This episode unpacks the high-stakes battle for Hyperliquid's native stablecoin, USDH, revealing how top issuers are competing for a $220 million annual revenue stream and what it signals for the future of on-chain finance.
The USDH Stablecoin Opportunity
- Hyperliquid currently holds approximately $5.5 billion in stablecoins (primarily USDC) on its platform.
- By issuing its own stablecoin backed by these reserves, Hyperliquid could invest the assets in U.S. Treasury bills (T-bills), which currently yield around 4%.
- This strategy would generate an estimated $220 million in annual revenue that is currently being left on the table. Rob notes, "currently they're leaving about $220 million in revenue per year on the table... as a result of using USDC as the quote asset."
- The proposals from issuers like Agora, Frax, and Paxos all suggest using this new revenue stream for HYPE token buybacks and redistribution, directly benefiting token holders. This RFP has already driven HYPE to all-time highs.
Cultural Clash: Crypto-Native vs. Corporate
- Andy highlights the "bending the knee of massive institutional capital players" to a community-driven protocol.
- The hosts contrast crypto-native teams with more corporate entities like Circle. Rob points out the cognitive dissonance between traditional financial executives and the "underbelly of crypto born out of the trenches."
- Strategic Implication: The community's preference could favor a more crypto-native proposal, even if corporate-backed issuers offer more established banking relationships and regulatory experience. This dynamic is a critical factor for investors to watch.
Agora's Proposal: A Coalition-Building Approach
- Agora's proposal commits 100% of the revenue back to the Hyperliquid community, with the allocation method (e.g., buybacks, staker rewards) to be decided by quarterly governance votes.
- Their strategy involves building a coalition of partners from day one, including LayerZero for interoperability and Rain, a platform providing access to Visa rails and merchants in over 150 countries.
- Nick highlights a key concern about competitors, suggesting that an issuer with its own chain could "vampire tax" Hyperliquid's ecosystem. He subtly points to Frax and its associated chain as a potential conflict of interest.
- When asked about past criticisms of Hyperliquid from individuals at VanEck (an Agora partner), Nick acknowledges the comments were "painful to watch" but clarifies that VanEck is a large, multi-faceted organization and those views do not represent the entire firm or Agora's commitment.
Paxos's Proposal: The Regulated Institutional Powerhouse
- Paxos is a globally regulated issuer responsible for stablecoins like PayPal USD (PYUSD) and has a long history of compliant operations, including a charter from the New York Department of Financial Services (NYDFS).
- A unique value proposition is Paxos's ability to create interoperability between USDH and its other stablecoins (like PYUSD and USDP), connecting Hyperliquid to its network of partners including Visa, PayPal, and Interactive Brokers.
- Bo reveals Paxos recently acquired Molecular Labs, a team that has been building infrastructure in the Hyperliquid ecosystem since its early days, to ensure crypto-native alignment.
- Their initial proposal offered 95% of revenue back to the community, a point of contention. Bo defends this by stating, "I actually think it's not good if the issuer of this doesn't make any money from it because what's going to happen is... it becomes very likely they walk away." He also signals that Paxos will update its proposal based on community feedback.
Frax's Proposal: The DeFi-Native Champion
- Frax was the first to propose a 100% revenue share, setting the standard for other proposals. Sam argues that being the clearinghouse for a major L1's flows is valuable in itself, even without a direct revenue cut.
- The proposal leverages Frax's existing multi-chain infrastructure and deep integrations across the DeFi ecosystem. Sam emphasizes their ability to bring new builders and innovative DeFi products to the Hyperliquid EVM.
- He proposes a consortium-based model where other compliant issuers could plug into the USDH standard, creating a more open and resilient network.
- Strategic Insight: Sam frames the competition not just as a technical choice but as selecting a "responsible steward" who can build a coalition and maximize value for the entire ecosystem, pushing back on the "vampire attack" narrative by highlighting the positive-sum nature of collaboration.
Broader Market Analysis with David Grider
- The Revenue Meta: David confirms that protocols with real revenue and product-market fit are outperforming. He stresses the importance of not just revenue, but durable free cash flow and sound governance, which are becoming key differentiators.
- Digital Asset Trusts (DATs): DATs are corporate wrappers for crypto protocols. David discusses the mechanics of At-the-Market (ATM) offerings, where companies like Bitmine sell equity at a premium to their Net Asset Value (NAV) to acquire more of the underlying asset (e.g., ETH). This creates a reflexive flywheel that drives the asset's price.
- Market Outlook: David believes Bitcoin dominance has likely topped for the cycle, suggesting capital will continue flowing down the risk curve into altcoins. However, he notes this rotation will be selective, favoring assets with strong fundamentals.
OSF on Brand Coins and Consumer Crypto
- Brand Coins as Intangible Value: OSF defines brand coins (like $WRECT) as a way to trade the intangible value or "goodwill" of a brand. He argues, "Why would anyone want to buy it? Because they like the brand, they like Wrecked. It's like the whole Roaring Kitty meme, right? I like the stock."
- Equity vs. Token Dynamics: Wrecked gifted equity to its NFT holders to align incentives between the community and the operating company. This addresses a common conflict in crypto where token holders and equity investors have divergent interests.
- On Buybacks: OSF argues that for a growing consumer brand, reinvesting revenue into business growth (marketing, distribution) is more effective than token buybacks. Buybacks make sense for mature, cash-flow-positive protocols like Hyperliquid but can stifle growth for early-stage companies.
Market Alert: NPM Supply Chain Attack
- A compromised NPM (Node Package Manager) account led to malicious code being inserted into widely used packages.
- The payload is designed to swap crypto addresses during transactions, redirecting funds to the attacker.
- Actionable Advice: Users are advised to refrain from on-chain transactions until the issue is resolved. When transacting, always verify the full address on a hardware wallet before signing. The immediate impact appears smaller than initially feared, but caution is paramount.
The Hyperliquid USDH competition highlights a pivotal shift where on-chain revenue and community alignment dictate value. Investors should monitor the winning proposal, as its model—whether institutional or crypto-native—will likely set the precedent for how major protocols integrate stablecoins and distribute value back to their ecosystems.
