"Paxos Bets Regulatory Trust Against Stripe in USDH Power Play"

Paxos has unveiled an updated proposal for its USDH stablecoin, which includes a strategic integration with PayPal and Venmo. The second version of the USDH proposal (Proposal V2) has secured ecosystem partnerships with the two prominent fintech platforms and comes with $20 million in incentives to boost adoption. The initial allocation of incentives is set at 20% of the total value locked (TVL) and will scale as TVL increases. Rewards for Paxos will begin once the TVL exceeds $1 billion, with a cap of 5% of the TVL allocated as earnings for the firm.

The USDH proposal is one of several competing bids to manage the stablecoin for the Hyperliquid platform. The governance vote to determine the winner will take place on September 14. Paxos faces competition from other major players, including Agora and MoonPay, with some in the community expressing concerns about Stripe’s potential control through its Bridge platform. Critics argue that entrusting USDH to a vertically integrated entity like Stripe could lead to conflicts of interest, particularly with Stripe’s development of its Tempo blockchain.

Paxos’s proposal highlights a regulatory-first approach, leveraging its decade-long track record as a licensed and regulated stablecoin issuer. The firm has pledged to direct 95% of reserve earnings toward HYPE token buybacks, a move intended to align incentives with Hyperliquid’s token holders. This strategy positions Paxos as a serious contender in a crowded field where alternatives, including a 100% community-focused model from Frax, are also vying for support.

Meanwhile, Sky Protocol has entered the bidding process as the fifth major participant, offering 4.85% yield on USDH deposits and $25 million in ecosystem funding. Sky’s proposal emphasizes compliance, customization, and multichain deployment capabilities, while also highlighting its extensive experience in managing over $8 billion in stablecoin assets across USDS and DAI with no losses recorded. The proposal also promises to extend the same liquidity infrastructure to USDH, ensuring immediate access to $2.2 billion in USDC through its Peg Stability Module.

The USDH stablecoin, if successfully launched, is expected to replace the current USDC supply of $5.5 billion on Hyperliquid, which accounts for 95% of the platform’s stablecoin usage. This shift could generate significant revenue from U.S. Treasury yields and present a strategic opportunity for whichever firm secures the issuance rights. The contest reflects a broader evolution in the stablecoin market, where governance and control have become central issues among DeFi platforms and institutional players.

Hyperliquid, which holds nearly 80% of the DeFi derivatives market, has left the final decision on USDH issuance to its validator community, with the Hyperliquid Foundation effectively abstaining from the vote. The final proposals are due by September 10, with the outcome expected to shape the future trajectory of the USDH stablecoin and the broader DeFi ecosystem.