- Hyperliquid’s stablecoin race has attracted heavyweight bids from Paxos, Frax Finance, and a LayerZero-led coalition, each offering distinct models ranging from regulatory strength to community-first rewards and cross-chain neutrality.
- The final decision, hinging on validator preferences, could redefine how stablecoins are governed in the DeFi ecosystem.
Hyperliquid, the decentralized exchange and layer-1 blockchain, has set the DeFi world abuzz with its plan to issue a native stablecoin, USDH. The opportunity has sparked one of the most competitive races in recent memory, with heavyweight contenders Paxos, Frax Finance, and a coalition led by LayerZero submitting proposals.
At stake are $5.5 billion in USDC deposits and the potential to unlock around $220 million annually from U.S. Treasury yields. The decision could shape the future of stablecoin adoption and governance within the Hyperliquid ecosystem.
Paxos: The Regulatory Heavyweight
Paxos brings a proven track record to the table. Known for issuing PayPal’s PYUSD and Binance’s BUSD, the company has built its reputation on compliance with both U.S. and European regulations.
Its proposal is simple but powerful: allocate 95% of USDH reserves to buy back Hyperliquid’s native token, HYPE. This would generate value for both validators and users, while also reinforcing Hyperliquid’s token economy.
72 hours. Every comment read and concern addressed.
We’re out of the war room, with @PayPal + @Venmo on board.
USDH Proposal v2:
❏ PayPal ecosystem integrations + $20M incentives
❏ AF pledge starts at 20% and rises w/ TVL
❏ Paxos takes 0 until >$1B, capped at 5% past $5B pic.twitter.com/eLucHcw63h— Paxos (@Paxos) September 10, 2025
Adding to its appeal, Paxos recently acquired Molecular Labs, a Hyperliquid ecosystem player, giving it insider expertise. The company’s “V2 proposal” goes even further, pledging to integrate USDH into PayPal’s payment systems, list HYPE on PayPal and Venmo, and provide seamless, cost-free fiat on/off ramps.
PayPal has also committed $20 million in incentives to boost ecosystem growth. For validators who prize scalability and global adoption, Paxos’s regulatory muscle and corporate backing make it a strong contender.
Frax Finance: The Community Champion
Frax Finance, by contrast, is pitching a community-first model. Its proposal would back USDH 1:1 with frxUSD, collateralized by BlackRock’s BUIDL treasury fund. Instead of keeping yield, Frax promises to distribute 100% of the approximately 4% annual Treasury earnings directly to Hyperliquid users through automated smart contracts.
This transparent, yield-sharing system has strong appeal among DeFi users who value decentralization and fairness. Frax also emphasizes interoperability, ensuring USDH can operate smoothly across multiple blockchains. For those who believe stablecoins should empower users rather than institutions, Frax’s vision makes it a natural favorite.
LayerZero & Agora: The Interoperability Innovator
The third major proposal comes from a coalition of LayerZero, Agora, and Rain. Their plan focuses on interoperability and neutrality, reducing bridge risks while ensuring seamless cross-chain functionality.
The group has committed to giving 100% of net revenue back to Hyperliquid’s Assistance Fund or HYPE buybacks. However, the inclusion of “net” raises questions, as custodial fees or other deductions could reduce the amount.
Still, this coalition’s neutrality and profit-free approach could win support from validators who value decentralization and ecosystem resilience over profit maximization.
Hyperliquid’s stablecoin decision boils down to three distinct visions: Paxos’s regulatory strength and PayPal integration, Frax’s community-driven yield-sharing, and LayerZero’s interoperability-first neutrality.
Each appeals to different priorities, compliance, decentralization, or fairness. With billions in deposits and the promise of reshaping DeFi’s stablecoin landscape, the outcome of this vote could mark a turning point in how decentralized finance governs its most essential assets.
