Stablecoin Shake-Up: USDH Challenges USDC’s Dominance and Profit Model

A recent surge in demand for stable assets in the cryptocurrency market has led to the minting of $250 million in USDC, signaling strong capital inflow and potential buying pressure for digital assets like Bitcoin and Ethereum. This significant injection of liquidity not only enhances market stability but also reflects growing institutional interest in regulated digital assets [1]. The increased availability of USDC enables traders to execute transactions more efficiently and manage risk with greater precision, contributing to a more resilient and dynamic market environment.

USDC, one of the largest names in the stablecoin market, competes with Tether (USDT), which has the fourth-largest market cap at $168 billion as of September 2025. USDC holds a market cap of $72.7 billion, securing a seventh-place ranking. Both stablecoins function as ERC-20 tokens on the Ethereum blockchain and are backed by the same amount of dollars in the form of interest-bearing government debt instruments. However, USDC, backed by Circle and Coinbase Global, is often positioned as a more transparent and regulated option, while Tether, backed by iFinex and associated with Bitfinex, is the most widely used and accepted [2]. The choice between the two often depends on the user's preferred trading platform, with USDC being the default for Coinbase users and Tether dominating other platforms.

The use of stablecoins has extended beyond trading and into other areas such as online betting and gambling. In 2025, USDC and USDT have emerged as the dominant stablecoins in the crypto gambling space, providing bettors with the advantages of price stability and fast transactions. Platforms like Dexsport support multi-chain betting with over 38 cryptocurrencies and 10,000+ games, leveraging stablecoins for instant deposits and withdrawals. The widespread adoption of USDC and USDT in this sector is driven by their reliability and the network effect they generate among users and platforms alike [3]. Dexsport’s integration of real-time transparency and audits further reinforces the trust associated with stablecoin-based betting.

Hyperliquid, a leading decentralized exchange, is now challenging the dominance of USDC with the proposed launch of USDH, a yield-bearing stablecoin. This initiative aims to redirect yield from the nearly $5 billion in deposits that currently enrich Circle’s USDC back into Hyperliquid’s own community. Instead of issuing USDH itself, Hyperliquid has initiated a public on-chain auction, allowing potential issuers to compete for the opportunity to mint and manage the stablecoin. The process emphasizes transparency, compliance, and community governance, with validators voting on-chain to determine the final issuer [4]. This model represents a significant shift in how decentralized platforms engage with stablecoin issuers, prioritizing community interests and shared value over traditional profit motives.

Circle’s current business model heavily relies on the interest income generated from USDC reserves, which are primarily invested in short-term U.S. Treasuries. However, the potential migration of these reserves into USDH could pose a substantial risk to Circle’s revenue. According to recent data, nearly 7–8% of all USDC in circulation is held on Hyperliquid, translating to a potential loss of $150–200 million annually for Circle. This represents a critical vulnerability for the company, especially as U.S. interest rates are expected to decline, further squeezing its profit margins. In response, Circle has announced plans to launch native USDC on Hyperliquid’s ecosystem, aiming to retain its market share and reinforce its position as the most compliant stablecoin [5].

The broader implications of these developments suggest a potential reconfiguration of the stablecoin landscape, where yield-bearing and governance-driven models could challenge the dominance of traditional stablecoins like USDC and USDT. As decentralized platforms continue to innovate and prioritize user incentives, the role of stablecoins in DeFi may evolve to reflect a more competitive and community-centric approach. This shift could redefine how users interact with stablecoins and how platforms manage liquidity and capital. The outcome of Hyperliquid’s USDH initiative and Circle’s strategic responses will be closely watched, as they may set new precedents for the future of stablecoin issuance and governance in the crypto industry.

Source: [1] $250 Million USDC Minted: Implications for Cryptocurrency ... (https://intellectia.ai/news/crypto/massive-250-million-usdc-minted-what-it-means-for-crypto-stability) [2] Better Stablecoin Buy: Tether vs. USDC (https://www.fool.com/investing/2025/09/05/better-stablecoin-buy-tether-vs-usdc/) [3] Betting With Stablecoins? Why USDC & USDT Dominate in ... (https://www.mexc.com/en-GB/news/betting-with-stablecoins-why-usdc-usdt-dominate-in-2025/88029) [4] Hyperliquid's USDH Challenges USDC: Is Circle's $1.2B ... (https://www.ccn.com/education/crypto/hyperliquid-usdh-challenges-usdc-circle-1-2b-ipo-revenue-risk/) [5] Circle's Revenue At Risk As Hyperliquid Opens Auction For ... (https://www.forbes.com/sites/tomerniv/2025/09/08/circles-revenue-at-risk-as-hyperliquid-opens-auction-for-usdh/)