Hyperliquid's USDH Saga: Paxos, PayPal, and the Native Markets Uprising

A deep dive into the battle for Hyperliquid's native stablecoin, USDH, featuring Paxos' proposal, PayPal's backing, and Native Markets' surprising win.

The race to control Hyperliquid's native stablecoin, USDH, has been a wild ride. From Paxos' regulatory prowess to PayPal's mainstream appeal, and ultimately Native Markets' victory, the story encapsulates the evolving dynamics of DeFi and stablecoins.

The USDH Quest: A Stablecoin Showdown

Hyperliquid, a decentralized exchange known for its high-performance on-chain order book, sought a native stablecoin (USDH) to reduce reliance on giants like USDC and USDT. This triggered a fierce competition among industry players, each vying for a piece of Hyperliquid's burgeoning ecosystem. The winner was Native Markets.

Paxos and the PayPal Power-Up

Paxos, a regulated firm with experience issuing stablecoins, presented a compelling v2 proposal. A key highlight was public support from PayPal, potentially integrating USDH into PayPal's massive user base (over 400 million users and 35 million merchants). This integration promised free on/off-ramps for USDH and the listing of Hyperliquid's HYPE token on PayPal and Venmo.

The proposal outlined that approximately 95% of the yield from reserves (US Treasurys, cash, and repos) would flow back into HYPE buybacks and reinvestment, with roughly 5% retained for operational costs. The company would take no fees until USDH reached $1 billion in total value locked (TVL), then capping its share at 5% beyond $5 billion, with all early revenue reinvested into Hyperliquid’s growth and Assistance Fund.

Native Markets' Surprise Victory

Despite Paxos' high-profile proposal and PayPal's backing, Native Markets, a startup supported by Stripe's Bridge subsidiary, emerged victorious. This relatively new player secured the USDH ticker through a governance vote by Hyperliquid's validators. The market on Polymarket reflected this, with traders betting on a 93% probability that Native Markets would win the bid.

Native Markets' offering included innovations like synthetic dollar instruments, USDe-linked savings, card spending solutions, reward-bearing collateral, and modular prime broking. These features resonated with the Hyperliquid community, especially after Ethena Labs withdrew its bid. Native Markets cited regulatory flexibility and deployment speed as key reasons for its selection.

What Does It All Mean?

The USDH saga highlights several key trends:

• Partnerships Matter: PayPal's backing significantly boosted Paxos' proposal, showcasing the importance of mainstream fintech integrations.
• Community Focus: Native Markets' win suggests that Hyperliquid's validators prioritized a proposal deeply aligned with the ecosystem's needs.
• Stablecoin Competition is Fierce: Issuers are willing to offer aggressive revenue-sharing terms to secure stablecoin mandates.
• DeFi and TradFi Convergence: The integration of stablecoins into payment networks like PayPal is bridging the gap between traditional finance and decentralized finance.

My Two Satoshis

While Paxos' proposal offered regulatory credibility and PayPal's extensive network, Native Markets' victory underscores the power of community alignment in DeFi. It also signals a potential shift towards stablecoins that are more deeply integrated with their respective ecosystems.

Hyperliquid validators may have leaned towards Native Markets due to the promise of integrating synthetic dollar instruments to hedge flows on Hyperliquid and enhance its HIP-3 market designs, coupled with greater regulatory flexibility and deployment speed.

The Future of USDH

The launch of USDH is a strategic move for Hyperliquid. With over $5.7 billion in USDC already on the network, capturing even a fraction of that liquidity with USDH could significantly boost Hyperliquid's revenue and position it as a major player in DeFi. It remains to be seen whether USDH can successfully rival established stablecoins like USDC and USDT, but the stage is set for an exciting chapter in the stablecoin wars.

So, what's next? Keep your eyes peeled on Hyperliquid and USDH. It's gonna be lit!