Dragonfly partner: Hyperliquid stablecoin issuance bidding involved backroom dealings

Author: Squiffs

Translation: Jiahuan, ChainCatcher

Hyperliquid's planned native stablecoin USDH has become one of the most watched contests in the DeFi space in recent years, with institutions and DeFi projects vying for validator votes.

However, Haseeb Qureshi, partner at crypto investment firm Dragonfly, claimed that backroom dealings have already taken place. He posted on X (formerly Twitter): "I've heard from multiple bidders that all validators are only interested in Native Markets and haven't seriously considered anyone else—it seems like a behind-the-scenes deal was already made. Native Markets published their proposal shortly after the USDH RFP was announced, suggesting they had advance knowledge."

Under Qureshi’s post, CL, spokesperson for Hypurrscan—an anonymous crypto trader holding 15% of Hyperliquid's total voting power—publicly expressed support for Native Markets. However, Alex Svanevik, founder of Nansen and operator of The Hypurr Collective, Hyperliquid's largest validator node, strongly rebutted Qureshi’s allegations.

Svanevik responded: "That is not true. Our team has put significant effort into reviewing proposals and communicating with bidders to find the best solution for Hyperliquid. This week alone, I’ve received countless DMs and calls from USDH bidders. We’ve been actively engaging with them."

Native Markets Proposal

In the past week, competition over USDH issuance has intensified, with DeFi heavyweights including Sky (formerly Maker), Ethena, Paxos, and Agora submitting formal proposals. Notably, Dragonfly has invested in both Agora and Ethena, both of which have submitted USDH proposals and are actively competing.

Haseeb’s criticism primarily targets the Native Markets proposal. It calls for natively minting the stablecoin on HyperEVM while maintaining compliance with the GENIUS Act and leveraging Bridge—the issuer’s fiat rail, a subsidiary of Stripe.

Last week, Stripe announced its upcoming permissionless Layer 1 blockchain Tempo, which could streamline fiat onboarding to Hyperliquid, currently requiring on-chain bridging solutions.

The Native Markets team includes Max Fiege, formerly of Liquity and Barnbridge, and Anish Agnihotri, former President and COO of Uniswap Labs.

Unlike other proposals that suggest allocating most USDH revenue toward HYPE buybacks, Native Markets proposes using 50% of reserve earnings for HYPE buybacks via the Hyperliquid Relief Fund, with the remaining 50% reinvested into USDH growth.

Competition from Ethena, Sky, and Paxos

Paxos quickly released a revised proposal last night, including a partnership with PayPal to list HYPE on PayPal and Venmo, offer free fiat on/off ramps, provide $20 million in ecosystem incentives, and implement an “AF-first incentive structure,” meaning Paxos would charge no fees until certain TVL milestones are reached.

In the latest development, Bhau Kotecha, co-founder of Paxos, said he is open to collaborating with Native Markets.

The idea originated from investor Mike Dudas, who tweeted: "Isn’t the most obvious USDH solution simply combining Native Markets and Paxos’ proposals? Native Markets handles the front-end (Hyperliquid-native, deeply integrated), Paxos handles the back-end (GENIUS-compliant, issuer with billions in scale, distribution via PayPal/Venmo)."

Meanwhile, the cross-chain version of Tether’s stablecoin USDT0 announced it will not participate in the competition.

Beyond formal proposals, these protocols are actively seeking community support. Agora’s submission included a public endorsement from Jan van Eck, CEO of asset manager VanEck, which oversees $130 billion, shared on X. Ethena took a more humorous approach, parodying Eminem’s song “Stan” in a letter addressed to Hyperliquid founder Jeff Yan.

Sky’s proposal has also drawn attention. Co-founder Rune Christiansen posted it yesterday in the Hyperliquid Discord group, highlighting Sky’s and DAI’s successful track record. It promises Hyperliquid an annualized yield of 4.85% on all USDH issued on its platform, potential deployment of its $8 billion balance sheet onto Hyperliquid, and a $25 million grant to launch “Hyperliquid Star”—an initiative aimed at autonomously growing DeFi on Hyperliquid.

Synthetic dollar protocol Ethena launched a strong counterproposal on September 9, envisioning USDH being 100% backed by USDtb, a stablecoin backed by BlackRock’s BUIDL fund. Ethena’s proposal commits to returning “at least 95%” of USDH reserve income to the Hyperliquid ecosystem through HYPE purchases and offers “at least $75 million in cash and token incentives” to develop the HIP-3 frontend.

Sky and Ethena respectively issue the third and fourth largest stablecoins by market cap, trailing only Circle’s USDC and Tether’s USDT. Ethena’s USDe has a market cap near $13 billion, while Sky’s DAI stands at around $5 billion. Yet combined, their market share remains far below the two giants: USDC at $72 billion and USDT at $169 billion.

As traditional institutions and DeFi players escalate their competition, builders of HyperEVM remain focused on future goals. Charlie, a contributor to Felix Protocol, told The Defiant: "The real work of the entire USDH initiative only begins at launch, because the real challenge will be scaling to $5 billion."

He referenced a post on X clarifying that if USDH is to truly impact Hyperliquid, focus must extend beyond revenue sharing or HYPE buybacks. "If they think that’s the path to winning, I wouldn’t rule out USDT/USDe/USDC joining this incentive race too. We need to see a clearer path to challenging USDC’s dominance for these USDH proposals to become more compelling."

Notably, although Tether’s subsidiary USDT0 exited the race earlier today, it remains unclear whether this means Tether officially withdrew. Circle has remained silent on the matter so far.

Hyperliquid’s Growth

Growth of perpetual exchanges and Layer 1s has been a recurring theme in 2025.

Hyperliquid currently captures over 35% of all crypto revenues, generating $1.28 billion annually, with 99% of revenue flowing to the Hyperliquid Relief Fund for HYPE buybacks.

Hyperliquid’s Layer 1 blockchain, HyperEVM, has been on a steady upward trajectory since its mainnet launch in February, now ranking as the eighth-largest blockchain with $2.6 billion in total value locked (TVL), up from just $400 million at the start of 2025.

Meanwhile, the HYPE token has been one of the top-performing crypto assets since its launch in November 2024. It debuted with a fully diluted valuation of approximately $3 billion and has surged over 1700% since then, briefly hitting an all-time high of $55.7.