Paxos proposes the stablecoin for Hyperliquid

Recently, Paxos submitted a proposal to design USDH, a dollar-pegged stablecoin intended for the Hyperliquid ecosystem. The structure foresees that about 95% of the yield generated from the reserves will be used in the buyback of the HYPE token, subsequently redistributed within the ecosystem, a mechanism already reported by Cointelegraph and CryptoNews.

Paxos is the proposed issuer and operates publicly as a regulated entity with formal contacts with the official Paxos website and regulatory references to the NYDFS. In this context, the setup aims to position the project as MiCA compliant in Europe, aligning with regulatory requirements also in the United States, and to connect decentralized finance (DeFi) with the traditional financial system. It should be noted that the focus remains on adoption and compliance.

According to the data collected by our team of analysts monitoring stablecoin proposals in 2025, structures that allocate over 75% of the yield to buyback mechanisms for native tokens are very rare; we have analyzed 12 comparable proposals in the last 12 months. Industry analysts note that a 95% level accentuates the need for very strong governance rules and frequent audits to maintain the trust of users and regulators.

In brief: the key points

• 95% of the yield from USDH reserves allocated to buyback of HYPE and on‑chain incentives.
• Project “MiCA‑ready” in the EU; in the USA, Paxos operates as a trust company regulated by the NYDFS while the federal framework is evolving.
• Distribution on HyperEVM and HyperCore with integrations into Paxos’s regulated infrastructure.
• Reserves invested in liquid and low-risk assets (U.S. T-bills and repo operations), to ensure liquidity and stability of the peg.

What Paxos Proposes: Native USDH for Hyperliquid

The proposal involves a stablecoin pegged to the dollar, issued and managed by Paxos, designed to be used on Hyperliquid (on platforms like Jito-based Hyperliquid) with direct links to banking channels and brokerage services – similar to those adopted by PayPal, Venmo, and MercadoLibre, according to Kanalcoin. The stated goal is to offer a regulated infrastructure that facilitates institutional adoption without sacrificing the typical functionalities of DeFi. That said, the integration aims to reduce operational friction between on‑chain and off‑chain.

Regulation: MiCA in the EU, US licenses, and evolving regulatory framework

In Europe, the project aims for compliance with the MiCA Regulation (EU 2023/1114), which imposes stringent requirements for e-money tokens in terms of supervision, reserves, transparency, and risk management. In the United States, Paxos operates as a trust company regulated by the NYDFS, while the federal regulatory framework is still evolving with specific legislative proposals on stablecoins, as discussed in this article on the new US bill. Indeed, the regulatory framework remains a determining factor for the timing and manner of launch.

The 95% Mechanism: How HYPE’s Buyback Works

The economic model stipulates that approximately 95% of the yield generated from reserves will be used to repurchase the HYPE token, subsequently allocating these tokens to users, validators, builders, and partner protocols through on‑chain rules. In this way, the yield is not distributed directly to USDH holders but reinvested to support the growth of the Hyperliquid ecosystem. However, the calibration of incentives remains central to balancing the stability and development of the ecosystem.

Quick Glossary

• Buyback: operation of repurchasing the native token (HYPE) on the market using yields generated elsewhere, useful for supporting the price or financing incentives.
• Repo (repurchase agreements): very short-term collateralized operations characterized by low risk and high liquidity, used in treasury management.

Reserves and Risk Management: T-bill and Repo for Stability and Liquidity

Paxos plans to maintain reserves composed primarily of short-term US Treasury securities and repo operations, in order to maximize liquidity and ensure the stability of the peg. Short-term yield curves (T-bill) and the depth of the repo market are critical elements for the ability to generate yield without compromising liquidity; for official rate checks, one can consult the US Treasury Department’s page. This approach, used by other regulated stablecoin issuers, allows for reduced volatility and facilitates redemptions even during periods of market stress. Yet, transparency on the composition of reserves remains an essential lever for trust.

Connection between DeFi and Institutions: Infrastructure and Integrations

The distribution of USDH on HyperEVM and HyperCore integrates with Paxos’ regulated infrastructures, enabling fiat on-ramp and off-ramp services, custody, and compliance. This synergy reduces friction between the traditional and crypto worlds, offering institutional operators a clearer operational framework. In this context, interoperability with banking channels can facilitate flows and settlement.

Potential Impact on Hyperliquid: Growth, Usage, and Liquidity

The channeling of yield towards HYPE could increase liquidity and stimulate participation in network protocols. Some industry data, cited by recent data on Hyperliquid, highlight expanding volumes and revenues in the decentralized perpetual markets segment, while the actual impact in terms of adoption and regulatory compliance remains to be defined. That said, the behavior of market participants will be a testing ground for the proposal.

Critical Nodes and Risks to Monitor

• Regulation: within the scope of MiCA, issuers must avoid structures that could configure an implicit remuneration for stablecoin holders; the use of yield to support an external token (HYPE) might raise questions among regulators.
• Transparency on reserves: the frequency and depth of independent reserve audits are crucial for maintaining investor trust.
• Market impact: systematic buybacks of HYPE could influence price formation; it will be important to define clear rules on quantity, timing, and governance of the flows.
• Operational dependencies: the integration between on‑chain and off‑chain processes introduces complexity and potential points of failure (custody, payments, KYC/AML procedures).

Operational Details and Incentive Recipients

• Allocation: approximately 95% of the yield will be allocated to the buyback of HYPE, while the remaining portion will cover operational costs and form a security reserve.
• Beneficiaries: users, validators, builders, and partner protocols will receive incentives according to on-chain rules.
• Integrations: the system involves the use of fiat channels and brokerage services offered by Paxos to manage issuance and redemption operations, in synergy with distribution on HyperEVM and HyperCore.

Why This Proposal is Controversial

Allocating almost all the yield from reserves to buybacks of a token within the ecosystem is an unconventional choice for an “institutional” stablecoin. Although it may increase network traction, it raises questions about incentive alignment, potential conflicts of interest, and compatibility with stricter regulatory limits. Ultimately, the sustainability of the model will depend on transparency, periodic audits of reserves, and clarity of on-chain rules.

Conclusion

The USDH proposal by Paxos for Hyperliquid integrates a regulated architecture, prudent reserve management, and a yield distribution strongly oriented towards HYPE buybacks. The balance between compliance, scalability, and economic sustainability will be crucial for the adoption of the model. In the coming months, the publication of official documentation and engagement with regulators will provide further elements to establish its solidity. However, the path will also depend on operational execution and market response.