Stablecoin infrastructure giant Paxos has entered the race to issue Hyperliquid’s native USDH stablecoin by proposing integration with PayPal and Venmo payment rails, according to a report by The Block. The proposal positions Paxos to leverage its existing relationships with major fintech platforms to drive global adoption of the Hyperliquid-first stablecoin, which would be fully compliant with both U.S. and European regulatory frameworks.
Paxos’s submission calls for USDH to allocate 95% of reserve yield toward buybacks of Hyperliquid’s native HYPE token, with redistributed tokens flowing to users, validators, and partner protocols. The stablecoin would adhere to the GENIUS Act and MiCA standards, addressing regulatory concerns while anchoring Hyperliquid’s ecosystem growth. This revenue-sharing model represents a significant shift from traditional stablecoin economics, directly tying issuer profits to ecosystem token value.
Hyperliquid initiated a five-day validator voting process on September 6, inviting teams to submit proposals for the USDH stablecoin issuance. The competition has drawn heavyweight contenders including Frax Finance, Agora, and Native Markets, though Paxos’s unique access to PayPal and Venmo’s massive user bases—combined with its regulatory pedigree—gives it a distinct distribution advantage in the bidding war.
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Paxos’s Strategic Infrastructure Play
The proposal centers on Paxos Labs, a newly formed entity that recently acquired Molecular Labs—the developer behind Hyperliquid primitives LHYPE and WHLP. This acquisition provides Paxos with deep technical integration capabilities within Hyperliquid’s architecture across both HyperEVM and HyperCore chains. Crucially, Paxos plans to deploy its existing partnerships with over 70 financial institutions spanning the U.S., EU, Singapore, and Abu Dhabi to distribute USDH globally.
By pitching PayPal and Venmo rails—which already process billions in crypto transactions monthly—Paxos aims to solve Hyperliquid’s user acquisition challenge. The integration would allow seamless conversion between fiat and USDH within these mainstream apps, potentially funneling PayPal’s 435 million active accounts and Venmo’s 70 million users into Hyperliquid’s ecosystem. This move directly addresses Hyperliquid’s stated goal of creating a “Hyperliquid-first and Hyperliquid-aligned” stablecoin with institutional-grade compliance.
Competitive Landscape and Controversy
The USDH bidding war has intensified with multiple proposals vying for validator approval:
- Paxos: 95% yield to HYPE buybacks, PayPal/Venmo integration, GENIUS/MiCA compliance
- Native Markets: Accused of advance notice due to proposal timing and funding patterns
- Frax Finance: Leveraging algorithmic stablecoin expertise with revenue-sharing model
- Agora: New entrant proposing decentralized issuance infrastructure
Existing protocol Hyperstable has condemned the process as “unfair” after being blocked from using the USDH ticker previously. Critics note Native Markets’ proposal emerged suspiciously soon after Hyperliquid’s announcement, with funding patterns suggesting insider knowledge. Hyperliquid’s control over 70% of the decentralized perpetual futures market—processing $400 billion in monthly volume—makes this contest particularly high-stakes.
Hyperliquid’s Ecosystem Expansion
Hyperliquid’s explosive growth has created urgent demand for a native stablecoin, with its TVL surging 320% year-to-date while handling over $13 billion in daily derivatives volume. The platform’s unique architecture combining order-book perpetuals with on-chain settlement has attracted institutional players seeking alternatives to centralized exchanges. USDH would serve as the foundational liquidity layer for this expanding ecosystem.
The timing aligns with Hyperliquid’s recent institutional push, including 21Shares’ new HYPE ETP listing. As noted in Hyperliquid’s governance forum, “a compliant stablecoin is critical for onboarding traditional finance participants.” Paxos’s regulatory credentials—having issued PayPal’s PYUSD and handled Venmo’s stablecoin transactions—position it uniquely to bridge this gap, potentially accelerating Hyperliquid’s global expansion beyond its current $400 billion monthly volume.
Market reaction has been immediate, with HYPE token surging 7% following Paxos’s proposal announcement. The token’s price action reflects investor confidence in the stablecoin’s potential to drive ecosystem growth, though analysts caution that validator approval remains uncertain. Hyperliquid’s validator set—which includes major staking firms like Figment and Chorus One—will determine the winner through on-chain voting.
Industry observers highlight Paxos’s regulatory track record as decisive. Having navigated NYDFS approvals for multiple stablecoins, Paxos offers Hyperliquid a path to avoid the regulatory pitfalls that derailed other projects. This contrasts with competitors like Frax, whose algorithmic models face greater scrutiny under emerging frameworks like the GENIUS Act. The integration with established payment rails could prove equally valuable in markets where crypto-native distribution channels remain limited.
Should Paxos win the bid, the partnership would represent one of crypto’s most significant traditional-finance integrations to date. Hyperliquid’s infrastructure could gain access to PayPal’s global payment network while Paxos expands its stablecoin dominance beyond its current $2.6 billion in circulating assets. This symbiosis addresses a critical industry pain point: compliant stablecoins with real-world utility beyond speculative trading.
Validator voting concludes September 11, with the winning team gaining exclusive rights to the USDH ticker. The outcome will set a precedent for how DeFi protocols approach regulatory compliance while maintaining decentralization—a balance Hyperliquid must strike to maintain its leadership in decentralized derivatives. As noted by a DeFi analyst on Cointelegraph, “This isn’t just about a stablecoin—it’s about building the on-ramp for institutional capital into DeFi.”
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Market analysts anticipate USDH could capture 15-20% of Hyperliquid’s native trading volume within six months of launch, potentially adding $60-80 million in daily stablecoin liquidity. The proposal’s success would validate the “compliant DeFi” narrative while pressuring competitors like dYdX and GMX to pursue similar regulatory partnerships. Most significantly, it could establish a blueprint for how decentralized protocols navigate the increasingly complex global stablecoin regulatory landscape without sacrificing ecosystem alignment.
- Stablecoin
- A cryptocurrency pegged to a stable asset like the US dollar, designed to minimize volatility. It enables reliable value transfer and pricing within crypto ecosystems.
- Buyback
- The process where a company repurchases its own tokens from the market, reducing supply to potentially increase value. In DeFi, buybacks often redistribute value to token holders.
- Validator
- A network participant that verifies transactions and maintains blockchain security through consensus mechanisms. Validators often govern protocol decisions in proof-of-stake systems.
- GENIUS Act
- Proposed U.S. legislation establishing federal oversight for stablecoins, requiring reserve transparency and banking partnerships. Aims to create uniform national standards for dollar-pegged tokens.
- MiCA
- The European Union’s Markets in Crypto-Assets regulation, setting comprehensive rules for crypto service providers and stablecoin issuers operating within EU member states.
