Let’s talk about the much-talked-about Hyperliquid’s $USDH stablecoin bidding incident.

On the surface, it appears to be a battle for interests among several issuers such as Frax, Sky, and Native Market. In fact, it is an "open auction" for the right to mint stablecoins, which will change the rules of the game in the subsequent stablecoin market.

Combining @0xMert_'s thoughts, I would like to share a few opinions:

1) The competition for USDH minting rights has exposed a fundamental contradiction between the demand for native stablecoins in decentralized applications and the demand for unified liquidity in stablecoins.

Simply put, every mainstream protocol attempts to have its own "right to print money", but this will inevitably cause liquidity to be fragmented and divided.

Mert proposed two solutions to this problem:

1. "Align" the stablecoins of the ecosystem. Everyone agrees to use a common stablecoin and share profits proportionally. The question is, if USDC or USDT is the most consensus-aligned stablecoin, will they be willing to give a large portion of their profits to DApps?

2. Build a stablecoin liquidity platform (M0 model). Using crypto-native thinking, a unified liquidity layer should be constructed, such as using Ethereum as an interoperable layer to enable seamless exchange between various native stablecoins. However, who will bear the operating costs of the liquidity layer? Who will ensure the structural anchoring of different stablecoins? How can the systemic risks caused by the depegging of individual stablecoins be mitigated?

These two solutions seem reasonable, but they can only solve the problem of liquidity fragmentation, because once the interests of each issuer are taken into account, the logic becomes inconsistent.

Circle earns billions of dollars annually from 5.5% Treasury bond yields, so why should it share this revenue with protocols like Hyperliquid? In other words, when Hyperliquid is qualified to spin off the stablecoins of traditional issuers and establish its own stablecoin, the "easy win" model of issuers like Circle will also be challenged.

Can the USDH auction be seen as a protest against the hegemony of traditional stablecoin issuance? In my opinion, whether a rebellion succeeds or fails is not important; what matters is the moment of rising up.

2) Why do I say this? Because the income rights of stablecoins will eventually return to the hands of value creators.

In the traditional stablecoin issuance model, Circle and Tether are essentially middlemen. Users deposit funds, which they use to purchase government bonds or deposit in Coinbase to earn fixed loan interest, but most of the profits are taken for themselves.

Clearly, the USDH incident demonstrates that this logic is flawed: the true value is created by the protocol that processes transactions, not by the issuer simply holding the reserve asset. From Hyperliquid's perspective, processing over $5 billion in daily transactions, why should it cede over $200 million in annualized Treasury bond returns to Circle?

In the past, the primary requirement for the circulation of stablecoins was “safety and stability”, so issuers such as Circle who paid a lot of “compliance costs” should enjoy this part of the benefits.

However, as the stablecoin market matures and the regulatory environment becomes increasingly clear, this part of the income rights will tend to be transferred to the hands of value creators.

Therefore, in my opinion, the significance of the USDH bidding lies in defining a new rule for the distribution of stablecoin value and benefits: whoever controls the real transaction demand and user traffic will have priority in the right to share the benefits;

3) So what will be the endgame: will the application chain dominate the discourse and publishers become "backend service providers"?

Mert mentioned an interesting third option: allowing the application chain to generate revenue while traditional publishers' profits approach zero. How should this be understood?

Consider that Hyperliquid generates hundreds of millions of dollars in revenue a year from transaction fees alone. In comparison, the potential Treasury bond returns from managed reserves are stable but dispensable.

This explains why Hyperliquid did not lead the issuance itself but chose to transfer the issuance rights, because there is no need to do so. Issuing it by itself will not only increase "credit liabilities", but the profits obtained will be far less attractive than the transaction fees for increasing the transaction volume.

In fact, when Hyperliquid transferred the issuance rights, the reactions of the bidders were enough to prove all this: Frax promised to return 100% of the profits to Hyperliquid for HYPE repurchase; Sky offered a 4.85% yield plus $250 million in annual repurchase chips; Native Markets proposed a 50/50 split, etc.

In essence, the original battle for interests between DApps users and stablecoin issuers has evolved into an "involution" game among the three issuers, especially the new issuers forcing the old issuers to change the rules.

above.

Mert's fourth option sounds a bit abstract. If that were to happen, the brand value of the stablecoin issuer would likely be completely wiped out. Whether the issuance and minting rights would be completely centralized in the hands of regulators, or some kind of decentralized protocol would be adopted, remains to be seen. That scenario is likely still far in the future.

In short, in my opinion, this USDH auction chaos can declare the end of the era of easy wins for old stablecoin issuers, and truly guide the right to stablecoin income back to the "applications" that create value, which is of great significance!

As for whether it is "vote buying" and whether the auction is transparent, I think it is a window of opportunity before regulatory measures such as the GENIUS Act are truly implemented. It is enough to just watch the excitement.