Hyperliquid Bets Ecosystem Survival on USDH's Ability to Challenge USDC

Hyperliquid, a leading decentralized perpetual futures exchange, has launched a competitive selection process to determine the issuer of its new stablecoin, USDH, aiming to challenge the dominance of USDC. The platform announced the initiative on September 5, 2025, and opened a five-day window for proposals from stablecoin providers. Following intense competition among six major contenders—Native Markets, Paxos, Frax, Agora, Sky, and Ethena—the USDH ticker was ultimately awarded to Native Markets in a governance vote on September 14. The outcome has sparked significant speculation about whether USDH can disrupt the $6 billion USDC market share currently held on Hyperliquid.

Hyperliquid’s decision to develop a native stablecoin aims to reclaim revenue that has been siphoned by USDC, which currently accounts for approximately 95% of the $5 billion in total value locked (TVL) on the platform. This arrangement generates roughly $200 million annually in yields for Circle, with none of the profits returning to Hyperliquid. The USDH stablecoin is designed to convert this liquidity into a revenue stream for the ecosystem via HYPE token buybacks, validator incentives, or user rewards.

The selection process involved a transparent, on-chain governance vote led by Hyperliquid validators. Native Markets, the eventual winner, was founded by Max Fiege, a Hyperliquid investor and advisor, and was supported by key figures from Uniswap Labs and Paradigm. Its proposal emphasized a “Hyperliquid-native” approach, with USDH backed by cash and U.S. Treasuries managed off-chain by BlackRock and on-chain via Bridge, Stripe’s stablecoin infrastructure provider. The firm also pledged to split 50% of the yield from USDH reserves for HYPE buybacks and the remaining 50% for USDH ecosystem growth.

Ethena, once a strong contender, withdrew from the race citing concerns that its existing non-native infrastructure did not align with the spirit of Hyperliquid’s competition. The exit significantly boosted Native Markets' odds on prediction markets, with Polymarket odds surging to nearly 100%. Meanwhile, Paxos and Frax proposed competitive frameworks with regulatory compliance and revenue-sharing models, but neither managed to secure the necessary validator support to overtake Native Markets.

The USDH rollout is set to begin with a testing phase, during which users can mint and redeem up to $800 per transaction. Once testing concludes, Hyperliquid will open the USDH/USDC spot order book and enable unlimited minting and redeeming for all users. Vincent Liu, CIO of Kronos Research, noted that the governance vote “cements Hyperliquid as a fast-growing ecosystem” but emphasized that USDH must overcome significant challenges in competing with USDC and USDT, which dominate adoption and liquidity. “Transparency around reserves and strong, unified governance will be vital to win lasting trust,” he added.

The outcome of the USDH vote has also drawn criticism from some corners of the crypto community, with accusations that the selection process favored Native Markets from the outset. Haseeb Qureshi, a partner at Dragonfly Capital, described the request-for-proposal (RFP) as “a farce” and suggested that validators were not genuinely interested in considering alternatives. Mert Mumtaz, CEO of Helius, highlighted how the competition illustrated the commoditization of stablecoins and predicted that future exchanges may streamline user interfaces by displaying only “USD” while managing stablecoin swaps behind the scenes.

USDH’s success will ultimately depend on its ability to attract liquidity, maintain peg stability, and integrate with key DeFi protocols. If it can establish itself as a reliable and yield-generating stablecoin while aligning with Hyperliquid’s vision, USDH could challenge USDC’s dominance on the platform. However, given USDC’s entrenched position and regulatory advantages, USDH’s path to adoption will require sustained performance, transparency, and active community participation. The broader stablecoin landscape remains highly competitive, with Tether, Circle, and Ethena continuing to lead the market while newer entrants like Yala’s YU struggle to maintain peg stability.

The launch of USDH marks a pivotal moment for Hyperliquid, as it seeks to strengthen its position in the on-chain derivatives market and reduce dependency on external stablecoin issuers. The platform’s ability to execute the USDH roadmap effectively will determine whether it can capture a meaningful share of the $300 billion stablecoin market and reshape the dynamics of DeFi liquidity provision.