Hyperliquid is a crypto exchange that doesn’t want its customers to rely on leading stablecoins like Tether or Circle for trading on its platform. It would rather issue the coin itself.
But managing coins is a complex business, requiring licenses, banking relationships, regulatory experts, and more. That’s why Hyperliquid is seeking to outsource the responsibility to a professional custodian that is already geared up for issuing stablecoins.
Currently, two major financial technology players are vying for that business.
But Hyperliquid is not a traditional crypto exchange like Coinbase or Binance. It is what’s known as a decentralized exchange (DEX), where trading happens directly on its own blockchain network rather than through a central intermediary.
Launched in late 2022, in the wake of the collapse of FTX, it quickly attracted professional traders who were looking for safer, decentralized alternative networks.
But it was built not with the usual influx of venture capital. A small group of technically trained founders who preferred to bootstrap it organically. The best known of them is Jeff Yan, a Harvard-educated mathematician who once worked in high-frequency trading.
Along with his classmate Iliensinc, he set out to design a trading platform that could handle derivatives with the speed of a centralized exchange but the trustlessness of a blockchain.
By deliberately avoiding venture seeding, they also avoided the familiar pattern of wealth concentration that plagues many crypto projects, where a handful of funds dominate token holdings from day one.
Since then, Hyperliquid has exploded in popularity because it combines the speed and user experience of a centralized exchange with the transparency and security of decentralized infrastructure. Traders can move large volumes with low fees, and at the same time, the system is governed by its community rather than by a private company.
That governance happens through HYPE, the platform’s native token. Like shares in a company, HYPE represents both voting rights and a claim on the system’s economic flows. Holders of HYPE vote on key decisions — such as who will issue USDH — and benefit financially when the network generates fees or stablecoin revenues. This contrasts with Ethereum’s structure, where the native token (ETH) primarily pays for transaction processing and does not confer direct governance over reserves or revenue policy.
Prospecting for stablecoin business
As on most exchanges, derivatives, and particularly perpetual futures, are the most heavily traded on Hyperliquid. To operate, these contracts require a stable base currency for margin collateral and for funding payments that keep futures prices anchored to spot markets.
On centralized exchanges this role is almost always played by Tether’s USDT or Circle’s USDC, both of which are deeply liquid and universally recognized. Hyperliquid, for now, has also relied on them.
But the platform’s success means that billions in trading flows are effectively subsidizing outside issuers. In Tether’s and Circle’s models, the interest earned on the dollars and Treasuries backing their stablecoins accrues to the issuing companies alone. None of it flows back to the traders and token holders who actually drive the system.
That is where USDH comes in. Hyperliquid’s idea is to use a professional custodian to issue a dollar-backed stablecoin native to its own chain. The custodian would hold the reserves in safe, interest-bearing assets like Treasury bills and repos, but instead of keeping the yield, it would return the proceeds to Hyperliquid’s community.
Mechanically, the process works through HYPE, the platform’s native token. Echoing traditional central banking, the interest earned on reserves is used to buy HYPE on the open market, creating steady demand and a price floor.
The value captured this way is then redistributed across stakers and community funds. To a traditional finance reader, it resembles a dividend reinvestment scheme, but routed through token buybacks. In practice, it synthesizes interest from dollar assets into shared value for the ecosystem, ensuring that the gains are spread broadly rather than concentrated in one corporate treasury.
Two main contenders have stepped forward to win this mandate. Paxos, already well known for powering PayPal’s and Binance’s stablecoins, has proposed a compliance-heavy model that pledges to return ninety-five percent of reserve income back to the Hyperliquid ecosystem.
Agora, a newer entrant with backing from VanEck, offers a pitch centered on neutrality and deep integration, promising that all net revenues would be redirected into the community, either through HYPE buybacks or a dedicated assistance fund. Both emphasize their regulatory credentials and operational expertise. And that is the point: running a stablecoin at scale is less like a tech startup and more like a custodian bank. It requires licenses, audits, conservative asset management, and reliable banking partners. Hyperliquid is choosing not to reinvent that wheel, but instead to contract with an existing institution that can do the job properly.
The process itself is groundbreaking. Each prospective issuer has published its proposal, terms, and revenue-sharing commitments. Hyperliquid validators and HYPE holders are now deliberating, and ultimately, the decision will be made through a community governance vote. It is, in effect, an open RFP process conducted on-chain, with token holders deciding who will serve as the platform’s banker.
Key maturity moment
This moment says a lot about how the crypto ecosystem is evolving. The original generation of stablecoins was monopolistic: Tether and Circle issued their dollars, and users simply accepted them as-is, with no say in how reserves were managed or who benefited from the yield. Hyperliquid is introducing something different — a system where the benefits of custody are distributed, where governance tokens function more like equity, and where traders themselves decide how the proceeds of stablecoin reserves should be reinvested.
In the long run, the implications are larger than one trading platform. If stablecoins can be structured so that interest income circulates back into their ecosystems, they can become more than digital dollars. They can act as a form of distributed equity financing, generating real yield and funneling it back into development, user incentives, or even real-world projects. In that sense, the contest over who gets to hold the dollars behind USDH is more than a business deal. It is a test of whether crypto can produce a more efficient and democratic model of capital allocation, one that traditional finance has never quite managed to replicate.
For regulators, it could prove a massive headache. While Paxos prides itself as a regulated exchange, Hyperliquid’s decentralized status means it doesn’t have a formal “headquarters” or jurisdiction.
