KEY FACTS: Paxos has proposed launching USDH, a U.S. dollar-pegged stablecoin specifically designed for the Hyperliquid ecosystem, to enhance adoption and growth through a unique revenue-sharing model where 95% of reserve interest is used to buy back Hyperliquid's native HYPE token for redistribution to users, validators, and partners. Tailored for regulatory compliance under the U.S. GENIUS Act and EU MiCA, USDH aims to reduce Hyperliquid's dependence on external stablecoins like USDC and USDT, potentially generating $191 million to $220 million in annual HYPE buybacks if it captures primary settlement for the platform's $400 billion monthly trading volume in decentralized perpetual futures, where Hyperliquid holds a 70% market share and earned $106 million in August 2025 revenue. Spearheaded by newly acquired Paxos Labs, the initiative bridges DeFi with traditional finance through integrations with over 70 partners, including PayPal and Interactive Brokers, while supporting fiat rails such as SWIFT and ACH.
Source: Paxos / X
Paxos Proposes USDH Stablecoin to Boost Hyperliquid Ecosystem with HYPE Buyback Mechanism
Stablecoin infrastructure firm Paxos has submitted a proposal to launch USDH, a Hyperliquid-first stablecoin designed to integrate seamlessly with the Hyperliquid ecosystem. Announced on Saturday, September 6, 2025, the initiative aims to drive adoption, align incentives, and propel Hyperliquid into its next phase of growth by leveraging a unique revenue-sharing model. The proposal emphasizes regulatory compliance and institutional integration, which could redefine how stablecoins interact with blockchain ecosystems.
Proposal submitted: USDH powered by Paxos
USDH issued by Paxos would mean:
❏ Global issuance that is GENIUS compliant
❏ Revenue sharing that fuels HYPE, protocols and validators
❏ Regulatory clarity + global scale to match HyperliquidX's explosive growth
Hyperliquid.
Source
Paxos’s USDH is envisioned as a U.S. dollar-pegged stablecoin that adheres to stringent regulatory frameworks, specifically the Guiding and Establishing National Innovation for US Stablecoins Act (GENIUS Act) in the United States and the Markets in Crypto-Assets (MiCA) regulations in the European Union. Unlike traditional stablecoins, USDH is designed with a built-in rewards mechanism that allocates 95% of the interest earned from its reserves to buy back Hyperliquid’s native token, HYPE. These repurchased tokens will be redistributed to users, validators, and partner protocols within the Hyperliquid ecosystem, creating a direct link between stablecoin adoption and ecosystem growth.
Paxos has emphasized that USDH is not just another dollar-backed token but a strategic tool to enhance Hyperliquid’s position in the DeFi landscape. This will be achieved by channeling reserve yields back into the ecosystem to create a “flywheel effect” that incentivizes participation and fuels long-term growth.
The USDH initiative is being spearheaded by Paxos Labs, a newly formed subsidiary dedicated to advancing stablecoin solutions for decentralized ecosystems. To strengthen its technical expertise, Paxos Labs recently acquired Molecular Labs, the developer behind Hyperliquid’s key primitives, LHYPE and WHLP. These primitives are integral to Hyperliquid’s on-chain financial architecture, and the acquisition provides Paxos with deep insights into the platform’s infrastructure, ensuring seamless integration of USDH across Hyperliquid’s HyperEVM and HyperCore chains.
The acquisition of Molecular Labs underscores Paxos’s commitment to Hyperliquid’s ecosystem. LHYPE, for instance, supports protocols like Hyperlend, HypurrFi, and Felix, and is deployed on decentralized exchanges such as Pendle. Similarly, WHLP enables composability with Hyperliquid’s foundational yield sources, enhancing the platform’s DeFi capabilities. Paxos is leveraging Molecular Labs’ expertise to position USDH as a native stablecoin that reduces Hyperliquid’s reliance on external stablecoins like USDC and USDT, potentially capturing a significant portion of the revenue currently flowing to other issuers.
Paxos’s proposal goes beyond creating a stablecoin for crypto-native users. The company is pitching USDH as a bridge to traditional financial institutions and mainstream fintech platforms. With over 70 financial partners and operations in key markets such as the United States, the European Union, Singapore, Abu Dhabi, and Latin America, Paxos is well-positioned to integrate USDH into global banking systems. The stablecoin will support direct fiat banking rails through SWIFT, ACH, and wire transfers, as well as native conversions from other stablecoins like USDC, PYUSD, and Paxos’s own USDG, eliminating secondary market price exposure for users.
Paxos also plans to embed HYPE into its brokerage infrastructure, which powers crypto services for major platforms like PayPal, Venmo, MercadoLibre, Nubank, and Interactive Brokers. This integration could significantly expand HYPE’s visibility and liquidity, bringing Hyperliquid closer to mainstream financial systems. Paxos is ensuring compliance with global regulatory standards to eliminate one of the biggest barriers to stablecoin adoption: regulatory uncertainty. Max Fantle, a Paxos executive, highlighted the company’s track record, stating:
“We’ve issued regulated stablecoins for 7+ years, and have experience running a $25Bn+ stablecoin for the largest exchange in the world (BUSD). We bring a level of trustworthiness to Hyperliquid to help reach institutions and 10x the entire Hyperliquid ecosystem. More likely 100x.”
Hyperliquid has emerged as a powerhouse in the decentralized perpetual futures market, generating over $106 million in revenue in August 2025 alone, with a trading volume of nearly $400 billion. This performance has secured Hyperliquid a commanding 70% market share in the sector, trailing only Uniswap and PancakeSwap in weekly trading volume, according to data from DefiLlama. The platform’s innovative revenue-sharing model, which distributes exchange revenue to participants driving trading volume, has been a key driver of its success. USDH’s revenue-sharing mechanism builds on this model, rewarding validators, developers, and users based on USDH balances and trading volumes across Hyperliquid platforms.
The introduction of USDH could further solidify Hyperliquid’s position by reducing its dependency on external stablecoin providers. Analysts estimate that if USDH replaces USDC as the primary settlement stablecoin for derivatives trading on Hyperliquid, it could generate an additional $191 million to $220 million annually in HYPE buybacks, based on current bond and cash ratios and a 4% yield assumption. This shift could also impact USDC’s market share, potentially reducing its outstanding supply on Hyperliquid by 7%, or approximately $5.5 billion.
While Paxos is a leading candidate to issue USDH, it faces competition from Frax Finance, which has also submitted a proposal to develop the stablecoin. Frax’s approach emphasizes a community-driven model, promising to distribute 100% of reserve yields to Hyperliquid users and offering multichain redemption options across more than 20 networks. However, Paxos’s decade-long experience in regulated stablecoin issuance and its recent acquisition of Molecular Labs give it a competitive edge, particularly in terms of regulatory compliance and technical integration.
Hyperliquid’s governance process ensures that the final decision rests with the platform’s validators. Over the next five days, validators will vote on the proposals, with the winning team securing the USDH ticker after reaching quorum. This decentralized decision-making process reflects Hyperliquid’s commitment to community-driven development and ensures that the chosen issuer aligns with the ecosystem’s goals. However, the process has sparked some controversy, with Hyperstable, an existing Hyperliquid stablecoin protocol, claiming that the USDH ticker was previously blacklisted, raising questions about fairness in the selection process.
The USDH proposal is an addition to a trend in DeFi, where protocols are increasingly launching proprietary stablecoins to capture revenue streams and reduce reliance on external providers. The integration of a native stablecoin with a revenue-sharing mechanism could set a new standard for ecosystem-native stablecoins that actively recycle value back into the network. This model not only incentivizes participation but also aligns the interests of users, validators, and developers, creating a self-sustaining ecosystem.
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