Hyperliquid stablecoin auction

It’s a knockdown, drag-out fight to issue Hyperliquid’s new stablecoin, and a new stablecoin-focused blockchain is getting a history lesson from someone who’s been there and didn’t do that.

On September 5, the Hyperliquid decentralized exchange announced plans to launch a new native dollar-denominated stablecoin it’s calling USDH. The aim is for the Hyperliquid community to exercise greater control over stablecoins on its platform, but also to retain some of the revenue currently going to USDC, the stablecoin issued by Circle (NASDAQ: CRCL), on which ~95% of Hyperliquid’s $5.6 billion stablecoin liquidity currently relies.

The debut of this “Hyperliquid-aligned” stablecoin is proceeding in a somewhat unorthodox fashion, with the platform effectively conducting a public auction for the rights to issue USDH. (Some online wits have likened it to an episode of cheesy reality show The Bachelor.)

Would-be stablecoin issuers are required to reveal how much of the ‘yield’ on USDH’s fiat reserves they will share with the Hyperliquid community. They also have to share their compliance plans and demonstrate a ‘Hyperliquid-first’ team mentality. Hyperliquid validators will judge the bids and conduct a governance vote on September 14.

Since Hyperliquid controls three-quarters of the decentralized finance (DeFi) perpetuals futures trading market, there’s no shortage of hopefuls submitting bids. Some have even resubmitted fresh bids to match/beat their rivals’ offerings. The Polymarket prediction site has opened a market on “who will win the USDH ticker,” with a new entity called Native Markets currently winning a ~70% share of the bets (these figures are understandably fluid).

Led by Hyperliquid investor/advisor Max Fiege, Native Markets aims to issue USDH via a tie-up with Bridge, the stablecoin integration platform that was acquired by payment processor Stripe last year. Hyperliquid validator CMI (IMC Crypto) has already indicated it will cast its votes for Native Markets, based on the Native team’s “clear alignment with Hyperliquid’s long-term growth.”

Some critics cried foul, claiming that the speed with which Native Markets submitted its pitch—within an hour of the auction announcement—suggested the fix was in and the entire process was simply ‘governance theater.’

The second-highest vote-getter (~23%) on Polymarket is Paxos, issuer of both the PYUSD stablecoin controlled by payment processor PayPal (NASDAQ: PYPL), and the USDG stablecoin backed by the Global Dollar Network consortium. Paxos issued its initial USDH proposal on September 5, promising to allocate 95% of the interest on USDH reserves to buy back Hyperliquid’s native HYPE token and “redistribute it back to ecosystem initiatives, partners and users.”

Paxos issued a revised proposal on September 9, adding a partnership with PayPal and Venmo that will see HYPE listed on those platforms, with free on/off-ramps for USDH, while also pledging $20 million in “ecosystem incentives.” Paxos hyped its regulatory bona fides, noting that “[n]o one else bidding can legally issue in Europe, full stop,” making Paxos “the only issuer in the world today that can ensure that USDH can scale globally in a fully compliant manner.”

The third-ranked (~4%) bidder on Polymarket is Ethena Labs, issuer of the USDe and USDtb stablecoins. Ethena aims to issue USDH in tandem with digital asset custodian Anchorage Digital, with which it recently partnered on a U.S. market launch. Ethena is similarly pledging to redistribute 95% of its USDH reserve revenue to the Hyperliquid community.

Fourth-ranked (~2%) is Sky, the controversial DeFi protocol formerly known as MakerDAO that supports the DAI and USDS stablecoins. The rest of the field includes DeFi mainstays Frax Finance, who would back USDH 1:1 with their own frxUSD stablecoin (which is in turn backed by real-world assets, including tokenized Treasury bills). Frax has pledged to use 100% of the net USDH reserve interest to Hyperliquid users.

Nick van Eck’s Agora (issuer of AUSD) has lined up a bunch of coalition partners, including fintech outfit Moonpay, Middle East-focused digital asset exchange Rain, and Ethereum staking protocol EtherFi. Agora would also devote 100% of net revenue (yield minus 3bps custodian fee) to HYPE buybacks and Hyperliquid-benefiting funds.

Regardless of who wins, the focus has sent the HYPE token’s fiat value soaring. Worth ~$47 on September 5, the day the stablecoin competition was announced, the token hit a new all-time high of $56 on September 10.

Circle whistles past this graveyard

On July 31, Circle issued a statement about its plans to finally bring native USDC to Hyperliquid (rather than the bridged version that currently exists), but this was apparently too little, too late for the platform.

Seeking to appear undaunted by last Friday’s auction announcement, Circle CEO Jeremy Allaire tweeted a “Don’t Believe the Hype” message over the weekend, insisting that Circle “intend[s] to be a major player and contributor to the [HYPE] ecosystem.”

Circle’s revenue is almost entirely derived from interest on the T-bills backing issued USDC. The company’s financial figures aren’t stellar to start with, and since USDC on Hyperliquid accounts for 7-8% of the stablecoin’s market cap, losing this revenue—estimated at over $220 million per year—could have dire implications for Circle’s future.

Bernstein analysts don’t share these concerns, suggesting any USDC disengagement from Hyperliquid will be “gradual.” Bernstein noted that USDC’s market cap has soared to a new record above $72 billion, a gain of nearly $7 billion in just the past month. Over that same period, the market-leading USDT issued by Tether has added less than $5 billion, bringing its cap to over $169 billion.

On September 9, Circle announced a strategic collaboration with digital asset custodian/payment platform Fireblocks to “make it easier and safer for financial institutions to build digital asset offerings” and to “provide cross-border treasury and tokenization asset settlement.”

Both Circle and Fireblocks recently launched payment-focused initiatives (Circle Payments Network and Fireblocks Network for Payments) that will work together to “provide a unified experience for financial institutions that span treasury management solutions across cross border, merchant and retail use cases.”

Fireblocks will also support the Circle Gateway cross-chain liquidity initiative, with the integrations handled by Arc, Circle’s recently announced stablecoin-focused Layer-1 network that aims to make it easier for institutions and enterprises to pay fees via blockchains.

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Stripe unveils Tempo, Libra/Diem co-founder unimpressed

Tempo will be led by Matt Huang, founder of the Paradigm tech-focused venture capital group. While Tempo is a partnership of Stripe and Paradigm, Collison said it will operate as “an independent company.”

Tempo has already lined up Anthropic, Coupang (NASDAQ: CPNG), Deutsche Bank, DoorDash (NASDAQ: DASH), Lead Bank, Mercury, Nubank, OpenAI, Revolut, Shopify (NASDAQ: SHOP), Standard Chartered, and Visa (NASDAQ: V) as its “initial design partners.”

Collison claims Tempo will “enable platform neutrality with respect to different stablecoins,” and will eventually “move towards permissionless validation.” But a lengthy contrarian take on Tempo (and Circle’s Arc) was tweeted by Christian Catalini, co-creator of Libra/Diem, the failed effort by Meta (NASDAQ: META) to launch an in-house platform token.

While acknowledging that Tempo was launching in a “radically different” political environment than what Libra/Diem faced, Catalini nonetheless wondered: “What happens when the antibodies of the financial system—the powerful incumbents—identify Tempo as a new threat and begin to swarm?”

Catalini said “corporate chains” can promise “fairness” to all users, but “once they have a captive market, the temptation to tilt the playing field becomes irresistible. Would a sane competitor bet its future on Stripe’s promise not to eventually favor its own products?”

Catalini said it was a “fundamental economic truth” that “the only thing that truly separates crypto from the systems it aims to replace is that it’s permissionless. Full stop.” If Tempo and Arc succeed, “it will mean the crypto experiment was not a revolution, but a failed coup.”

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America’s first credit union-issued stablecoin in the works

Meanwhile, debate continues to rage over the impact of the stablecoin-focused GENIUS Act that was signed into law by President Trump this summer.

The Brookings Institution’s Aaron Klein has weighed in with an op-ed supporting the traditional banking sector’s argument that crypto firms shouldn’t be allowed to dodge GENIUS’s prohibition on yield-bearing stablecoins by rebranding yield as ‘rewards.’ (Klein acknowledges that, technically speaking, the prohibition is on the issuers of stablecoins, not third-parties like exchanges that offer these rewards.)

Klein claims that unless the yield/rewards “loophole” is closed, “it could cause massive problems resulting in losses by retail crypto holders, a bailout of big crypto, or a financial crisis.” Noting that GENIUS supporters always attach the prefix ‘payment’ when mentioning stablecoins, Klein suggests letting stablecoins “be the payment instrument they say they are.”

Klein’s op-ed includes the Treasury Department’s worst case scenario estimates that up to $6 trillion in deposits could be withdrawn from U.S. banks and credit unions as customers chase yield/rewards.

Alabama State Sen. Keith Kelley published his own op-ed on September 10 expressing similar concerns about the GENIUS ‘loophole.’ Kelley said a surge of withdrawals would pose particular threats to small community banks, which “depend on local deposits to fund their lending.”

Without access to trusted lending partners, “everyone from main street shops to family-run farms” would suffer. In a worst-case scenario, local banks could be forced to close, setting off “a ripple effect across entire communities.” Kelley said allowing crypto operators to function like banks without being regulated like banks “is not innovation. It is regulatory arbitrage, and it is putting the livelihood of American families and our local economies at risk.”

And yet, Coindesk reported that the St. Cloud Financial Credit Union (SCFCU) in St. Cloud, Minnesota—the state’s 12th largest city—is preparing to launch what it claims is the first stablecoin issued by a U.S. credit union.

Cloud Dollar (CLDUSD), which was developed with the help of ‘digital banking network’ Metallicus and credit union service organization DaLand CUSO, is expected to launch before the year is through.

Metallicus and DaLand launched a strategic partnership in August to combine the former’s Metal Blockchain infrastructure with the latter’s Coin2Core TradFi/DeFi bridge. The duo aim to support financial institutions engaging in stablecoin issuance, self-custody of digital assets and real-time settlement workflows.

Chase Larson, SCFCU’s exec VP/chief legal officer, said the credit union was “readying our shop for on-chain money movement—merchant payouts, member-to-member, institution-to-institution—at a fraction of card-network fees and with full transparency,”

Last October, SCFCU announced plans for its CU-Digital Asset Vault, which would allow SCFCU members to store BTC, the Ethereum network’s native token ETH, and USDC. SCFCU assured its customers that there would be “no commingling of digital assets with other member assets.”

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Elbows (and stablecoins) up

U.S. dollar-denominated tokens utterly dominate the overall stablecoin market, a dominance that doesn’t sit well with some European Union officials who fear the loss of sovereignty over their currency.

America’s neighbor to the north is now entering the fray courtesy of Tetra Digital Group, a crypto custodian based in the Canadian province of Alberta. On September 8, Tetra announced that it had raised CAD10 million (US$7.2 million) to become “the first financial institution to launch a Canadian fiat-backed stablecoin in early 2026, subject to regulatory approvals.”

Among the Canadian fintechs/financial service providers supporting this initiative are Urbana Corporation, Wealthsimple, Purpose Unlimited, Shakepay, ATB Financial, National Bank, and Shopify. Tetra previously received backing from Urbana and others, including the venture capital unit of the Coinbase (NASDAQ: COIN) exchange.

Tetra CEO Didier Lavallée called the announcement “a pivotal moment for Canadian financial innovation” and invited other qualified institutions to join this effort. Tetra hopes its so-far-ticker-lacking stablecoin “will create a reliable, institutional-grade solution for Canadian dollar payments and remittances at scale.” The reserves backing Tetra’s stablecoin will be held in Canada under Canadian regulatory oversight.

Lavallée told the Calgary Herald that Tetra’s token would focus initially on B2B transfers between creditors, banks and other companies, based on his view that retail adoption is still several years away. Lavallée raised the sovereignty issue with CBC News, saying Canadian firms “want to be able to transact on a Canadian-denominated vehicle or product or token.”

Coinbase Canada CEO Lucas Matheson concurred, saying a CDN stablecoin “would help with payments, it would help with cross-border transactions, and it would help with all the foreign exchange that we have here in Canada.” Tom Duff Gordon, the exchange’s VP of international policy, said “there are foreign investors who want to hold Canadian dollars,” a service Tetra’s new token could provide.

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