Hyperliquid’s USDH Framework Fuels Regulatory Debate and Transforms Stablecoin Economic Landscape

HYPE, the governance token for the decentralized exchange Hyperliquid, has experienced a price explosion of more than 1,500% in under twelve months, propelling its market cap to $16 billion according to the latest figures. This remarkable ascent has made HYPE a focal point in the evolving stablecoin sector, coinciding with Hyperliquid’s launch of its first proprietary stablecoin, USDH. Following a validator vote, Native Markets was chosen to manage USDH issuance—a move that may challenge established stablecoins such as Circle’s

, which currently holds a dominant role in Hyperliquid’s platform.

USDH’s model is built to funnel profits from its reserve assets directly back into the Hyperliquid ecosystem, splitting returns equally: 50% of reserve earnings are used for HYPE token buybacks, while the other half goes to support growth projects within the ecosystem. This approach marks a departure from standard stablecoin practices, where issuers typically keep the interest themselves. Hyperliquid currently holds around $5.97 billion in USDC—8.2% of all USDC in circulation—and adopting USDH could result in Circle losing hundreds of millions in yearly revenue, while giving Hyperliquid greater autonomy from third-party stablecoin issuers.

The selection process for the USDH issuer featured bids from major names like Paxos and Frax, but Native Markets secured the role by offering a balanced profit-sharing scheme. This outcome highlights the rising significance of ecosystem incentives in DeFi governance, as pointed out by CoinGecko’s Vera Lim. USDH reserves will be managed using Stripe’s Bridge system, with BlackRock providing custody, lending the initiative significant institutional support.

However, regulatory issues present substantial hurdles. U.S. legislation like the GENIUS Act and Europe’s MiCAR both ban stablecoins that pay interest, seeking to prevent competition with traditional bank accounts. Although Hyperliquid’s structure technically complies, it effectively sidesteps these restrictions by redirecting yields to HYPE repurchases and ecosystem investment. This mirrors tactics used by companies such as Circle, which reinvests USDC reserves into government bonds, but Hyperliquid makes this process overt in the token’s financial framework. Some critics claim USDH blurs the boundary between a currency and an investment product, as it channels stablecoin use into returns for the community.

Looking at the wider DeFi landscape, USDH’s debut underscores three major developments: stablecoin projects are under growing pressure to reward their communities to drive adoption; regulatory systems are struggling to keep up with creative new models that test legal limits; and governance tokens like HYPE are becoming increasingly central to these innovative economic structures.

Hyperliquid’s rapid ascent is also shaking up the decentralized trading scene. Built on its own blockchain, the platform now commands 70% of the decentralized perpetual futures market, with monthly trading volumes approaching $400 billion. Its technical backbone, which includes HyperBFT consensus and HyperEVM, supports lightning-fast transactions and

compatibility, drawing in both private traders and institutional investors. In November 2024, Hyperliquid distributed 76.2% of its token supply to users via an airdrop, further boosting community loyalty, and HYPE’s price jumped from $4 to $35 following the event.

Despite these accomplishments, Hyperliquid is not without challenges. Potential threats include smart contract bugs and network reliability issues. Nonetheless, no significant security incidents have occurred so far, and the platform’s use of open interest limits and oracle protections helps reduce the risk of market manipulation. As DeFi continues to evolve, Hyperliquid’s USDH and HYPE framework highlights the ongoing tension between regulatory requirements and innovation, potentially shaping the next generation of stablecoin models.