09/05/hyperliquid-moves-forward-to-launch-proprietary-stablecoin) [3] Meet the bidders vying to build Hyperliquid's USDH stablecoin (https://www.dlnews.com/articles/defi/paxos-frax-agora-and-native-markets-compete-to-build-usdh-stablecoin) [4] Sky Joins Bidding War for Planned Hyperliquid Stablecoin (https://cointelegraph.com/news/sky-bidding-war-launch-hyperliquid-usdh-stablecoin) [5] Stablecoin Has Arrived. Is The Payments Revolution ... (https://www.investors.com/news/stablecoin-genius-act-payments-revolution/)