KEY FACTS: Hyperliquid, a leading decentralized exchange and layer-1 blockchain, has sparked a heated governance battle with its plan to launch USDH, a native stablecoin to replace the $5.5 billion in USDC dominating its ecosystem. Set for a validator vote on September 14, 2025, the competition features proposals from Stripe’s Bridge platform, a MoonPay-Agora-Rain coalition, Paxos, and Frax, each vying to issue USDH and tap into potential revenue from U.S. Treasury yields. The proposals vary widely, with Stripe facing backlash for potential conflicts of interest, while the MoonPay coalition and Paxos emphasize regulatory compliance and community rewards, and Frax promises to return 100% of earnings to the Hyperliquid community.
Source: Hyperliquid
Hyperliquid’s USDH Stablecoin Sparks Fierce Governance Battle as Stripe, MoonPay, Paxos, and Frax Vie for Control
Hyperliquid, a leading decentralized exchange and layer-1 blockchain, has ignited one of the most contentious governance battles in recent cryptocurrency history with its plan to launch a proprietary stablecoin, USDH. The dollar-pegged token, intended to replace the $5.5 billion in USD Coin (USDC) that currently dominates 95% of Hyperliquid’s stablecoin supply, has attracted heavyweight bidders including Stripe’s Bridge platform, a coalition of MoonPay and Agora, Paxos, and Frax. With the potential to generate hundreds of millions in revenue from U.S. Treasury yields, the validator vote scheduled for September 14, 2025, is poised to reshape Hyperliquid’s financial architecture and influence the broader crypto ecosystem. The competition, marked by competing visions for USDH’s issuance and governance, has sparked heated debates over regulatory compliance, community rewards, and potential conflicts of interest, particularly surrounding Stripe’s involvement.
Hyperliquid’s Vision for USDH
On Friday, September 5, 2025, the Hyperliquid team announced via a Discord message its ambition to create a “Hyperliquid-first, Hyperliquid-aligned, and compliant USD stablecoin” under the ticker USDH. This stablecoin is designed to integrate seamlessly with Hyperliquid’s ecosystem, which dominates the DeFi derivatives market with an impressive 80% market share and over $106 million in revenue last month from nearly $400 billion in trading volume, according to DefiLlama. The USDH initiative aims to reduce Hyperliquid’s reliance on USDC and enhance its economic sovereignty by introducing a native stablecoin that aligns with the platform’s goals and complies with global regulatory standards.
The Hyperliquid Foundation has emphasized that it will “effectively abstain” from the decision-making process, leaving the choice of USDH’s issuer to a validator vote on September 14. The deadline for proposal submissions is set for September 10, with expectations of additional bids emerging in the coming days. This open governance approach has intensified the competition, as each contender presents a distinct model for USDH’s issuance, reserve management, and community incentives.
Stripe’s Bridge Proposal Faces Community Backlash
The first proposal came from Native Markets, which advocated for Stripe’s stablecoin payment processor, Bridge, to issue USDH. The proposal promised to mint USDH directly on Hyperliquid’s ecosystem, ensure regulatory compliance, and contribute “a meaningful share of its reserve proceeds” to Hyperliquid’s Assistance Fund treasury. However, the suggestion of handing control to Stripe, a fintech giant building its own blockchain called Tempo and controlling wallet infrastructure through its Privy acquisition, has met with significant pushback from the Hyperliquid community.
Critics, including Agora co-founder and CEO Nick van Eck, argue that Stripe’s involvement poses a conflict of interest. “If Hyperliquid relinquishes their canonical stablecoin to Stripe, a vertically integrated issuer with clear conflicts, what are we all even doing?” van Eck wrote in a public statement on September 7, 2025. He warned that Stripe’s plans for Tempo could divert activity away from Hyperliquid, potentially undermining the platform’s economic autonomy. The community’s concerns are amplified by Stripe’s growing influence in the crypto space, raising fears that it could exert undue control over Hyperliquid’s monetary layer.
MoonPay and Agora Form a Coalition for USDH Issuance
In response to Stripe’s bid, a coalition led by Agora and backed by MoonPay and Rain has emerged as a formidable contender. On Sunday, September 7, 2025, MoonPay President and board member Keith Grossman announced the payment processor’s participation in Agora’s proposal, emphasizing its commitment to providing “regulated payment rails” to power USDH’s issuance. Grossman sharply criticized the Stripe-linked proposal, stating, “USDH deserves scale, credibility, and alignment — not BS capture. That is this coalition, not Stripe.” He highlighted MoonPay’s extensive licensing and larger base of verified users compared to Stripe or Bridge, positioning the coalition as a more trustworthy and community-aligned option.
Agora’s proposal emphasizes neutrality and alignment with Hyperliquid’s ecosystem, promising to allocate 100% of net revenue from USDH reserves to either buy back Hyperliquid’s native token, HYPE, or contribute to the Assistance Fund. The inclusion of MoonPay has garnered significant support, with Rob Hadick, general partner at venture capital firm Dragonfly.xyz, declaring in an X post on September 7 that the coalition’s proposal is the “unarguable best” for USDH issuance. The coalition’s focus on regulated infrastructure and community rewards has resonated with validators seeking a balance between compliance and ecosystem growth.
Paxos Proposes a Regulatory-First Approach
Stablecoin issuer Paxos has also entered the race with a proposal that prioritizes regulatory compliance and ecosystem incentives. Announced on Saturday, September 6, 2025, Paxos’ plan involves launching USDH as a “Hyperliquid-first” stablecoin compliant with the U.S.’s Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act) and the European Union’s Markets in Crypto-Assets (MiCA) regulations. Paxos, which operates as a trust company regulated by the New York Department of Financial Services (NYDFS) and is integrated with over 70 financial partners globally, including PayPal and MercadoLibre, aims to leverage its infrastructure to distribute USDH across Hyperliquid’s HyperEVM and HyperCore chains.
A key feature of Paxos’ proposal is its commitment to allocate 95% of the interest earned from USDH reserves to buy back HYPE tokens, which would then be redistributed to users, validators, and partner protocols. This mechanism is designed to drive adoption and enhance liquidity within the Hyperliquid ecosystem. Paxos Labs, a newly formed entity within the company, will lead the initiative, bolstered by its recent acquisition of Molecular Labs, the developer behind Hyperliquid’s LHYPE and WHLP primitives. This acquisition enhances Paxos’ understanding of Hyperliquid’s on-chain financial architecture, positioning it as a strong contender in the governance vote.
Frax’s Community-First Model
Frax, a blockchain known for its frxUSD stablecoin, has submitted a competing proposal that takes a radically community-centric approach. Frax pledges to return 100% of USDH’s earnings, backed by its frxUSD, to the Hyperliquid community, with no portion retained by the issuer. “We’re proposing something no one else will match: give everything back to the community,” the proposal stated. This model aims to maximize user benefits and align USDH’s operations with Hyperliquid’s decentralized ethos, appealing to validators who prioritize community rewards over corporate interests.
The competition for USDH’s issuance shows the growing activity and regulatory scrutiny in the stablecoin sector. Stablecoins, pegged to fiat currencies like the U.S. dollar, have become a cornerstone of DeFi, facilitating transactions and providing stability in volatile crypto markets. Hyperliquid’s USDH, with its potential to replace USDC’s dominance on the platform, represents a significant opportunity for issuers to capture substantial revenue from U.S. Treasury yields.
Globally, regulators are intensifying their focus on stablecoins. In Hong Kong, HSBC and ICBC are reportedly preparing to apply for stablecoin licenses following the introduction of a new regulatory framework on August 1, 2025. Kazakhstan has begun allowing license and supervision fees to be paid in USD-pegged stablecoins, signaling rapid adoption. In the U.S., Wyoming is set to launch its Frontier Stable Token (FRNT), a government-authorized stablecoin, while the GENIUS Act aims to establish a national framework for stablecoin innovation. In Europe, European Central Bank President Christine Lagarde has called for addressing gaps in stablecoin regulation, warning that U.S. policies could lead to a shift of euro deposits to American markets, as noted by ECB executive board member Piero Cipollone in April 2025.
Hyperliquid’s dominance in the DeFi derivatives market, with a 70% market share in decentralized perpetual futures, makes the USDH issuance a high-stakes decision. The chosen issuer will not only influence Hyperliquid’s financial infrastructure but also set a precedent for how DeFi platforms balance regulatory compliance, community incentives, and economic sovereignty. The validator vote on September 14 will be a critical moment, determining whether Hyperliquid opts for Stripe’s established infrastructure, the MoonPay-Agora coalition’s community-aligned approach, Paxos’ regulatory-first model, or Frax’s radical redistribution strategy.
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