Hyperliquid and the USDH War: Detailed Analysis and Opinion on the Proposals

Context on Hyperliquid’s USDH

Proposal Details

On September 5, 2025, Hyperliquid announced the launch of USDH, its upcoming stablecoin, which will be managed by an external operator selected through validator on-chain governance. Rarely has a governance decision alone sparked so much attention, and it quickly becomes clear why.

For now, the team has shared very little information about USDH’s future. Most likely, this is merely a reserved ticker with no inherent privileges granted to its issuer, aside from proximity to the Hyperliquid team.

In other words, securing the right to operate USDH does not guarantee the operator direct access as a reference asset on the platform. Its success will depend entirely on execution (proof of reserves, integration, liquidity, governance, compliance).

The lack of clarity surrounding USDH’s specifics was not the only point raising concerns in the community and timing has also been criticized:

• Following the September 5 announcement, candidates had 5 days to submit their proposals and discuss them with the community on the dedicated forum.
• Once submissions closed on September 10, validators had about 24 hours before the next network upgrade to cast their votes in support of their chosen proposal.
• Finally, the community will have until September 14, 2025, to vote by allocating their funds to validators.

What’s at Stake with USDH

Hyperliquid has cemented itself as the undisputed leader among on-chain perpetual DEXs, with nearly 80% market share, more than $1T in cumulative volume, and over $5B in TVL. Yet this success does not fully benefit the ecosystem and exposes a key weakness: reliance on Circle’s USDC.

Today, about 95% of Hyperliquid’s $5B TVL is held in USDC. These funds are mostly placed into U.S. Treasuries, providing Circle with an estimated $200M in annual yield, none of which flows back to Hyperliquid. In other words, revenue is siphoned away to strengthen the balance sheet of an external player.

USDH is designed to address this issue: a stablecoin aligned with Hyperliquid, turning the platform’s liquidity into an additional revenue stream powering the economic model, via HYPE buybacks, additional validator rewards, or user incentives.

A Governance Battle

Despite these conditions, the announcement has reignited user engagement in governance in a way rarely seen since the early days of DeFi. More importantly, it has triggered a real battle to win the right to operate USDH, one that involves some of the biggest players in the crypto industry.

For candidates, this is an opportunity to anchor themselves permanently in one of the most dynamic ecosystems of recent months. The chance to directly improve Hyperliquid’s economic model has drawn interest from both major institutional issuers and established DeFi protocols.

At the time of writing, around ten proposals have been submitted to the governance forum: Frax, Paxos, and Native Markets were the first to step forward, followed by Agora, then Sky, and more recently, Ethena. In the next sections of this analysis, we will break down each of these proposals.

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Proposal Overview

Before getting into the analysis, we have a summary table of the different proposals according to the important selection criteria. In addition, we have included live updates on the validators, their weight in governance, and their decisions, in order to visualize the progress of the voting results.

Here is the link to access this summary table

Native Markets

Proposal Overview

Native Markets presents itself as the only “native” Hyperliquid solution. This new organization was founded by Max Fiege, a Hyperliquid ecosystem investor and advisor, with the sole objective of competing for the right to issue USDH. He is joined by MC Lader, founder and COO of Uniswap Labs, and Anish Agnihotri, a builder who previously worked at Paradigm.

The main pillar of this proposal is its Hyperliquid-native character, led by a long-time user and investor—an important asset in an ecosystem where the community plays a central role. Native Markets commits to distributing 100% of revenues generated by USDH fairly between the Assistance Fund and the broader ecosystem (incentives, buybacks, etc.).

However, running a stablecoin is no amateur business, and behind this “community proposal” label stands an external actor: Bridge, the stablecoin infrastructure acquired by Stripe. USDH reserves would also be held with BlackRock and Superstate, and eventually BNY Mellon, Fidelity, and other major players.

We’ll return to this point later in the analysis, but it’s important to note that several issues have sparked debate within the community. First, granting sovereignty over USDH to Stripe raises questions of neutrality (especially since the company supports a competing L1, Tempo). Second, the deployer address was created and funded just hours before Hyperliquid’s announcement, with the proposal submitted shortly after.

• USDH reserves and type of collateral:

USDH will be backed by cash and U.S. Treasuries (T-bills). On-chain reserves will be managed by Superstate via the Bridge stablecoin platform, owned by Stripe, while off-chain reserves would initially be managed by BlackRock, with future plans to include Fidelity and BNY.

• Liquidity depth:

Native Markets does not have its own infrastructure to provide deep liquidity at launch, so the proposal aims to rely on on-chain liquidity sourced from select institutions. It’s expected that this would be tied to Superstate’s USTB, a short-duration Treasury-backed fund. Liquidity pools with USDC and USDT would be created to ensure sufficient depth and support for USDH.

• Regulation/compliance:

USDH would be issued by Bridge, which already holds licenses to operate in the U.S. and Europe, is registered with FinCEN as a money services business (MSB), holds money transmission licenses (MTLs), and serves non-U.S./non-EEA residents through a subsidiary registered in the British Virgin Islands.

While the proposal mentions the possibility of issuing a GENIUS-compliant stablecoin, this would depend on U.S. regulators clarifying the MTL regulatory framework.

• Revenue sharing:

Native Markets commits to using 50% of interest generated from USDH reserve assets for HYPE buybacks (via the Assistance Fund) and to allocating the other 50% to funding USDH growth (partnerships with Builder Code interfaces, HIP-3 markets, HyperEVM apps, user incentives, etc.).

Although a 100% revenue share would sound ideal, it is clear that Native Markets has no other assets or products to protect, raising questions about the long-term sustainability of its economic model.

• Yield & incentives:

The Native Markets proposal also presents itself as the ecosystem’s HyperEVM-native plan, making it the most suited to properly channel the $200M+ in annual cash flow potentially generated by USDH (if it were to replace USDC entirely). In practice, this could mean redistribution toward major ecosystem apps through boosted yields and similar incentives.

• Alignment with HL:

Native Markets’ positioning as an in-house solution rather than a “stablecoin-as-a-service” provider makes it the most Hyperliquid-aligned proposal. The team commits to minting USDH on HyperEVM and bridging it to HyperCore, while introducing the CoreRouter smart contract, presented as a key technical innovation.

• Integration into the ecosystem/partners:

The co-founders include MC Lader, ex-Goldman Sachs banker and former BlackRock employee, who also served as president and COO of Uniswap Labs for four years, along with Anish Agnihotri, a blockchain researcher and software engineer. Initial partners include Stripe and Superstate, whose networks and experience position them relatively well to help scale USDH.

• Experience:

The founding team of Native Markets has no prior track record in issuing or managing stablecoins. The only true “expert” in this area is its partner Stripe, which already processes several billion dollars per month as a payment infrastructure provider.

• Other information:

USDH could be minted and redeemed via an API, leveraging Bridge’s stablecoin orchestration network, with on-/off-ramp integrations currently under development.

Paxos

Proposal Overview

Paxos was among the first applicants for USDH, on September 6. Founded in 2012, the U.S.-based company is recognized as a leader in issuing synthetic assets, most notably behind Binance’s BUSD (which reached a peak market cap of $25 billion), PAX Gold, and PayPal’s PYUSD.

As part of its proposal, Paxos announced the creation of Paxos Labs, a new entity fully dedicated to stablecoin development within DeFi, with Hyperliquid as its top priority. To achieve this, Paxos Labs also announced the acquisition of Molecular Labs, the infrastructure team behind LHYPE and WHLP.

The first core pillar of Paxos’ offer is alignment with Hyperliquid: 95% of interest generated from USDH reserves would be used for HYPE buybacks. No yield for users, but a strict adherence to Hyperliquid’s ethos and economic model.

The second core pillar is Paxos’ institutional status and experience: over 10 years in the industry, 7 tokenized assets, more than 70 global partners, strong banking connections, and most importantly the necessary licenses to operate a regulated stablecoin in key jurisdictions (GENIUS, MiCA, etc.).

Proposal V2

On September 10, Paxos published a V2 of its proposal. After several days of discussions with the community on the governance forum, this updated version is significantly more detailed and introduces major changes.

First, the reward-sharing structure was redesigned to become progressive. Paxos’ share is initially set at 0% and increases by 1% at each $1 billion TVL milestone, up to a maximum of 5% once USDH supply surpasses $5 billion.

Second, Paxos announced the first official partnership for its USDH with PayPal. PayPal has committed to supporting the Hyperliquid ecosystem by listing HYPE on its app, providing on/off ramp support, committing $20 million in incentives, and integrating both USDH and HYPE into the assets supported by PayPal’s professional payments service.

Finally, Paxos expressed support for Hyperliquid’s vision of becoming an “AWS of liquidity” (see our analysis on this thesis). It aims to onboard fintechs to integrate Builder Codes, bring in specialized actors to HIP-3 and new perp markets, and also announced plans to develop its own applications on HyperEVM to generate yield on USDH.

Key Criteria

• USDH reserves and type of collateral:

Paxos’ USDH will be backed by U.S. Treasury bills and USDG, a fully regulated stablecoin issued by Paxos, in order to meet the prerequisites required for support by U.S.-based market makers and exchanges.

• Liquidity depth:

Paxos plans to leverage its infrastructure to provide deep liquidity for USDH and enable native conversion from other stablecoins such as USDC, PYUSD, USDG, and other Paxos-issued assets. While no further details were given, it is worth noting Paxos’ past experience managing BUSD ($25B market cap) and PYUSD ($1B market cap).

• Regulation/compliance:

Paxos operates as a trust company under NYDFS supervision and holds licenses to operate in major jurisdictions: Europe (via MiCA-regulated banking partners), the UAE, Singapore, and Abu Dhabi.

Regarding the U.S., Paxos announced the possibility of issuing a GENIUS-compliant stablecoin, but it is still awaiting the OCC Charter required to do so—meaning there is currently no certainty on this front.

• Revenue sharing:

A progressive revenue-sharing mechanism: 0% for Paxos initially, increasing by 1% for each $1B of USDH market cap, up to a maximum of 5%. Thus, 95% of interest from USDH reserves would be redistributed to the ecosystem (70% of which to the Assistance Fund).

• Yield & incentives:

No direct yield for holders (USDH is a non-yield-bearing stablecoin, mainly due to regulatory constraints), but redistribution is designed to reinforce HYPE’s economic model.

However, Paxos intends to set up incentives for USDH liquidity pools on HyperEVM and plans to develop an Earn product that could be integrated into any DeFi application on HyperEVM to provide yield to users.

• Alignment with HL:

The V2 proposal clearly demonstrates Paxos’ understanding of Hyperliquid’s vision to become a liquidity and infrastructure layer. It aligns with this goal by committing to promote Builder Codes and HIP-3 across its partner network.

Additionally, Paxos intends to support HyperEVM’s growth by bringing in new users and developing DeFi products centered around USDH. In other words, this proposal aims to be as closely aligned with Hyperliquid as possible.

• Integration into the ecosystem/partners:

Paxos benefits from a broad institutional and banking network with more than 70 global partners. In the V2 proposal, Paxos announced that PayPal has committed to supporting the ecosystem by integrating HYPE into its app, its on/off ramp product, and its merchant payment solution deployed across millions of retailers.

• Experience:

Paxos is a long-standing player in the industry, with over 10 years of experience in managing tokenized assets. Its operational, institutional, and legal expertise is widely recognized, as demonstrated by Binance’s BUSD and PayPal’s PYUSD.

• Other information:

Paxos clarified that spot and perpetual market deployers (HIP-1 and HIP-3) will be economically incentivized to use USDH as the base asset for trading pairs. Similarly, incentives will be deployed to attract liquidity onto HyperEVM.

Ethena

Proposal Overview

The Ethena proposal was submitted this Tuesday at around 5:30 PM, closing the last wave of bids. The market widely expected this move after Ethena and MegaETH revealed their intention to jointly launch a native stablecoin, and as Ethena’s team has sought deeper involvement in the Hyperliquid ecosystem in recent weeks.

The main pillar of Ethena’s proposal is its reputation and track record. The team is behind USDe, the 3rd-largest stablecoin by market cap and arguably the most deeply integrated into DeFi. Recent announcements from Ethena have demonstrated the team’s ability to deliver quickly and effectively to support stablecoin growth.

Moreover, the relationship between Ethena and Hyperliquid is not new (see the well-known “Hyena”): USDe was deployed natively on HyperEVM just weeks after the network’s launch, a native version (hUSDe) is set to roll out soon in partnership with players like Liminal, among others.

Thus, Ethena positions itself as a proposal aligned with Hyperliquid, almost native to the ecosystem, while also bringing unmatched expertise in managing a decentralized stablecoin.

Key Criteria

• USDH reserves and type of collateral:

In Ethena’s proposal, USDH would be 100% backed by USDtb, a stablecoin managed by Ethena, issued by Anchorage Digital Bank, and collateralized by BlackRock’s BUIDL fund (tokenized U.S. Treasuries/cash via a money market fund).

It is worth noting that USDtb is the only stablecoin BlackRock has authorized for full collateralization via its BUIDL fund, and it benefits from the lowest fee tier compared to all other issuers.

• Liquidity depth:

USDtb currently has a market cap of over $1.6B and already enjoys significant liquidity across DeFi, CeFi, and OTC markets. But the most critical point is Ethena’s proposal to include USDH as a collateral asset within USDe’s reserves.

This would allow Ethena to immediately provide over $5B in liquidity for market makers and liquidity providers, enabling instant swaps between USDH and USDC/USDT, which are also held in reserves.

• Regulation/compliance:

USDtb is announced as the first GENIUS-compliant stablecoin, thanks to its partnership with Anchorage Digital Bank (the only OCC-chartered bank in the U.S.), effective October 1 when the law comes into force. It is also secured by BlackRock’s BUIDL, the world’s largest asset manager.

• Revenue sharing:

Ethena commits to deploying at least 95% of net revenues from USDH reserves to the Hyperliquid community. At launch, revenues generated by USDH will be directed toward HYPE buybacks and direct contributions to the Assistance Fund.

• Yield & incentives:

Ethena mentioned the possibility of redirecting some repurchased HYPE to stakers, though this will not be implemented at launch and will be subject to a separate governance vote.

• Alignment with HL:

Ethena has expressed its intention to contribute to the development of Hyperliquid’s new perp markets via HIP-3 and has already invested in Based. The goal is to power applications built around markets using USDe, hUSDe, and USDH (if approved). Ethena has also pledged a $75M fund (expandable up to $150M) to bootstrap these applications.

Additionally, if the proposal is accepted, Securitize will deploy its infrastructure on HyperEVM free of charge, while Anchorage Digital Bank will deploy native USDtb on the network, enabling transparent mint/redeem flows critical to maintaining USDH’s peg.

• Integration into the ecosystem/partners:

Ethena’s partners within Hyperliquid include Liminal, Based, and Unit. Beyond that, Aave, Pendle, and Sky (who will contribute to hUSDe), as well as Anchorage, Securitize, and BlackRock (partners in USDtb), are also part of the proposal.

• Experience:

Ethena’s proposal is robust given its proven track record with USDe, the fastest stablecoin in history to reach $10B market cap. USDe has since grown to $13B in circulation, with the team reporting over $23B in instant redemptions processed without downtime.

• Other information:

Among the many commitments made in this proposal, one stands out: covering migration costs for markets wishing to shift their reference pair from USDC to USDH. Additionally, USDH would be secured by the same guardian network that underpins USDe, enabling a coordinated response in the event of hacks or issues.

Frax

Proposal Overview

Frax Finance is a well-known DeFi player behind several decentralized stablecoins built on innovative mechanisms, most notably frxUSD, which originally combined collateralized and algorithmic features to maintain stability. Recently, the protocol shifted its model to a fully collateralized approach, backed by cash, U.S. Treasuries (T-bills), and other real-world assets (RWA).

Initially, Frax suggested backing USDH 100% with frxUSD, but after community feedback, the proposal was revised. Under the updated design, USDH would be managed by a “Frax-led alliance” and issued natively on Hyperliquid by a federally regulated U.S. bank (whose name has not yet been disclosed for legal reasons).

The alliance brings together Frax (and its full on-chain architecture), LayerZero (cross-chain interoperability), Stripe/Bridge (orchestration), Lead Bank (banking infrastructure), and an issuing institution that, according to the proposal, holds the licenses required to operate a fully regulated stablecoin.

Importantly, USDH would also be fully collateralized by U.S. Treasuries, through tokenized vehicles operated by BlackRock, Superstate, WisdomTree, and soon Fidelity. Frax highlights that USDH will not depend on frxUSD, but will instead be a separate, institutional-grade, GENIUS-compliant issuance.

The core strength of Frax’s offer remains its experience and positioning in DeFi, which could allow USDH to be integrated into many ecosystems. Frax also commits to full transparency, with on-chain proof of reserves and public dashboards to track collateral and distributions.

Key Criteria

• **USDH reserves and type of collateral:**USDH will be backed 1:1 by U.S. Treasuries, via tokenized funds managed by BlackRock, Superstate, WisdomTree, and Fidelity (upcoming). This represents a full-RWA collateralization, distinct from frxUSD.
• Liquidity depth:

USDH would leverage Frax’s existing cross-chain infrastructure (via FraxNet), supported by LayerZero, and could tap into Frax’s other products to bootstrap liquidity. No further details have been provided so far.

• **Regulation/compliance:**USDH would be issued by a federally regulated U.S. bank (name not yet disclosed), which represents a strong institutional compliance signal. The stablecoin is described as GENIUS-aligned.
• Revenue sharing:

According to the proposal, 100% of the yield generated by USDH’s reserves would be distributed to the Hyperliquid ecosystem, with no capture by Frax. Hyperliquid governance would decide on allocations (HYPE buybacks, Assistance Fund, staking yield, trader rebates, etc.).

• Yield & incentives:

No direct yield would go to holders by default, as the distribution (e.g. HYPE buybacks) would be channeled primarily into the Assistance Fund or other incentive programs (HYPE staking, trader rebates, USDH holder incentives), subject to governance decisions.

• Alignment with HL:

The positioning is explicitly “community-first,” with a 0% revenue capture model, native issuance of USDH on HyperCore and HyperEVM, detailed documentation, and a stated willingness to adjust the proposal continuously. Still, reliance on a banking entity remains a centralization risk to monitor.

• Integration into the ecosystem/partners:

Frax showcases a strong coalition of partners: Lead Bank (issuance), LayerZero (interoperability), Stripe/Bridge (orchestration), BlackRock / Superstate / WisdomTree / Fidelity (collateral). This provides significant institutional credibility, complemented by the yet-to-be-disclosed issuer.

• Experience:

Frax’s track record includes managing frxUSD and frxETH (on-chain operations, liquidity management via AMOs, audits/resilience), along with the expertise of its partners. That said, compared to actors such as Paxos, Sky, or Ethena, Frax remains less established in regulated issuance.

• Other types of information:

The decision to separate USDH from frxUSD directly addresses HL community concerns around dependency risk. However, the “black box” aspect of the undisclosed issuing bank remains an important uncertainty.

Agora

Proposal Overview

On September 7, Agora submitted an ambitious bid, backed by a coalition of partners including Rain (on/off ramp), LayerZero (interoperability), VanEck and State Street (asset management), and finally Cross River and Customers Bank (banking institutions).

In practice, Agora is an institutional-grade infrastructure designed to facilitate white-label stablecoin deployment. It is built on AUSD, a fully regulated stablecoin backed by reserves of cash and U.S. Treasuries.

The central pillar of Agora’s proposal is the institutional foundation on which USDH would rest. Reserves would be safeguarded by State Street, one of the world’s largest custodians ($49T in assets under custody). Portfolio management would be handled by VanEck ($130B+ AUM), while Cross River and Customers Bank would oversee liquidity management and on/off ramp services.

It’s also worth noting that Agora stands out for its strong regulatory posture: USDH would be GENIUS-compliant thanks to its banking partners, particularly Cross River.

On the economic front, Agora commits to redistributing 100% of net revenues from reserves back to the Hyperliquid ecosystem, through HYPE buybacks and contributions to the Assistance Fund. Agora keeps none of the revenue, making this one of the most generous proposals for the protocol.

The proposal does not go deeply into USDH’s future role within the Hyperliquid ecosystem but does highlight partnerships with Rain for payment cards and on/off ramp onboarding, LayerZero for cross-chain interoperability, and EtherFi to provide DeFi services to users.

Key Criteria

• USDH reserves and type of collateral:

USDH would be backed by the same infrastructure supporting AUSD, with reserves in cash, short-dated U.S. Treasuries, and Overnight Reverse Repo. These reserves would be administered by State Street and managed by VanEck, both global leaders. Proof-of-reserve would be made visible on-chain through Chaos Labs.

• Liquidity depth:

Agora pledged $10M in liquidity for USDH pairs, with conversions from other assets handled by Cross River and Customers Bank. However, no additional details were given regarding market making or the capacity to provide the initial reserve depth required for USDH.

That said, Agora already manages AUSD, which has surpassed $100M in market cap across 12 networks.

• Regulation/compliance:

Agora has the architecture and partners to issue a GENIUS-compliant stablecoin in the U.S., mainly through Cross River. However, it does not appear to have the licenses required to operate under MiCA in Europe or in other jurisdictions.

• Revenue sharing:

Agora proposes allocating 100% of USDH revenues to HYPE buybacks, primarily to strengthen the Assistance Fund and Hyperliquid’s economic model.

• Yield & incentives:

No direct yield for holders (USDH would be non-yield-bearing due to regulatory constraints). Indirect yield would come through HYPE buybacks. Agora also plans to roll out incentives through EtherFi for USDH holders.

• Alignment with HL:

Aside from the 100% revenue allocation to HYPE buybacks, Agora’s proposal does not signal strong alignment with Hyperliquid’s broader vision. It makes no mention of HyperEVM, HIP-3, or other major ecosystem components that would make USDH a core piece of infrastructure.

• Integration into the ecosystem/partners:

Agora’s main strength is its partner coalition: Rain (2B+ users), LayerZero (leading interoperability layer in on-chain finance), VanEck and State Street (renowned asset managers), and Cross River and Customers Bank (established banking institutions).

• Experience:

Agora specializes in white-label stablecoin infrastructure and currently manages AUSD, which has reached $100M in capitalization, a modest figure. However, the initiative is led by Nick van Eck, leveraging decades of TradFi credibility through VanEck, alongside heavyweight partners.

• Other information:

Agora emphasized its “neutral” stance, highlighting the risks if operators like Stripe or Bridge were chosen instead, pointing to their conflicts of interest (with the upcoming Tempo L1) and lack of meaningful DeFi experience.

Sky

Proposal Overview

On September 9, Sky (formerly MakerDAO) submitted its candidacy to manage USDH, led by founder Rune Christensen. The proposal suggests building the stablecoin on Sky’s modular infrastructure, which already manages several billion dollars in assets.

The first pillar of the proposal is Sky’s infrastructure, inherited directly from Maker. Sky proposes relying on its proven components: the Peg Stability Module (PSM) for instant convertibility, Spark for liquidity and yield products, and LayerZero for interoperability.

The second pillar is Sky’s track record as a DeFi pioneer. Its flagship product, DAI (now USDS), was long the leading decentralized stablecoin on Ethereum. In addition, Sky is the first DeFi protocol to receive an S&P rating (B-, Stable).

Sky’s proposal stands out through its ability to provide significant liquidity from day one (over $2 billion via the PSM), and its stated ambition to leverage protocol tools to place USDH at the center of DeFi while supporting the development of native products on HyperEVM.

Key Criteria

• USDH reserves and type of collateral:

According to the proposal, USDH would be “technically identical” to DAI and USDC and would inherit Sky’s collateral framework. Notably, V2 of the proposal specifies that USDH could be natively converted into sUSDS (yield-bearing), giving users direct access to the Sky Savings Rate.

As a reminder, during the USDC depeg in March 2023, over $2.2 billion in USDC flowed through Sky’s PSM to restore DAI’s peg, a demonstration of the mechanism’s resilience.

• Liquidity depth:

Sky states that USDH would be convertible with USDC via the PSM, with initial liquidity of over $2.2 billion. This would enable both off-chain and on-chain conversions, supported by partner protocols (Spark, Sky, CoW, DeFi Saver) already prepared to facilitate flows.

V2 specifies that conversion between USDH and sUSDS would be instant, unlimited, and permissionless, giving users direct access to the Sky Savings Rate (SSR).

• Regulation/compliance:

Sky emphasizes transparency (public dashboards covering collateral, parameters, revenues) and received the “Stablecoin Stability Assessment” from S&P (B-, Stable) in August 2025, a first for a DeFi protocol.

However, Sky lacks notable partnerships with institutional or banking actors to obtain licenses in any jurisdiction. Since this was one of the criteria highlighted by Hyperliquid’s announcement, Sky’s USDH would not be GENIUS-compliant at launch.

• Revenue sharing:

Sky commits to allocating all yield generated by USDH to HYPE buybacks, amounting to 4.85% according to their proposal. In other words, this effectively equates to 100% revenue buybacks.

V2 adds more detail: Sky currently applies a 30bps spread between the Savings Rate (for stablecoin holders) and the Base Rate (for Stars borrowing stablecoins).

Thus, Hyperliquid would receive the entire Savings Rate (currently 4.75%) plus 10bps of spread (“Integrator Reward”), totaling 4.85%. The remaining 20bps would be split: 10bps to Hyperliquid Star (see below) and 10bps as base allocation to Sky.

• Yield & incentives:

Sky’s USDH would not provide direct yield to holders at launch, but the buyback rate of 4.85% exceeds what other Treasury-backed proposals offer.

However, V2 introduces the potential launch of sUSDH, allowing users to stake their USDH to capture the Savings Rate yield, with the remainder going to Hyperliquid and HYPE buybacks.

At Hyperliquid Star’s launch, $25M would be allocated on HyperEVM to bootstrap liquidity, in a model similar to Spark on Ethereum.

• Alignment with HL:

Sky demonstrates its commitment to aligning with Hyperliquid by allocating 100% of USDH revenues to HYPE buybacks. Beyond that, the protocol proposes shifting its buyback engine onto Hyperliquid, channeling $250M per year in profits to support SKY token liquidity on Hyperliquid.

In its proposal, Spark also lays out plans to develop “Hyperliquid Star,” an application similar to Spark but native to HyperEVM, designed to stimulate DeFi activity around USDH. At launch, $25M would be allocated to incentivize liquidity.

• Integration into the ecosystem/partners:

Sky’s partnerships are limited to the DeFi ecosystem, which is both its strength and weakness: it lacks institutional or banking backing for USDH. Nonetheless, its partners include LayerZero and others such as Spark, CoW, DeFi Saver, etc.

• Experience:

Sky (formerly MakerDAO) brings over 7 years of experience managing a stablecoin, dating back to a time when DeFi was unrecognizable compared to today. The protocol is a clear pioneer of decentralized stablecoins, with mechanisms like Vaults and the PSM tested extensively.

• Other information:

The team presents USDH as a “technically identical” asset to its current stablecoins but tailored for Hyperliquid, with a vision for progressive evolution enabled by its modular stack.

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Our Analysis of the USDH War

Current Situation

The stakes around the launch of USDH are straightforward: capturing a nine-figure annual revenue stream, currently siphoned off by an external issuer, and using it to bring value back into the Hyperliquid ecosystem.

If Hyperliquid has already established itself as the undisputed leader in the DEX Perps sector—one of the most profitable corners of the industry—it now has the opportunity to secure a second highly lucrative business: stablecoins.

That said, despite the importance of these events, the governance timeline is extremely tight: submissions closed after just five days, and validators have less than 24 hours to make their decision and announce which proposal they will support.

At the time of writing, roughly 55% of validators have yet to cast their vote, while early tallies lean toward Native Markets (30.5% of votes), followed by Paxos (7.27%) and Ethena (4.39%). However, this distribution does not appear to reflect the general sentiment of the broader community, which leans more toward Paxos and Ethena.

You can check our dashboard to follow real-time validator decisions and their stake here.

It is worth noting that Foundation validators will not vote (they represent around 65%), though they have delegated funds to other validators. Effectively, if we exclude the five Foundation nodes, delegated staking accounts for about 55% versus 45% from community users.

A Governance Imbalance

On paper, Native Markets’ proposal may seem the most attractive: a Hyperliquid-native actor taking charge of the platform’s flagship stablecoin, with the community at the heart of its narrative. However, it also raises several concerns.

First, the reliance on Bridge (and therefore Stripe) effectively positions an external provider with potential conflicts of interest over the medium term, not to mention the risk of technical lock-in. Second, the team’s complete lack of experience in issuing or managing a stablecoin is a major red flag, especially given what is at stake with USDH and the scale it could reach.

Lastly, questions remain about Native Markets’ ties to Hyperliquid’s team. The deployer wallet was created only hours before the Foundation’s announcement, and the proposal was submitted just hours later. Some therefore question whether relationships between Native Markets and certain validators may be driving their support.

From social media and governance forum discussions, it is evident that the majority of the community leans toward Paxos and Ethena, as do many of our peers (researchers and analysts). We may never know if the final outcome of the vote will reflect public opinion, but this is undeniably a true first stress test for Hyperliquid governance.

Our View and the Most Likely Outcome

After reviewing all proposals in depth over the past few days, the OAK Research team and contributors involved in this analysis believe the strongest options are Paxos and Ethena.

Paxos’ proposal—particularly its revised V2—has been adapted to Hyperliquid’s needs and appears the most well-suited to USDH’s challenges. Paxos is a well-established, experienced player with a proven track record in stablecoin issuance (notably Binance’s BUSD) and strong backing from major institutions and banks, boasting over 70 global partners.

By announcing PayPal as its first official partner (and all the associated integrations that entails), Paxos demonstrated that it can onboard USDH across virtually any platform. Given Hyperliquid’s vision of becoming a financial infrastructure layer (via Builder Codes, HIP-3, etc.—all well understood by Paxos), the ability to tap into fintechs and institutional asset managers is a significant advantage.

Ethena’s proposal is also highly compelling. The team is a major industry player with deep integrations across DeFi and heavyweight partners. Their execution track record is undeniable: USDe surpassed $13B in circulation in record time, is set for native integration on Binance, and was selected by MegaETH for its own native stablecoin.

Equally important, Ethena’s ties to TradFi are strong (BlackRock, Anchorage, Securitize, etc.), and it is, for now, the only genuinely GENIUS-compliant stablecoin issuer with USDtb, which would fully back USDH if approved. Lastly, Ethena’s alignment with Hyperliquid needs no proof—see the well-known “Hyena” collaboration.

Our interpretation is this: if validators’ priority is to minimize execution risk and maximize access to real-world financial channels, Paxos is the strongest choice. If the priority is to preserve a “historical” attachment to Hyperliquid while still leveraging proven DeFi expertise, Ethena may be better positioned.

Native Markets could prevail if validators focus solely on retaining a Hyperliquid-first identity. However, given the importance of USDH, such a choice would need to be paired with above-average contractual and operational guarantees to ensure real success.

Whichever proposal wins, the true test begins September 15. The success of USDH will not be measured by the strength of a pitch but by post-vote execution: securing liquidity, deploying cleanly on HyperEVM and HyperCore, providing regular proof of reserves, migrating liquidity seamlessly, negotiating the creation of USDH-backed markets, and much more.

We expect a stronger support from validators towards the Paxos’ proposal in the coming days. We also expect some community members to redirect their votes by staking HYPE with validators that select Paxos.

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Disclaimer:

OAK Research has previously collaborated with Hyperliquid builders, including Hypurrfi, as well as Ethena, a long-standing partner. However, this report has been written in our usual manner, completely neutrally and independently, by three members of the team.

The authors of this analysis hold certain cryptocurrencies mentioned in the report. This article does not constitute legal, financial, or other advice and is published for informational purposes only.