Analysis of the USDH Bidding Event: A Power Struggle Reshaping the Rules of the Stablecoin Market

2025-09-15 23:50:18

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This chaotic auction battle marks the end of the era where old and stable issuers could win effortlessly.

Let's talk about the heated bidding event for the $USDH stablecoin by @HyperliquidX.

On the surface, it appears to be a battle for interests among several issuers like Frax, Sky, and Native Market, but in reality, it is a "public auction" for the minting rights of stablecoins, which will change the rules of the game in the subsequent stablecoin market.

Combining thoughts from @0xMert_, I would like to share a few points:

1) The competition for USDH minting rights exposes a fundamental contradiction between the demand for native stablecoins in decentralized applications and the need for unified liquidity in stablecoins.

In simple terms, every mainstream protocol is trying to have its own "printing rights," but this will inevitably lead to fragmented liquidity.

To address this issue, Mert proposed two solutions:

Align the stablecoins in the ecosystem, where everyone agrees to use a common stablecoin and share profits proportionally. The question arises: assuming USDC or USDT is the most consensus-driven aligned stablecoin, would they be willing to share a significant portion of their profits with DApps?
Build a stablecoin liquidity layer (M0 model) using Crypto Native thinking to create a unified liquidity layer, such as Ethereum as an interactive operational layer, allowing various native stablecoins to be seamlessly exchanged. However, who will bear the operational costs of the liquidity layer, and who will ensure the structural anchoring of different stablecoins? How to mitigate systemic risks caused by individual stablecoins losing their peg?

These two solutions seem reasonable, but they can only address the issue of fragmented liquidity, because once the interests of each issuer are considered, the logic becomes inconsistent.

Circle relies on a 5.5% treasury yield to earn billions of dollars annually; why should they share with a protocol like Hyperliquid? In other words, when Hyperliquid qualifies to detach from traditional issuers of stablecoins, the "lying win" model of issuers like Circle will also be challenged.

The USDH bidding event can be seen as a demonstration against the "hegemony" of traditional stablecoin issuance. In my view, whether the rebellion succeeds or fails is not important; what matters is the moment of uprising.

2) Why do I say this? Because the rights to stablecoin profits will ultimately return to the value creators.

In the traditional stablecoin issuance model, companies like Circle and Tether essentially act as intermediaries. Users deposit funds, which they use to purchase treasury bonds or deposit into Coinbase to earn fixed lending interest, but they keep most of the profits for themselves.

Clearly, the USDH event aims to tell them that this logic has a bug: the real value creators are the protocols that handle transactions, not the issuers who merely hold reserve assets. From Hyperliquid's perspective, processing over $5 billion in transactions daily, why should they give up over $200 million in annual treasury yields to Circle?

In the past, the primary demand for stablecoin circulation was "safety without losing peg," so issuers like Circle, which incur significant "compliance costs," should rightfully enjoy this portion of profits.

However, as the stablecoin market matures and the regulatory environment becomes clearer, this portion of profit rights will likely shift to the value creators.

Therefore, in my view, the significance of the USDH bidding lies in defining a new rule for the distribution of stablecoin value profits: whoever controls the real transaction demand and user traffic will have priority in profit distribution rights;

3) So what will the endgame look like: will application chains dominate the discourse, and issuers become "backend service providers"?

Mert mentioned a third interesting solution, where application chains generate revenue while traditional issuers' profits trend towards zero. How should we understand this?

Imagine Hyperliquid generating hundreds of millions in revenue just from trading fees in a year; in contrast, the potential treasury yield from managing reserves, while stable, becomes "optional."

This explains why Hyperliquid chooses to transfer the issuance rights instead of leading the issuance themselves, as it is unnecessary. Issuing would only increase "credit liabilities," and the profits gained would be far less enticing than expanding the trading volume for fees.

In fact, look at how the bidders reacted after Hyperliquid transferred the issuance rights: Frax promised to return 100% of the profits to Hyperliquid for HYPE buybacks; Sky offered a 4.85% yield plus $250 million in annual buyback chips; Native Markets proposed a 50/50 profit-sharing, etc.;

Essentially, the original battle for interests between DApps and stablecoin issuers has evolved into an "involution" game among the three issuers, especially as new issuers force old issuers to change the rules.

That's all.

Mert's fourth proposal sounds a bit abstract; if it comes to that, the brand value of stablecoin issuers may completely drop to zero, or the issuance rights may be fully unified under regulation, or it could be some decentralized protocol. It remains to be seen, and that likely belongs to a distant future.

In summary, in my view, this chaotic bidding for USDH can herald the end of the old era of stablecoin issuers' "lying win" model, and the true guidance of stablecoin profit rights back to the "applications" that create value is already significant!

As for whether it is "vote-buying" or whether the bidding is transparent, I actually think that is a window of opportunity before regulatory schemes like the GENIUS Act are truly implemented; just watching the excitement is enough.

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