Paxos Pledges Zero Fees, Hype-Buybacks to Win Hyperliquid's USDH Battle

Hyperliquid, the largest decentralized perpetual futures exchange, is preparing to launch its own stablecoin, USDH, reducing its reliance on third-party stablecoins such as USDC and USDT. The initiative has attracted a number of major financial entities and blockchain firms, including Paxos, Frax, Ethena, Agora, and Sky, each submitting proposals to earn the right to issue the stablecoin. The voting mechanism will be led by Hyperliquid’s validators, and the winner will be chosen in a vote scheduled for late September.

Paxos, the most prominent firm in the race so far, has unveiled a revised USDH proposal (V2), which includes a partnership with PayPal and Venmo to integrate USDH into their ecosystems. The proposal outlines a $20 million incentive package to drive adoption and liquidity. Paxos has also pledged that 95% of the interest earned on USDH’s reserve assets—such as short-dated U.S. Treasury bonds—will be used to buy back the HYPE token, Hyperliquid’s native governance token. The firm further states that it will not charge any fees until the USDH total value locked (TVL) reaches $1 billion, with a maximum fee cap of 5% once TVL exceeds $5 billion.

In addition to the financial incentives, Paxos has demonstrated a history of collaboration with Hyperliquid, having previously contributed to several ecosystem projects such as LHYPE and WHLP. This track record appears to have bolstered community trust in its proposal, with many users expressing support on Hyperliquid’s Discord server.

Frax, another leading contender, is proposing to issue USDH against its own frxUSD stablecoin, allowing for cross-token minting and redemption across USDC, USDT, and USD. While Frax has not specified exact plans for the use of USDH reserve earnings, it has suggested potential avenues such as boosting HYPE staking yields or offering rebates and rewards to traders and token holders. Despite some skepticism from the community regarding its alignment with Hyperliquid, Frax’s proposal has received largely positive feedback.

Ethena has also entered the competition, proposing a USDH stablecoin fully backed by its USDtb, a stablecoin issued in partnership with Anchorage Digital and underpinned by BUIDL, a tokenized money market fund from BlackRock and Securitize. The Ethena proposal promises to return 95% of the net revenue from USDH reserves to the Hyperliquid ecosystem and cover the costs of migrating existing USDC trading pairs. This institutional-grade backing differentiates Ethena’s proposal from others and highlights its appeal to Hyperliquid’s growing institutional user base.

The USDH stablecoin initiative is part of Hyperliquid’s broader strategy to enhance liquidity, reduce trading fees, and increase network autonomy. With the exchange reporting nearly $400 billion in perpetual futures trading volume in the past month, the potential for USDH to capture market share from existing stablecoin providers is significant. The final decision will rest with Hyperliquid’s validators, who will vote on the proposals in the coming weeks.