Hyperliquid’s USDH Auction Challenges Circle’s Stablecoin Dominance

Hyperliquid, the leading decentralized exchange capturing over 70% of the decentralized perpetual futures market, is preparing to launch its own U.S. dollar stablecoin, USDH, through an on-chain governance auction. This move aims to reduce its dependency on Circle’s USDC, which currently dominates 95% of the $5.6 billion in stablecoin supply on Hyperliquid’s platform. The proposed USDH stablecoin is designed to align incentives with Hyperliquid’s community, potentially capturing a portion of the revenue generated from reserve assets rather than ceding it to centralized issuers like Circle. The auction model is expected to drive competition among bidders, with compliance, yield distribution, and infrastructure as key evaluation metrics [1].

The USDH initiative reflects a broader shift in DeFi governance, where protocols are increasingly asserting control over critical infrastructure such as stablecoins. Instead of relying on closed-door agreements with centralized entities, Hyperliquid’s approach mirrors procurement models from traditional finance, encouraging transparency and community participation. Validators will play a central role, with binding on-chain votes determining which issuer mints USDH. The winning bidder must outline how they will manage reserves, how much of the yield will be shared with the community, and the infrastructure they will bring to the table [1].

Among the leading contenders for the USDH contract are Paxos, Frax Finance, and Agora. Paxos, a well-known stablecoin issuer with a strong compliance framework, has proposed returning 95% of the interest earned from USDH reserves to Hyperliquid’s native token HYPE, which will be redistributed to users and validators. Frax, a decentralized finance native, plans to back USDH with frxUSD and Treasuries managed by major asset managers like BlackRock, with 100% of the yield shared directly with Hyperliquid users. Agora, supported by $62 million in funding and institutional partners including VanEck and MoonPay, offers a 100% yield split to HYPE buybacks and access to global banking rails through its partnerships with Cross River and Customers Bank [1].

For Circle, the potential migration of Hyperliquid’s $5 billion in USDC deposits to USDH represents a significant revenue risk. Circle generates nearly all of its income from interest earned on USDC reserves, with over 99% of its $1.68 billion in 2024 revenue coming from this source. A loss of Hyperliquid’s deposits could cost Circle between $150–200 million annually, or roughly 10% of its business. The timing of USDH’s launch has further compounded the challenge for Circle, as delays in launching native USDC and cross-chain transfer protocols on Hyperliquid have allowed USDH to gain momentum before it can respond [1].

Beyond the financial implications, the USDH auction highlights a broader trend in DeFi governance: the ability of protocols to negotiate with centralized entities through transparent, community-driven processes. Hyperliquid’s model sets a precedent for how decentralized platforms can leverage their balance sheets to shift power dynamics, ensuring that the communities they serve benefit from the growth of their ecosystems. As DeFi continues to evolve, USDH represents a test of whether decentralized governance can effectively compete with traditional financial institutions in managing large-scale infrastructure [1].

The USDH governance vote is set for September 14, 2025, with validators expected to make a final decision on which bidder will mint the stablecoin. The outcome will not only determine Hyperliquid’s stablecoin strategy but also signal a potential turning point for DeFi governance models. In a market where liquidity and capital control are key, Hyperliquid’s approach demonstrates a shift toward protocols asserting greater autonomy over their financial infrastructure [1].

Source:

[1] Circles's Revenue At Risk As Hyperliquid Opens Auction For USDH (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 Stablecoin (https://www.coindesk.com/tech/2025/09/05/hyperliquid-moves-forward-to-launch-proprietary-stablecoin)

[3] Paxos Proposes Stablecoin for Hyperliquid with HYPE Buybacks (https://cointelegraph.com/news/paxos-proposes-usdh-stablecoin-for-hyperliquid)