Intensified Excitement Surrounds Hyperliquid as it Heats Up Competition against Circle's USDC
In a significant move, Hyperliquid's first native stablecoin, USDH, is making waves in the stablecoin market. The introduction of USDH marks a pivotal shift in the stablecoin ecosystem, with Hyperliquid aiming to be a major player and contributor.
Jeremy Allaire, CEO of Circle, the company behind Hyperliquid, expressed his excitement about the move, stating, "We are coming to the HYPE ecosystem in a big way. We intend to be a major player and contributor to the ecosystem."
The design of USDH is innovative, aiming to turn stablecoin adoption into a source of yield for the community, a role once reserved for bank deposits. This approach is aimed at incentivizing regulators, who often aim to avoid such incentives in stablecoins, to avoid potential pitfalls.
The governance token HYPE has surged more than 1,500% in less than a year, reflecting the market's expectation that yield, even if banned on paper, will find its way back to users and investors through other channels. The HYPE token, with a market cap of $16 billion, will be the central beneficiary of the 50/50 split in USDH reserves management, ensuring not all yield goes to HYPE, but it remains the primary recipient.
The reserves for USDH will be managed through Stripe's Bridge platform, with custody by BlackRock. The competition for USDH underscores a shifting dynamic in stablecoin issuance where issuers must increasingly pay for distribution.
The validator vote for USDH drew proposals from well-known names such as Paxos, Frax, Ethena, Sky (formerly MakerDAO), and Agora. Most of the proposals offered to return nearly all reserve income to win the mandate, while Native Markets pledged a 50/50 split.
Hyperliquid, a decentralized exchange (DEX) built on its own blockchain, is known for its leading role in decentralized perpetual futures with around 70% market share and monthly volumes approaching $400 billion. The competition for USDH underscores the evolution of stablecoins into ecosystems where yield is too valuable to leave untouched.
However, the USDH's compliance with rules on the surface has raised questions. Some view it as a circumvention of the rules, as USDH reroutes reserve income through HYPE buybacks and ecosystem subsidies. The regulation of stablecoins, such as MiCAR in Europe and the GENIUS Act in the U.S., prohibits stablecoins from paying interest to stablecoin holders to ensure they act as payment tools rather than investment products and to protect bank deposits.
This development in the stablecoin market is a testament to the growing importance of yield and the evolving dynamics in the industry. As stablecoins become more integral to various ecosystems, the competition for adoption and the value they bring to these ecosystems will continue to be a significant factor.
