The competition to issue Hyperliquid's native stablecoin, USDH, is intensifying as Ethena Labs has officially entered the race, becoming the sixth contender. This move sets the stage for a heated battle among major stablecoin issuers, all vying for the opportunity to control a significant portion of liquidity and revenue within one of the fastest-growing decentralized finance (DeFi) derivatives exchanges.

Hyperliquid's decision to launch its own stablecoin, USDH, is driven by a desire to reduce its reliance on external issuers like Circle (USDC) and Tether (USDT), which are currently used on the platform. By introducing USDH, Hyperliquid aims to capture additional revenue and provide users with an alternative stablecoin option. Hyperliquid currently holds nearly $5.5 billion in USDC deposits, representing approximately 7.5% of that stablecoin's circulating supply. Migrating $5 billion in USDC deposits to USDH could represent an additional $200 million in revenue for Hyperliquid annually.

Ethena Labs, the team behind the USDe synthetic dollar and USDtb stablecoin, has proposed a version of USDH entirely backed by USDtb. USDtb is a stablecoin issued with federally chartered bank Anchorage Digital and fully backed by BUIDL, the tokenized money market fund by asset management giant BlackRock and Securitize. Robert Mitchnick, Blackrock's head of digital assets, stated that they are excited to enable Ethena's USDtb, which is 100% backed by BUIDL and uniquely positioned to offer institutional grade cash management as well as on-chain liquidity to Hyperliquid users.

Ethena has pledged to contribute at least 95% of the net revenue generated by the USDH reserve to the Hyperliquid community. If selected, Ethena will cover all transaction costs for migration of USDC to USDH should the Hyperliquid community and validator set want to redenominate the current quote pairs on the core exchange into USDH from USDC. The Ethena Labs research team would submit a proposal to the Ethena Risk Committee requesting that USDH be listed as a compliant backing asset for USDe.

To further enhance the USDH ecosystem, Ethena plans to partner with Securitize to bring tokenized funds and equities to HyperEVM and launch a Hyperliquid-native synthetic dollar called hUSDe. The company also proposed instant liquidity routes through its existing stablecoin infrastructure. To address potential security risks, Ethena suggested that USDH oversight be handled by selected Hyperliquid validators, forming a "guardian network," rather than leaving control solely with the issuer.

Ethena joins a growing list of contenders, including Paxos, Frax Finance, Agora, Native Markets, and Sky (formerly MakerDAO). Each bidder has presented unique proposals, offering various incentives and revenue-sharing models to attract the support of Hyperliquid's validators, who will ultimately decide the winner.

Paxos, for example, proposes using 95% of the interest earned on USDH's reserve assets to fund buybacks of the HYPE token. Frax Finance aims to issue USDH natively on Hyperliquid against its frxUSD stablecoin, providing holders with the ability to mint and redeem the tokens across frxUSD, USDC, USDT, and US dollars. Sky has proposed a 4.85% annual yield for USDH holders, backed by its $8 billion-plus balance sheet and diversified collateral. Agora has proposed that 100% of net revenue from the USDH reserve will go towards HYPE buyback and community funds.

The Hyperliquid community will be able to customize the stablecoin under Sky's proposal and could be made to comply with US stablecoin laws under the GENIUS Act. Sky would also give $25 million to create a project to “autonomously grow DeFi on Hyperliquid,” which will have exclusive tokens that could be “potentially bringing in billions” to the protocol.

The validator governance vote is scheduled for September 14. The outcome of this vote will have significant implications for the future of Hyperliquid and the broader DeFi landscape, as the chosen USDH issuer will gain a strategic advantage in capturing a substantial share of the platform's trading volume and revenue.