HYPE Hits ATH as Hyperliquid Launches $USDH, Sparking the Stablecoin War

On September 5, 2025, Hyperliquid announced its plan to launch a native stablecoin, USDH, as part of its upcoming network upgrade, emphasizing governance-driven innovation.

The protocol describes USDH as a "Hyperliquid-first and compliant" dollar-pegged asset designed to replace external stablecoins like USDC, aiming to build a self-sustaining DeFi ecosystem.

Unlike traditional stablecoins such as USDT and USDC, which are issued by centralized entities and generate profits exclusively for them, Hyperliquid proposes a groundbreaking decentralized voting mechanism.

This mechanism opens the issuance rights of $USDH to ecosystem teams rather than retaining control within Hyperliquid itself, embedding a community-driven model into the stablecoin's issuance process.

The announcement has sparked fierce competition. Frax and Paxos have already submitted proposals, while Ethena Labs is also expected to join the race. The voting process, set to conclude by September 10, could not only reshape the dynamics within the Hyperliquid ecosystem but also signal a potential shake-up in the broader stablecoin landscape.

Issuance Bidding: The Race for $USDH

The fierce competition for the issuance rights of $USDH stems from its strategic importance within the Hyperliquid ecosystem and the potential economic rewards it offers.

Hyperliquid currently holds approximately $5.72 billion in stablecoins, with 95% of this amount being USDC. This heavy reliance on external stablecoins has highlighted vulnerabilities, such as the risk of USDC becoming frozen, prompting the need for a more self-reliant solution.

As of September 5, 2025, Hyperliquid has opened the issuance rights for $USDH through a decentralized voting mechanism. This move is part of its broader effort to establish a self-sustaining DeFi ecosystem. With reserve yields estimated between 4% and 5%, replacing USDC could generate annual returns of $150 million to $220 million.

These funds could be used for community dividends or $HYPE token buybacks, significantly boosting $HYPE’s value and the ecosystem's appeal. This lucrative prospect has drawn major players like Paxos and Frax into the bidding process.

The winning team in the $USDH issuance race will gain control over Hyperliquid's $5.7 billion liquidity pool, securing long-term revenue streams and industry influence.

As the September 10 proposal deadline approaches, the competition is heating up, with participants offering varied issuance plans and revenue-sharing strategies to gain community support.

Additionally, Ethena Labs, Circle, and PayPal have been viewed as strong contenders by the community, with potential proposals that could shake up the race.

Despite the optimism, the differing plans have sparked debates and skepticism among community members. This bidding war is not just a technical challenge but also a pivotal battle for the future of DeFi.

Stablecoin Wars: A Shift in the Landscape

The competition surrounding $USDH issuance is just the beginning. A broader transformation is unfolding across the stablecoin ecosystem.

Omar Kanji, a partner at Dragonfly, pointed out that this move could have significant consequences for Circle’s USDC. Currently, USDC serves as the primary settlement currency for Hyperliquid’s derivatives trading, with deposits on Hyperliquid totaling $5.5 billion.

Assuming a 4% yield, this migration could bring an additional $220 million in annualized revenue to HYPE token holders while posing an equivalent revenue loss risk to Circle. This shift might also reduce USDC’s circulating supply by up to 7%.

Industry analyst Rob Hadick highlighted that Hyperliquid represents Circle's biggest growth engine and likely ~10% of its net revenue, now at significant risk due to the USDH launch. This insight is illustrated in a chart showing the percentage of USDC supply held in Hyperliquid, which has grown steadily to over 7% as of mid-2025.

Further analysis from community discussions emphasizes that USDC revenue from Hyperliquid flows 100% to Circle, unlike on centralized exchanges such as Binance or Coinbase, where Circle must share over half the revenue with the platforms. This makes the potential migration to USDH particularly damaging for Circle.

Critics have pointed out Circle's poor business foresight and disconnection from market trends, noting that the company has grown accustomed to easy profits from prime positions but reacts slowly to new opportunities—only scrambling to respond when facing existential threats. As a result, Circle's stock price has halved from its peak, reflecting a return to rational investor sentiment after initial hype.

As Hyperliquid disrupts the status quo and positions itself for dominance in the DeFi space, a community analyst realized: Hyperliquid eats the world!

For Circle and Tether, the introduction of $USDH is undoubtedly a challenge to their dominance, potentially pushing them to accelerate innovation. Circle, for instance, has been working on CCTP V2 to address these changes. The stablecoin market may move away from its current duopoly (USDT and USDC) toward a more diversified landscape.

Circle’s CEO has already responded to the developments. On September 8, he announced plans to expand into the HYPE ecosystem, proposing native USDC deployment and CCTP V2 as solutions to counter the disruption.

However, this announcement has been met with skepticism. The original post dates back to July 31, when Circle first claimed similar plans, yet progress remains unclear. Many users have expressed doubts, with one popular comment stating, “Do better, move faster.”

Looking at the bigger picture, the latest data shows that the global stablecoin market has surpassed $286 billion in size. USDT (59%) and USDC (25.2%) together account for nearly 85% of the market share.

As of September 8, Tether’s USDT leads with a circulating market cap of $168.8 billion, attracting traders and retail investors through its widespread use on centralized exchanges and low transaction costs. Circle’s USDC follows closely with a market cap of $72.5 billion, primarily appealing to institutional users.

Hyperliquid’s efforts are not only challenging the duopoly but also setting an example for other decentralized exchanges. Platforms like Arbitrum and Optimism are exploring similar paths, pushing the stablecoin market toward greater diversification.

This disruption recalls a classic metaphor from financial history—the “barbarians at the gate.” In the 1989 book "Barbarians at the Gate: The Fall of RJR Nabisco," the term symbolized emerging forces challenging the established order.

Today, Hyperliquid, with its innovative $USDH, embodies this metaphor as it shakes the foundations of the stablecoin industry.

The introduction of $USDH has sparked short-term price fluctuations, with $HYPE’s price rising 12.27% over seven days. While Hyperliquid sets new benchmarks and forces established players to adapt, concerns about centralization have emerged. The Hyperliquid Foundation and its CEO Jeff hold a majority of the voting power, raising questions about fairness and decision-making concentration.

As the waves of change continue to surge, one thing remains certain: regardless of where $USDH ends up, the community stands to benefit.