Hyperliquid vs. USDC: Who Should Keep the Yield?
A shift is unfolding in digital assets. Hyperliquid, one of the fastest-growing decentralized exchanges (a trading platform that allows users to transact directly on-chain without relying on a centralized intermediary), has announced plans to move away from Circle’s USDC stablecoin (a digital asset designed to maintain a stable value by being backed one-to-one with U.S. dollars and U.S. Treasuries). The issue at stake is far deeper than branding or convenience. It is about something fundamental: who gets to keep the yield, the interest income earned from the cash and Treasuries that back stablecoins.
Circle’s Hidden Advantage
USDC has become a backbone of crypto trading. Each token is backed by cash or short-term U.S. Treasuries, which earn interest over time. In practice, this means that when traders hold or transact in USDC, the reserves behind those tokens are invested in Treasuries and the interest is captured by Circle. The sums are enormous, amounting to billions each year. Circle keeps almost all of it. Coinbase, its largest partner, receives a share, but no one else does—not the traders using USDC and not the platforms that depend on it.
For Hyperliquid, the impact is substantial. Its exchange holds about $5.6 billion in USDC. At today’s Treasury yields, that balance produces nearly $200 million in annual interest, but the benefit goes to Circle, not to Hyperliquid or its users.
Hyperliquid’s Unlikely Rise
Hyperliquid is not a centralized exchange like Coinbase or Binance. It is a decentralized platform that focuses on perpetual futures (derivative contracts with no expiration date that allow traders to speculate on the price of an asset indefinitely), which are among the most heavily traded products in crypto. What makes it remarkable is scale. Despite being operated by fewer than 20 people, Hyperliquid processes more than $57 billion in trades every week. By comparison, the New York Stock Exchange averages roughly $300–$400 billion in daily equity trading, while the global foreign exchange market sees about $7.5 trillion in daily turnover. Hyperliquid is smaller than these traditional markets, but for a team of its size it is extraordinary, and its volumes are on par with mid-sized U.S. equity exchanges. At its peaks, Hyperliquid has also generated more than $100 million in monthly fees, numbers that are striking for a platform of its scale and structure.
For such a lean operation, watching hundreds of millions in yield leave its ecosystem is difficult to ignore.
What Traditional Markets Do Differently
In traditional finance, customer balances sometimes earn a credit for interest. Futures clearinghouses, which guarantee performance and manage collateral, may return some portion of the income earned on collateral to customers or clearing members. Traders are accustomed to at least some recognition of the time value of their money.
In crypto, by contrast, stablecoin issuers like Circle and Tether retain all of the yield. Traders assume the risks of using the product, while issuers capture the rewards. Hyperliquid is now challenging that arrangement.
Enter USDH
Hyperliquid’s solution is to create its own stablecoin, USDH, to replace USDC as the settlement currency on its platform. The stated goal is to keep the yield within the ecosystem rather than sending it to Circle.
Eight different issuers submitted proposals to manage USDH. Some, such as Frax and Curve, promoted fully on-chain models that would stream yield back to users (meaning the interest income would be automatically passed through to those holding or using the stablecoin). Others, including Paxos and Agora, emphasized compliance, institutional custody (custody means assets are held by a regulated institution rather than the exchange itself), and zero fees. Still others attempted hybrid models, balancing decentralization with regulatory caution.
The choice of issuer was more than a technical matter. It defined Hyperliquid’s identity, determining whether the exchange would lean toward institutional partners, decentralized innovation, or a blend of both. Ultimately, Native Markets was selected to manage USDH.
Why This Matters
If USDH proves successful, it could erode USDC’s dominant position in the market. Traders and platforms might decide they would rather use a stablecoin that shares the interest income with the community instead of allowing the issuer to keep it all. If that shift takes hold, other exchanges, both decentralized and centralized, are likely to adopt the same approach. Stablecoins would no longer be seen as neutral pieces of market plumbing used only to settle trades. Instead, they would become active business models, designed to capture and distribute yield as part of the trading ecosystem.
The Legal Questions
Hyperliquid’s plan also raises regulatory issues. If USDH is backed by cash and Treasuries, issuers may need money transmitter licenses (state-issued approvals required for companies that transmit or hold customer funds on behalf of others) at the state level, or potentially federal authorization if the product is treated as deposit-taking (similar to what banks do when they accept deposits and pay interest). If yield is distributed directly to token holders or used to support buybacks of Hyperliquid’s governance token (a token that gives holders influence over platform decisions), the Securities and Exchange Commission may argue that USDH, or related instruments, qualify as securities under the Howey test (the legal test used by courts to decide whether an arrangement is an investment contract and therefore a security).
Because Hyperliquid already operates in perpetual futures, a product area that falls squarely within the Commodity Futures Trading Commission’s jurisdiction, the introduction of a yield-bearing stablecoin as a settlement asset may also draw the CFTC’s attention. Further, policymakers in the United States have repeatedly suggested that stablecoin issuance should be limited to banks or heavily regulated institutions. A decentralized exchange run by a small, anonymous team represents the opposite of that vision.
The Core Question: Who Gets the Yield?
Ultimately, this debate comes down to a simple question: who should benefit from the interest earned on billions of dollars in stablecoins? In traditional finance, customers often receive at least part of that value. In crypto, stablecoin issuers have retained it entirely. Hyperliquid’s experiment with USDH seeks to redirect yield to its traders, validators, and broader ecosystem.
Whether regulators view this as a form of innovation or as an unlicensed extension of banking remains to be seen.
Conclusion
Hyperliquid’s launch of USDH is both a strategic business decision and a legal test case. If it succeeds, Circle and Tether could face their first serious challenge, and the economics of stablecoins could shift permanently. If it falters under regulatory pressure, it will stand as a cautionary tale about the limits of experimentation in market infrastructure.
Either way, the fight over who keeps the yield is now central to the evolution of stablecoins and the future of digital asset markets.
This is an area our firm follows closely, and we welcome inquiries from businesses seeking guidance on how these developments may affect their operations.
Sources
Cointelegraph, Native Markets Officially Claims Hyperliquid’s USDH Stablecoin Ticker, Cointelegraph (Sept. 11, 2024), https://cointelegraph.com/news/native-markets-claims-hyperliquid-usdh-ticker.
Galaxy Research, Stablecoin Giants Vie for USDH Ticker—Hyperliquid Wins No Matter What, Galaxy (Sept. 11, 2024), https://www.galaxy.com/insights/research/stablecoin-usdh-ticker-hyperliquid.
Oak Research, Hyperliquid and the USDH War: Detailed Analysis, Oak Research (Sept. 5, 2024), https://oakresearch.io/en/analyses/investigations/hyperliquid-usdh-war-detailed-analysis-opinion-proposals.
Live Bitcoin News, Hyperliquid Set to Launch USDH Soon as Native Markets Wins Bid, Live Bitcoin News (Sept. 11, 2024), https://www.livebitcoinnews.com/hyperliquid-set-to-launch-usdh-soon-as-native-markets-wins-bid.
Bankless, Hyperliquid’s USDH Bidding War (Sept. 11, 2024), https://www.bankless.com/read/hyperliquids-usdh-bidding-war.
Bank for Int’l Settlements, Triennial Central Bank Survey: Foreign Exchange Turnover in April 2022 (Oct. 27, 2022), https://www.bis.org/statistics/rpfx22_fx.htm.
FINRA, U.S. Equity Market Data, 2024 FINRA Industry Snapshot (2024), https://www.finra.org/media-center/reports-studies/2024-industry-snapshot/market-data.