A Brief Analysis of the USDH Bidding Event: A Power Struggle Reshaping Stablecoin Market Rules
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A Brief Analysis of the USDH Bidding Event: A Power Struggle Reshaping Stablecoin Market Rules
New issuers force old issuers to change the rules.
Navigating Web3 tides with focused insightsBy: Haotian
Let's talk about the controversial $USDH stablecoin bidding event involving @HyperliquidX.
On the surface, it's a battle for interests among issuers like Frax, Sky, and Native Market. In reality, it's a public auction for stablecoin issuance rights that could reshape the rules of the stablecoin market.
Building on insights from @0xMert_, here are a few thoughts:
1) The struggle for USDH minting rights reveals a fundamental contradiction between decentralized applications' demand for native stablecoins and the need for unified stablecoin liquidity.
In simple terms, every major protocol wants its own "printing rights," but this inevitably fragments liquidity.
To address this, Mert proposed two solutions:
1. "Align" ecosystem stablecoins—agree on a common stablecoin and share revenues proportionally. But here's the problem: suppose USDC or USDT is currently the most consensus-backed aligned stablecoin, would they be willing to give up a significant portion of their profits to DApps?
2. Build a stablecoin liquidity layer (M0 model), using a crypto-native approach to create a unified liquidity layer—e.g., Ethereum as an interoperable layer enabling seamless swaps across native stablecoins. Yet, who bears the operational cost of this liquidity layer? Who ensures the anchoring mechanisms across different stablecoins? And how do we mitigate systemic risks when one stablecoin depegs?
These two solutions seem reasonable at first glance, but they only solve liquidity fragmentation. Once issuer incentives are considered, the logic breaks down.
Circle earns billions annually from 5.5% Treasury yields—why should they share that with a protocol like Hyperliquid? Conversely, when Hyperliquid gains the ability to break away from traditional issuers and launch its own stablecoin, Circle’s “passive profit” model will face disruption.
The USDH auction can be seen as a protest against the "hegemony" of traditional stablecoin issuers. In my view, whether this rebellion succeeds or fails isn't important—the key moment is the act of uprising itself.
2) Why say this? Because stablecoin yield rights will eventually return to value creators.
Traditional stablecoin issuers like Circle and Tether essentially operate as middlemen: users deposit funds, which they then invest in Treasuries or deposit with Coinbase for fixed lending yields—but they keep most of the profits.
The USDH event signals a bug in this logic: the real value creators are the protocols processing transactions, not the issuers merely holding reserve assets. From Hyperliquid’s perspective, handling over $5 billion in daily trading volume, why should they hand over more than $200 million in annual Treasury yields to Circle?
In the past, stablecoin circulation prioritized "safety and no depegging," so issuers like Circle that incurred high compliance costs were justified in capturing these yields.
But as the stablecoin market matures and regulation becomes clearer, these yield rights will increasingly shift toward value creators.
Thus, in my view, the significance of the USDH auction lies in defining a new stablecoin revenue distribution rule: those who control real transaction demand and user traffic get priority in yield allocation.
3) So what is the endgame? Will app chains dominate while issuers become mere "backend service providers"?
Mert mentioned a third intriguing possibility—app chains generate revenue while traditional issuers’ profits trend toward zero. How should we interpret this?
Consider that Hyperliquid alone generates hundreds of millions in trading fees annually. In comparison, the potential Treasury yield from managing reserves, while stable, becomes negligible.
This explains why Hyperliquid chooses not to issue its own stablecoin but instead auctions off issuance rights—it simply doesn’t need to. Issuing would add "credit liabilities," and the profits pale in comparison to the incentive of growing trading volume and fee revenue.
In fact, the bidders’ responses after Hyperliquid relinquished issuance rights prove this point: Frax pledged to return 100% of earnings to Hyperliquid for HYPE buybacks; Sky offered a 4.85% yield plus $250 million in annual buybacks; Native Markets proposed a 50/50 revenue split.
Essentially, what was once a conflict between DApps and stablecoin issuers has evolved into an internal competition among issuers themselves—especially new entrants forcing incumbents to change the rules.
That’s all.
Mert’s fourth scenario sounds abstract—by that stage, stablecoin issuers’ brand value might drop to zero, or minting rights could be fully centralized under regulators or some decentralized protocol. That remains unknown. Probably still a distant future.
In summary, in my view, this chaotic USDH auction is already profoundly meaningful if it marks the end of the era where legacy stablecoin issuers passively profit, and truly returns stablecoin yield rights to value-creating applications.
As for whether it’s “bribery” or whether the auction is transparent—I think these are window opportunities before regulatory frameworks like the GENIUS Act are fully implemented. Watching the spectacle is enough.
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Haotian | CryptoInsight
