Hyperliquid’s USDH Model Sparks Regulatory Tensions, Reshapes Stablecoin Economics

The HYPE token, the governance token of Hyperliquid—a decentralized trading platform—has surged over 1,500% in less than a year, reaching a market capitalization of $16 billion, according to recent data . This growth has positioned HYPE at the center of a shifting landscape in stablecoin economics, as Hyperliquid introduces USDH, its first native stablecoin. The platform’s validator vote selected Native Markets to issue USDH, a move that could disrupt existing stablecoin providers like Circle’s USDC, which currently dominates Hyperliquid’s ecosystem .

USDH is designed to redirect yield generated from its reserves into Hyperliquid’s ecosystem through a 50/50 split: half of the revenue from USDH’s reserve income will fund HYPE buybacks, while the other half will support ecosystem growth initiatives . This structure diverges from traditional stablecoin models, which typically channel interest income to issuers. Hyperliquid holds approximately $5.97 billion in USDC, representing 8.2% of USDC’s total supply, and the shift to USDH could reduce Circle’s revenue by hundreds of millions annually while strengthening Hyperliquid’s independence from external stablecoin providers .

The validator vote process attracted proposals from major players like Paxos and Frax, but Native Markets emerged as the winner by offering a balanced approach to yield distribution. This decision underscores the growing importance of ecosystem alignment in DeFi governance, as noted by CoinGecko’s Vera Lim . The reserves for USDH will be managed via Stripe’s Bridge platform, with custody provided by BlackRock, adding institutional credibility to the project .

Regulatory challenges, however, loom large. The U.S. GENIUS Act and Europe’s MiCAR both prohibit interest-bearing stablecoins, aiming to prevent them from competing with bank deposits. Hyperliquid’s model, while compliant on the surface, effectively circumvents these rules by funneling yield into HYPE buybacks and ecosystem growth. This approach mirrors corporate strategies, such as Circle’s reinvestment of USDC reserves into Treasuries, but makes the link explicit within the token’s economics . Critics argue that USDH blurs the distinction between “money” and “investment,” as it transforms stablecoin adoption into a source of yield for the community .

The broader implications of USDH highlight three key trends in the DeFi space. First, stablecoin issuers must increasingly pay for adoption, as value returned to ecosystems becomes a critical factor in user preference. Second, regulatory frameworks are struggling to keep pace with innovative designs that exploit legal loopholes. Third, governance tokens like HYPE are gaining prominence as central beneficiaries of these new economic models .

Hyperliquid’s rise is also reshaping competition in decentralized trading. The platform, which operates on its own blockchain, has captured 70% of the decentralized perpetual futures market, with monthly trading volumes nearing $400 billion . Its technical infrastructure—featuring HyperBFT consensus and HyperEVM—enables high-speed transactions and Ethereum compatibility, attracting both retail and institutional users. The platform’s airdrop of 76.2% of its token supply to users in November 2024 further solidified community trust, with HYPE’s price surging from $4 to $35 post-airdrop .

Despite its success, Hyperliquid faces risks, including smart contract vulnerabilities and network stability concerns. However, the platform has not experienced any security breaches, and its open interest caps and oracle safeguards mitigate market manipulation risks . As the DeFi landscape evolves, Hyperliquid’s USDH and HYPE token model exemplifies the tension between regulatory compliance and financial innovation, setting a precedent for future stablecoin designs .