Ethena plans to issue a version of its USDH stablecoin for Hyperliquid, backed by the USD Institutional Digital Liquidity Fund (BUIDL) from BlackRock. The initiative is part of a competitive auction including regulated issuers and DeFi protocols, and the final decision will depend on validators, in a vote scheduled for September 14, 2025. The proposal aims to attract significant institutional liquidity and strengthen the financial infrastructure of the ecosystem.
What Ethena proposes and why it matters
Ethena proposes using USDH collateralized by BUIDL as the foundation for the Hyperliquid version, with a commitment to allocate at least 95% of net income from USDH reserves to HYPE token buybacks and redistribution.
This strategy turns the stablecoin issuance into a funding engine for the network and its validators, channeling income flows from reserves into incentives and token purchases within the ecosystem. Additionally, it seeks to build trust among institutional investors and participants, reinforcing the project’s stability.
Competitors and process dynamics
The auction attracted diverse proposals, including regulated issuers and DeFi solutions:
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Paxos: regulated issuance focused on compliance.
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Sky Protocol: offers a 4.85% yield on USDH deposited.
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Frax and Agora: technical and governance alternatives.
The variety highlights the importance of having a native stablecoin to capture liquidity and fees in Hyperliquid.
The process also faces transparency concerns, such as Hyperstable’s complaint about the alleged blocking of the USDH symbol, and worries about the possible migration of reserves from USDC to USDH, which concentrates counterparty risks and could affect existing issuers. This debate underscores the tension between innovation, regulatory compliance, and ecosystem security.
Economic impact and governance implications
Preliminary models suggest that the reserve migration could generate hundreds of millions annually for HYPE rewards and buybacks, with estimates up to $220 million per year. This:
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Strengthens network incentives.
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Increases exposure to market risks and institutional dependencies.
The validator vote will be crucial to decide between:
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Choosing a regulated issuer, maximizing trust and compliance.
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Opting for more decentralized solutions, preserving sovereignty and resistance to external controls.
The outcome will determine the balance between economic return, counterparty risk, and decentralization principles, influencing Hyperliquid’s strategic direction and long-term reputation.
Conclusion
Ethena’s proposal introduces institutional backing into Hyperliquid, potentially redefining liquidity capture and the internal economic dynamics of the ecosystem.
The September 14 vote will be decisive in determining whether the ecosystem prioritizes:
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Revenue and institutional partnerships, or
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Reduced centralized dependencies in favor of financial sovereignty.
The contest reflects the current tension between regulation, performance, and decentralization in the stablecoin market, marking a possible turning point for institutional adoption and decentralized governance.
