Who Could Win Hyperliquid Stablecoin Bid? Paxos, Frax, or LayerZero?

Hyperliquid, a decentralized exchange and layer-1 blockchain, has unleashed one of the most competitive battles in DeFi. The project is on the watch for the right partner to issue USDH, its native stablecoin. About 5.5 billion in USDC deposits is on the line, and the winner could unlock around $220 million annually from U.S. Treasury yields. No wonder giant players in the industry like Paxos, Frax Finance, and a coalition led by LayerZero have submitted strong proposals. Let’s break down the Hyperliquid stablecoin bidders and their chances of winning.

Paxos’s Hyperliquid stablecoin: The Regulatory Heavyweight

Paxos Labs is not new to stablecoins, with a resume showing, it has issued tokens like PYUSD for PayPal and BUSD for Binance. Its proposal has tabled a strong case for global adoption by highlighting its compliance with European and U.S. regulations.

Outlining a simple but powerful plan, Paxos has proposed having 95% of the reserve from USDH go towards buying back HYPE, Hyperliquid’s native token. The aim is to create value for both validators and users. The recent acquisition of Molecular Labs, a Hyperliquid ecosystem, gives it an insider’s edge on how the platform works.

Additionally, Paxos has announced its updated “V2 proposal”. The plan includes adding USDH to PayPal’s checkout and payment systems, listing Hyperliquid’s HYPE token on PayPal and Venmo, and offering seamless on/off ramps at no cost. To sweeten the deal, PayPal has also pledged $20 million in incentives to fuel ecosystem growth.

The layer1 project also plans to reinvest its revenue into Hyperliquid until its stablecoin reaches $1 billion in total value locked (TVL). Validators who value stability and scalability could favour Paxos as a Hyperliquid stablecoin bid winner.

Frax Finance Bid: The Community Champion

Frax Finance, another Hyperliquid stablecoin issuer contender, is proposing a community-first model. The DeFi powerhouse wants to back USDH 1:1 with its frxUSD stablecoin, supported by BlackRock’s BUIDL treasury fund. Frax promises to give all of the earnings from U.S. Treasury yields, about 4% annually, straight to Hyperliquid users.

The payouts would be handled automatically through smart contracts, with no fees retained. Frax would also ensure that the Hyperliquid’s stablecoin works smoothly across various blockchains. The platform’s transparency and yield-sharing approach could attract DeFi users.

LayerZero (via Agora) Bid: The Interoperability Innovator

There is also a third competitor, a coalition of LayerZero, via Agora, and Rain. They propose neutrality, seamless operation across blockchains, and reducing bridge risks. The coalition commits to give back 100% of net revenue to  Hyperliquid’s Assistance Fund or HYPE buybacks, although ‘net’ may encompass deductions for custodial fees.

Since the potential issuer has no plans to keep profits, its model could attract users who value decentralization and clear, fair revenue sharing.

The Big Question: Who Could Win The Hyperliquid Stablecoin Bid?

The announcement of Hyperliquid to launch a stablecoin has sparked excitement, with bidders lined up for the issuer opportunity. Paxos stands out for its regulatory strength and PayPal partnership. This appeals to validators who want to see USDH adopted on a global scale. Frax, on the other hand, prioritizes the community by giving users the full benefit of yield. This makes it a favorite for those who favour decentralization. LayerZero and Agora’s coalition offer a middle-ground option, though its revenue-sharing terms leave some questions. In the end, the vote will come down to what validators value most: compliance, community rewards, or ecosystem neutrality. With Hyperliquid’s growing influence in DeFi, this decision could reshape how stablecoins are governed.