Hyperliquid Turns Up The HYPE —And The Heat On Circle’s USDC

HYPE, the governance token of Hyperliquid—a decentralized trading platform—has surged more than 1,500% in less than a year, reaching a market cap of $16 billion. Appropriately named, HYPE now sits at the center of a shift in stablecoins.

Yesterday, Native Markets was selected through a validator vote to issue USDH, Hyperliquid’s first native stablecoin. The decision matters less for the issuer itself — a relatively new player — than for what it signals: stablecoin economics are changing, and established issuers such as Circle, whose USDC dominates Hyperliquid today, may feel the pressure.

HYPE Affects Circle

Hyperliquid holds about $5.97 billion in USDC balances, equal to roughly 8.2% of USDC’s total supply. Based on current federal funds rates, those deposits would generate more than $250 million annually in interest income for Circle and its partner Coinbase.

USDH is designed to redirect that yield into Hyperliquid’s own ecosystem. If adoption succeeds, Circle could lose a substantial revenue stream while Hyperliquid strengthens its independence from external providers.

Circle knows the stakes. CEO Jeremy Allaire responded on X: “Don’t Believe the Hype… We are coming to the HYPE ecosystem in a big way. We intend to be a major player and contributor to the ecosystem.”

MORE FOR YOU

As Lucas Tcheyan of Galaxy Digital observed: “The competition for USDH underscores a shifting dynamic in stablecoin issuance where issuers must increasingly pay for distribution. Issuers are portraying themselves as indispensable partners, but in reality, they need Hyperliquid more than Hyperliquid needs them.”

The Validator Vote

The process drew proposals from well-known names such as Paxos, Frax, Ethena, Sky (formerly MakerDAO), and Agora. Most offered to return nearly all reserve income — up to 100% — to win the mandate.

Native Markets took a different approach, pledging a 50/50 split: half of the yield will go to Hyperliquid’s Assistance Fund, which buys back HYPE, and half to ecosystem growth initiatives.

So it’s not all going to HYPE — but HYPE is still the clear beneficiary. Buybacks directly support the token, while ecosystem programs are intended to encourage wider use of USDH, reinforcing the same outcome.

CoinGecko’s Vera Lim noted: “The outcome demonstrates the importance of ecosystem alignment and native knowledge over pure financial incentives in DeFi governance decisions.”

The reserves will be managed through Stripe’s Bridge platform, with custody by BlackRock.

Regulatory Questions

Both MiCAR in Europe and the GENIUS Act in the U.S. prohibit stablecoins from paying interest to stablecoin holders. The aim is to ensure these instruments act as payment tools rather than investment products, and to protect bank deposits.

On the surface, USDH complies. It is redeemable at par and pays no interest to holders. But in practice, the reserve income will be rerouted through HYPE buybacks and ecosystem subsidies.

This is why some see the design as a circumvention of the rules. Yes, regulators prohibited stablecoins from paying yield directly; Hyperliquid has instead created a structure where the yield supports a governance token tied to the stablecoin’s adoption. Functionally, it introduces the same incentives regulators wanted to avoid.

But the parallel with corporate America, including Circle, is worth noting. USDC holders receive no yield, but Circle’s shareholders benefit when USDC grows, since the company invests reserves in Treasuries. The difference is that Hyperliquid’s model makes the link explicit, folding it into the economics of its governance token.

What Is Hyperliquid?

For readers unfamiliar with the platform, Hyperliquid is a decentralized exchange (DEX) built on its own blockchain. It has quickly become the leading venue for decentralized perpetual futures, with around 70% market share and monthly volumes approaching $400 billion.

Until now, the network has relied almost entirely on USDC. That dependency has meant billions in deposits flow to Circle and Coinbase, even though the activity is generated within Hyperliquid. USDH is intended to capture that value internally while reducing reliance on external, permissioned stablecoins.

The Bigger Picture

The USDH vote points to three broader trends. First, issuers must now increasingly pay for adoption. Stablecoins are no longer judged only by trust in the issuer but by how much value is returned to the ecosystems where they circulate.

Second, regulation lags design. MiCAR and GENIUS assume stablecoins can be kept in a non-interest-bearing model. USDH shows how quickly new structures can emerge that satisfy the letter of the rules while challenging their intent.

Third, governance tokens matter. HYPE’s 1,533% surge reflects not just speculation but the market’s expectation that yield, even if banned on paper, will find its way back to users and investors through other channels. The 50/50 split ensures not all yield goes to HYPE, but it leaves the token as the central beneficiary.

On paper, Native Markets won the USDH mandate. In practice, the validator vote underscored how stablecoins are evolving into ecosystems where yield is too valuable to leave untouched.

MiCAR and GENIUS sought to prevent stablecoins from competing with bank deposits by banning interest payments. USDH shows how difficult that goal will be to enforce. The design makes a formal distinction between “money” and “investment,” yet blurs it in substance by turning stablecoin adoption into a source of yield for the community — a role once reserved for bank deposits.