In a landmark move for decentralized finance, Hyperliquid launches USDH, a native stablecoin issued by Native Markets. This bold initiative aims to wrest control of stablecoin yield, deepen liquidity, and reposition Hyperliquid as a self-sufficient DeFi powerhouse. In this article, we delve into the background, mechanics, implications, and challenges of this ambitious launch.
Background: Why Hyperliquid Needs a Native Stablecoin
Hyperliquid has rapidly become one of the dominant decentralized exchanges (DEXs) for perpetual futures and derivatives, with a massive volume of trading and significant demand for stablecoin liquidity.
Yet until now, most stablecoin activity on Hyperliquid has relied on external assets—particularly USDC, which constitutes a large bulk of stablecoin liquidity on the network. This means that yield earned by those reserves flows outside of Hyperliquid’s ecosystem, benefiting external issuers rather than the protocol itself.
By launching USDH as a native, Hyperliquid-aligned stablecoin, the protocol can:
- Retain revenue generated from reserve yield
- Reduce reliance on external stablecoin issuers
- Strengthen security and on-chain integration
- Align incentives of stakers, users, and validators
The Race for USDH Issuance: Bidding, Governance & Controversy
To determine who would issue USDH, Hyperliquid initiated a competitive proposal and governance process. Several well-known players submitted proposals: Paxos, Ethena, Sky, Agora, Frax, and Native Markets.
Ethena eventually withdrew its bid, citing community concerns over its alignment with the Hyperliquid ecosystem. That withdrawal substantially bolstered Native Markets’ odds.
At the end of the governance vote, Native Markets won the right to issue USDH. The community, validators, and HYPE stakers coalesced around the proposal.
However, criticism emerged. Some voices in crypto questioned whether the process favored Native Markets unduly, citing timing, prior alignment, or structural advantages.
Mechanics: How USDH Will Be Issued & Managed
Native Integration & Token Standard
Once the vote concluded, Native Markets announced plans to deploy USDH via HIP-1, with the ERC-20 contract for Ethereum semantics, as well as native integration into Hyperliquid’s HyperEVM network.
The deployment is to happen in phases, starting with capped minting/redeeming (e.g. up to $800 per transaction) under controlled test conditions, before opening to unrestricted mint and redeem flows.
Reserve Structure & Yield Split
Native Markets proposes that USDH will be backed by a mix of off-chain assets (cash, U.S. Treasuries) managed by institutions like BlackRock, and on-chain reserves managed via platforms such as Superstate and Stripe’s Bridge infrastructure.
A key design: yield generated by reserve assets will be split evenly — half earmarked for HYPE buybacks / ecosystem support, the other half for USDH growth, integrations, or benefits.
Trading & Integration
After the test phase, USDH/USDC spot order books and full mint/redeem functionality are expected to go live.
Moreover, Circle is concurrently launching native USDC issuance on Hyperliquid (CCTP v2 integration) to maintain stablecoin diversity and interoperability. The Block The competition is real.
Implications & Potential Impact
Capturing Yield & On-Chain Value
By capturing yield that previously flowed externally, Hyperliquid stands to reclaim hundreds of millions in lost revenue. That yield can be reinvested in liquidity, ecosystem incentives, or HYPE tokenomics.
Reducing Dependency Risks
Reliance on external stablecoins like USDC brings counterparty risk, bridging risk, and dependency on third-party governance. A native coin internalizes control and accountability.
Driving DeFi Innovation & Adoption
If USDH gains traction, it can spur creative usage in lending, automated market makers, yield farming, and cross-chain applications within Hyperliquid’s ecosystem.
Competitive Pressure on USDC & Others
As USDH gains adoption, it places competitive pressure on external issuers like Circle. The shift could rebalance stablecoin dynamics in the broader ecosystem.
Risks, Challenges & Criticisms
- Adoption Risk
Convincing users, liquidity providers, and traders to shift to USDH from entrenched stablecoins (USDC, USDT) is a heavy lift. - Credibility & Trust
Native Markets is relatively new, and critics have questioned whether the process was fair or biased. - Regulatory & Compliance Risks
Stablecoin regulation is a hot topic globally. Ensuring USDH remains compliant across jurisdictions is nontrivial. - Technical & Security Risks
The phased rollout, integration with reserve infrastructure, and bridging systems must be flawless to prevent exploits and depegging. - Yield Volatility & Market Conditions
If reserve yields weaken (e.g. interest rates drop), USDH’s economics and attractiveness may suffer.
Timeline & Current Status
- Proposal submissions were accepted in early September 2025.
- Ethena withdrew before final vote.
- The validator vote concluded in favor of Native Markets.
- Deployment of HIP-1 & ERC-20 contracts expected imminently, with the test phase beginning first.
Conclusion
By choosing to launch USDH, Hyperliquid is doubling down on decentralization, self-sovereignty, and capturing value for its own network rather than outsourcing it. The success of this initiative will hinge on execution, trust building, adoption, and technical robustness.
If USDH thrives, it could mark a turning point—where a DEX issues its own stablecoin, captures yield, and redefines stablecoin economics. But if missteps occur, reputational damage could follow.
This is one of crypto’s most closely watched experiments—and the outcome could ripple across DeFi.
