DeFi's High-Stakes Stablecoin Showdown Heats Up

Sky Mavis, the protocol formerly known as MakerDAO, is positioning its USDH stablecoin to be fully decentralized initially, with necessary adjustments made later to achieve compliance. Hyperliquid, a decentralized exchange with nearly $400 billion in trading volume last month, is seeking issuers to deploy USDH, its native stablecoin. Sky's proposal leverages its $8 billion balance sheet, a B- S&P credit rating, and a seven-year operating history, making it a formidable contender.

Sky’s proposal includes a 4.85% return on USDH, significantly above the yield from U.S. Treasury bills, with the generated revenue earmarked for HYPE token buybacks and the Assistance Fund. Additionally, Sky is offering $2.2 billion in redemption liquidity through its Peg Stability Module, ensuring institutional traders can transact at scale without concerns about liquidity. The proposal also includes a $25 million investment in Hyperliquid's DeFi ecosystem, modeled after Sky’s Spark token farm, which has attracted over $1 billion in TVL. Sky further pledged to migrate its native buyback engine, which generates more than $250 million in annual profits, onto Hyperliquid.

Hyperliquid's native token, HYPE, has surged in value and market position, reaching an all-time high of $55. The token's performance has been bolstered by the intense competition among stablecoin issuers for the USDH deployment contract, including bidders like Paxos, Frax, Agora, and Native Markets. Paxos has pledged 95% of reserve earnings to HYPE buybacks and offers a zero-fee migration from USDC to USDH, while Frax proposed a 1:1 backing of USDH with frxUSD, which is supported by BlackRock's yield-bearing BUIDL treasury fund. Agora’s coalition promises 100% net revenue sharing and emphasizes neutrality and institutional alignment.

However, the USDH stablecoin initiative has not been without controversy. A proposal linked to Stripe's Bridge platform has drawn significant community pushback, with critics warning of potential conflicts of interest given Stripe's control over wallet infrastructure and its Tempo blockchain. Agora’s Nick van Eck has questioned the implications of allowing a vertically integrated issuer to control Hyperliquid’s monetary layer. This debate highlights the broader tensions within the DeFi space regarding decentralization, governance, and economic sovereignty.

The validator vote to determine USDH’s issuer is scheduled for September 14, with the Hyperliquid Foundation abstaining from the decision. The outcome will shape not only the governance model of USDH—whether it is Genius-compliant, user-yielding, or fully native—but also the broader economic infrastructure of the Hyperliquid platform. The selected issuer will manage a stablecoin that could replace the $5.5 billion in USDC currently held on the platform, representing 7.5% of the stablecoin's circulating supply.

With multiple proposals offering different visions for USDH’s structure, including regulatory-first approaches, user-yield models, and Hyper-native solutions, the validator vote represents a pivotal moment for Hyperliquid’s future. The decision could determine whether the platform’s monetary layer is controlled by a legacy stablecoin giant, a DeFi-native protocol, or a corporate payments firm with blockchain ambitions.