What’s wrong with current stablecoins?
Put simply, too much profit is directed to issuers. In most cases, the yield from reserves flows back to those managing the stablecoin rather than to its users.
When you hold a stablecoin like USDC (USDC) or Tether’s USDt (USDT), the issuer (Circle or Tether) holds real dollars or safe assets (such as US Treasurys, money market funds or cash) to back every token in circulation.
They park their reserves in safe assets such as US Treasurys, which earn interest. That interest adds up to billions, and it goes straight to the issuers, not to the exchanges or traders using the coins.
Hyperliquid wants to change that. The exchange, which already handles nearly 70% of decentralized futures trading, is considering a native stablecoin called USDH. Instead of letting outside issuers capture the yield, Hyperliquid’s plan is to recycle it back into its own ecosystem through buybacks, incentives and rewards.
To make it happen, Hyperliquid has invited partners to bid for the job of issuing and managing USDH.
Paxos, a regulated firm best known for its work with PayPal and Binance, has put forward the strongest offer so far. Its updated USDH v2 plan combines regulatory credibility, PayPal and Venmo integrations, a $20-million incentive fund and a model that directs most reserve yield back into Hyperliquid.
The big questions: Could this move turn USDH into more than just another stablecoin? Could it be the spark that pushes Hyperliquid into its next phase of growth?
Did you know? Issuing a stablecoin is hugely profitable, which is why so many firms compete to be the issuer when a major exchange like Hyperliquid opens the door.
What are Hyperliquid and USDH aiming for?
Hyperliquid isn’t your typical decentralized exchange (DEX).
It runs on two key systems: HyperCore, which serves as a high-performance onchain order book for trades, and HyperEVM, an Ethereum Virtual Machine-compatible layer that lets developers build apps and smart contracts on top.
Together, these give Hyperliquid the speed of an exchange and the flexibility of a smart contract platform. That combination has helped it gain around $400 billion in perpetual trading volume in a single month and generate roughly $100 million in revenue.
USDH is designed to slot directly into this setup.
It would be a stablecoin that meets strict US and European rules (the GENIUS Act in the US and Market in Crypto-Assets in the EU), backed by safe reserves like cash and Treasurys. Instead of profits leaving the system, the yield from those reserves would flow back into Hyperliquid through buybacks, rewards and ecosystem growth.
If USDH launches successfully, it could help Hyperliquid rely less on outside stablecoins like USDT and USDC, make trading more efficient for users and open the door to institutions that want compliance-ready infrastructure.
Paxos’ proposal: Key features and mechanics
Paxos has framed its case for USDH around three main pillars. The plan highlights yield, infrastructure and regulatory safeguards as its foundation.
Yield and reserve backing
About 95% of the yield from US Treasurys, cash and repos would flow back into HYPE buybacks and reinvestment, with roughly 5% retained for operational costs.
Dual-chain deployment
USDH would launch natively on both HyperEVM and HyperCore, enabling composability across trading, settlement and decentralized finance (DeFi) integrations.
Regulatory and compliance edge
Paxos brings a long licensing history, alignment with GENIUS and Markets in Crypto-Assets (MiCA) and plans to include PayPal USD (PYUSD) in reserves (measures aimed at strengthening trust and oversight).
Distribution, incentives and ecosystem integrations
One of the most striking elements of Paxos’ proposal is how it connects Hyperliquid to mainstream payment networks while also backing adoption with tangible incentives. Key points include:
PayPal and Venmo integration
USDH and HYPE would be listed within PayPal’s ecosystem, extending to PayPal Checkout, Venmo, Xoom and other remittance and payment platforms. On- and off-ramps would be free of charge.
Ecosystem incentive fund
Paxos is committing $20 million to jumpstart adoption and growth. The fund would cover liquidity support, subsidies for merchants and builders, and other ecosystem initiatives, delivered through its partnership with PayPal.
Performance-based revenue model
Paxos will not take any fees until USDH surpasses $1 billion in total value locked (TVL). Beyond that, revenue share scales up gradually and is capped at 5%, even if TVL exceeds $5 billion. Importantly, all revenue earned by Paxos would be held in HYPE tokens, reinforcing alignment with…
cointelegraph.com