Half a year ago, Circle lost in the Hyperliquid stablecoin auction. Half a year later, Circle and Coinbase voluntarily staked HYPE, committing to pass on ninety percent of the USDC reserve yield on Hyperliquid to the protocol in exchange for USDC becoming the "alignment asset."

USDH exits, USDC takes the lead.

An Expensive Ticket to Entry

In the past 24 hours, Hyperliquid, Coinbase, and Native Markets each released announcements.

Hyperliquid activated the AQAv2 protocol. USDC became the sole alignment asset, with Coinbase acting as the "Treasury Deployer," returning the majority of the USDC reserve yield to the protocol treasury; Circle acted as the "Tech Deployer," responsible for CCTP cross-chain transfers and native issuance infrastructure. Both parties staked 500k HYPE each as performance assurance, and if the Treasury Deployer address does not cover the earnings, the staked HYPE will be forfeited. The future HIP-4 prediction market and validator operational perpetual contract market will mandate the use of USDC as the quote asset.

Coinbase officially confirmed a significant increase in their HYPE staking position. According to the agreed terms, Native Markets sold the USDH branded assets to Coinbase, gradually shutting down the USDH market, with remaining stock redeemable at face value from the issuer Bridge. Native Markets founder @fiege_max described this as "Hyperliquid's biggest victory to date."

Initially, Circle was to take all the reserve yield of USDC circulating on Hyperliquid and invest in U.S. short-term Treasury bonds to earn interest; now, Coinbase has taken over Hyperliquid's USDC, then passes around ninety percent of the income into Hyperliquid's reserve fund for HYPE buyback and burn.

The Failed USDH

Last September, Hyperliquid conducted a public auction for the "Hyperliquid-aligned" stablecoin, with Circle and the startup team Native Markets bidding on the same stage, Native Markets won and issued USDH, about 50% of the USDH reserve yield flowing into the Hyperliquid reserve fund.

The market and users, however, did not buy into USDH.

The supply of USDH on Hyperliquid is around $102 million, while USDC has reached $5.08 billion. The former contributes to an annualized yield for the treasury of approximately $1.6 million, while the latter contributes $0.

Hyperliquid's Crypto Perpetual Swaps are always priced in USDC, which is the platform's largest trading pair. Among the deployers of HIP-3, Trade[XYZ], which accounts for about 94% of the entire trading volume, also chose USDC as the quote asset. The few HIP-3 exchanges that use USDH, such as Markets and Felix, have long suffered from the execution costs brought about by liquidity fragmentation. The experience of retail investors swapping back and forth between USDH and USDC can hardly be described as smooth.

Furthermore, the newly launched prediction market HIP-4 on Hyperliquid is also denominated in USDH, carrying the burden of liquidity fragmentation debt from day one.

Continuing to push USDH is a strategic self-limitation. Giving up USDH, on the other hand, means that the efforts of the September auction and Native Markets over the past six months will be in vain. Hyperliquid has found a third way: having Circle and Coinbase turn USDC into an alignment asset and absorb the existing $5 billion revenue on the platform.

In September, Circle did not acquire USDH. This time, it did not wait any longer.

One more detail: On February 16th this year, Hyperliquid hired former Circle Head of Blockchain @Sterling_hl as BD. Three months later, Coinbase and Circle both came to the table.

Impact on HIP-3

Another net beneficiary of this collaboration is the HIP-3 exchanges that previously used USDH. Markets, operated by Kinetiq, has issued a statement confirming a seamless transition to USDC, while Felix founder @0xBroze has also indicated acceptance of this outcome. These two exchanges, which have long been plagued by the USDH-USDC dual system in terms of cross-margining, liquidity depth, and user experience, have now finally returned to a unified liquidity pool.

Applications on HyperEVM that have integrated USDH will also enter the migration period simultaneously.

Two HIP-3 deployers that did not use USDH have become among the few losers. Dreamcash used USDT0 as the quote asset, and HyENA used USDe. Hyperliquid's documentation clearly states that the future HIP-4 prediction markets and validator operation contract markets must adopt an aligned quote asset. If these two exchanges want to move to the next stage, they can only allow Tether and Ethena to receive the same stringent 90% reserve yield split.

What Is the Impact on HYPE?

To discuss the impact of this partnership on HYPE, let's first look at a set of data comparisons.

In the era of USDH, Hyperliquid annually earned about $1.6 million from its stablecoin business. Assuming that USDC remains at $5 billion on Hyperliquid, with a 3.5% interest rate on government bonds, the annualized revenue of Hyperliquid's stablecoin business will range from $137 million to $160 million.

The increase is close to a hundredfold.

This money will not be distributed as dividends but will be used entirely to buy back and burn HYPE according to Hyperliquid's current mechanism. The additional annual revenue of $140 million to $160 million is equivalent to an additional daily repurchase of $400,000; currently, Hyperliquid repurchases about $1.5 million per day, which is a one-time increase of 26%.

It is also worth noting the structural change in Hyperliquid's revenue composition.

Previously, almost all of Hyperliquid's revenue came from transaction fees, making it a typical flow business. Now there is an additional cash flow based on the deposit size, with significantly lower volatility than transaction volume. During this downward cycle, Hyperliquid's stablecoin deposits only decreased by 15% from historical highs, while monthly trading volume decreased by 55% during the same period. The countercyclical ability of repurchases has been substantially enhanced.

In addition, Coinbase and Circle each pledge 500k HYPE, which is a direct buy-side.

Compliance Is Also Part of the Game

The flip side of putting USDC into Hyperliquid is putting Coinbase and Circle into Hyperliquid.

Hyperliquid is a PerpDEX registered in an offshore jurisdiction, which has been operating in the gray area of U.S. regulation for the past two years. Coinbase is the largest publicly listed compliant cryptocurrency exchange in the U.S., while Circle is the largest stablecoin issuer operating within the U.S. regulatory framework. Both U.S. compliance giants have simultaneously staked HYPE and formed a business-level integration, bringing a systematic upgrade to Hyperliquid's compliance narrative.

The CLARITY Act is currently under review in the U.S. Senate, with the market assessing a high probability of its passage. If enacted, this act will redefine the legal boundaries and liability subjects of DeFi protocols, causing a partial retraction of the offshore architecture's protective umbrella. During this window of time, deep integration with these two compliance giants is equivalent to purchasing an early insurance policy in the regulatory direction.

In a farewell statement, the founder of Native Markets wrote that this collaboration allowed the protocol to "ally with the most powerful voice in U.S. crypto policy." This is not mere rhetoric.

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