KEY FACTS: Paxos has strengthened its bid to issue Hyperliquid's USDH stablecoin by securing partnerships with PayPal and Venmo, as outlined in its updated proposal announced on September 10, 2025. The plan includes listing Hyperliquid’s HYPE token on PayPal, offering fee-free USDH-fiat conversions, integrating USDH and HYPE into PayPal’s checkout and Venmo’s payment systems, and committing $20 million in incentives for ecosystem growth. Paxos proposes a performance-based fee structure, deferring revenue until Hyperliquid reaches a total value locked of $1 billion, with fees capped at 5% and reinvested in development. Facing competition from at least five other bidders, including a MoonPay-Agora-Rain coalition and Ethena Labs, Paxos leverages its regulatory compliance and EU market access to position USDH as a globally scalable, dollar-backed asset.
Source: Paxos
Paxos partners with PayPal and Venmo, adds "Protocol-Owned Treasury" to Hyperliquid's Stablecoin Proposal
Paxos, a leading stablecoin issuer, has updated its bid to launch USDH, the anticipated stablecoin for the decentralized exchange (DEX) Hyperliquid. The revised proposal, announced on September 10, 2025, now features robust integrations with financial giants PayPal and Venmo, positioning Paxos as a frontrunner in a heated competition among multiple firms vying for the role. This development shows the growing convergence between traditional fintech and blockchain ecosystems to pave the way for the seamless adoption of digital assets in everyday payments.
The update builds on an initial proposal Paxos submitted over the weekend, with the latest enhancements revealed on Wednesday. At its core, the plan aims to create USDH as a fully backed, USD-pegged stablecoin tailored for Hyperliquid's high-performance trading platform. Hyperliquid, known for its advanced perpetual futures and spot trading capabilities, has been seeking a reliable stablecoin issuer to bolster its ecosystem, and Paxos's latest pitch emphasizes not just technical viability but also strategic alliances that could drive widespread utility.
PayPal and Venmo Step Integration
Central to Paxos's updated proposal is the endorsement and integration commitments from PayPal, the global payments powerhouse with over 400 million active users. PayPal has pledged multifaceted support for the Hyperliquid ecosystem, signaling a deeper foray into DeFi beyond its existing crypto offerings. Key elements include:
- Listing and Accessibility: PayPal will list Hyperliquid's native HYPE token on its platform, making it easier for users to buy, sell, and hold the asset.
- Free On- and Off-Ramps: To lower barriers to entry, PayPal plans to offer fee-free conversion between USDH and traditional fiat currencies, facilitating smooth transitions for retail and institutional users alike.
- Checkout Integration: Both USDH and HYPE will be supported as payment options within PayPal's checkout system, allowing merchants to accept these assets for goods and services.
- App and Service Expansions: The stablecoin will be integrated directly into Venmo, PayPal's popular peer-to-peer payment app, as well as Xoom, its international money transfer service. This could enable users to send USDH remittances across borders with the stability of a dollar-backed asset.
- Ecosystem Incentives: In a major boost, PayPal is committing $20 million in incentives specifically for the HYPE ecosystem. These funds could support developer grants, liquidity provision, or user rewards, accelerating growth in Hyperliquid's DeFi applications.
Paxos executives have framed these partnerships as a natural extension of their mission to bridge regulated finance with blockchain innovation. "Paxos only wins if Hyperliquid wins," the company stated in its announcement, highlighting a philosophy of mutual success. This alignment is designed to foster long-term growth rather than short-term gains, appealing to Hyperliquid's community of traders and developers.
A Fee Structure Tied to Ecosystem Success
To further demonstrate commitment, Paxos has outlined a performance-based fee model that ties its revenue directly to Hyperliquid's expansion. Under the proposed terms:
- No fees will be collected by Paxos until Hyperliquid achieves $1 billion in total value locked (TVL), a milestone that would indicate substantial platform adoption.
- Once that threshold is met, Paxos would earn a modest 1% of platform fees, gradually scaling up to a maximum of 5% as TVL surpasses $5 billion.
- All fees earned by Paxos would be held in HYPE tokens, reinforcing the firm's stake in the ecosystem's health.
Source: Paxos
This structure includes a progressive allocation of funds. Initially, up to 80% of any generated revenue would be reinvested into ecosystem development, such as marketing, partnerships, and liquidity incentives. As TVL grows, this portion decreases to 25%, with the remainder directed to Hyperliquid's Assistance Fund. Described as a "protocol-owned treasury," the Assistance Fund utilizes platform revenues to conduct market buybacks of HYPE tokens. This mechanism not only supports token price stability but also serves as an insurance reserve, protecting the ecosystem from volatility or downturns.
Such incentives are particularly timely in the DeFi space, where liquidity and user retention are critical for success. By deferring profits and prioritizing growth, Paxos aims to build trust with Hyperliquid's governance community, which will ultimately decide the stablecoin issuer through a voting process.
Paxos' Proposal stands out among Competitors
Paxos's update arrives amid fierce competition, as at least six entities have now thrown their hats into the ring for USDH issuance. The race highlights the strategic importance of stablecoins in DeFi, where they serve as the backbone for trading, lending, and yield farming.
On Monday, a coalition comprising MoonPay, Agora, and Rain submitted a joint proposal, positioning themselves as a collaborative alternative focused on user-centric innovation. However, tensions have arisen with other bidders. Agora CEO Nick Van Eck publicly cautioned against a proposal from an entity indirectly controlled by Stripe, citing "clear conflicts" due to the payment processor's potential for vertical integration. Stripe's involvement could give it undue advantages in custody, issuance, and payments, potentially sidelining competitors and centralizing control in a space built on decentralization.
Adding to the mix, Ethena Labs entered the fray on Tuesday as the sixth bidder. Their pitch proposes backing USDH with their existing USDtb stablecoin, which is linked to BlackRock's BUIDL tokenized treasury fund. This approach leverages institutional-grade assets, appealing to those seeking enhanced security and yield opportunities. Ethena's entry underscores the diversity of strategies, from fiat-collateralized models like Paxos's to synthetic and tokenized variants.
Hyperliquid's selection process remains ongoing, with community input expected to play a decisive role. The platform's rapid growth (handling billions in daily trading volume) makes USDH a high-stakes opportunity, potentially elevating the winner to a prominent position in the DeFi landscape.
Paxos's proposal is buttressed by its strong regulatory compliance, a key differentiator in an industry often plagued by scrutiny. The company, which already issues regulated stablecoins like USDP and BUSD (before its wind-down), emphasized its readiness to operate under stringent frameworks. Notably, USDH would be fully compliant for circulation in the European Union, leveraging Paxos's existing licenses and infrastructure. This EU accessibility ensures global scalability, allowing users worldwide to interact with the stablecoin without jurisdictional hurdles.
On the U.S. front, Paxos is actively pursuing a full banking license, a move that could further solidify its position as a trusted custodian. The firm has a history of navigating regulatory waters, including a $48.5 million settlement with New York authorities earlier this year over its past partnership with Binance. While that episode highlighted risks in crypto collaborations, it also demonstrated Paxos's willingness to resolve issues transparently, emerging with enhanced compliance measures.
These regulatory strengths are crucial as stablecoins face increasing oversight. With the EU's MiCA framework in place and U.S. legislators debating similar rules, issuers like Paxos that prioritize transparency and reserve audits are better positioned for sustained operations. The integration with PayPal and Venmo could also accelerate mainstream adoption, bringing regulated crypto to millions who might otherwise shy away from pure DeFi platforms.
The Paxos-Hyperliquid partnership proposal, amplified by PayPal's involvement, signals a maturing crypto market where traditional finance is increasingly embracing blockchain. Stablecoins like USDH could transform remittances, e-commerce, and trading by offering speed, low costs, and dollar stability without the volatility of tokens like Bitcoin or Ethereum.
For Hyperliquid, selecting Paxos could unlock new liquidity pools and user bases through Venmo's social payment features and PayPal's vast merchant network. The $20 million incentive pool, in particular, might spark a wave of innovation, from DeFi apps to NFT marketplaces built on the platform.
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