Galaxy: The Reasons and Significance of Reabsorbing USDC in the Hyperliquid Ecosystem

Author: Lucas Tcheyan, Deputy Head of Galaxy Digital Research; Translation: Shaw, Golden Finance

The cooperation agreement announced last Thursday shows that Coinbase has essentially completed the acquisition and is gradually phased out of Hyperliquid’s native stablecoin USDH, officially confirming USDC, jointly developed with Circle, as the official mainstream stablecoin of this decentralized trading platform.

Meanwhile, Hyperliquid simultaneously launched a new aligned valuation asset 2.0 framework (AQAv2). This mechanism is an upgrade to the original stablecoin alignment standards: non-exclusive stablecoin projects only need to stake 500k HYPE tokens and share in the protocol’s reserve asset earnings to access the ecosystem, becoming the valuation asset for HIP-4 prediction markets and perpetual contracts operated by verification nodes.

The division of responsibilities in this cooperation is clear: Coinbase will serve as the reserve fund operator for USDC, sharing at least 90% of the reserve earnings with Hyperliquid; Circle is responsible for technical implementation, including token minting, redemption, and cross-chain transfer protocol (CCTP) infrastructure maintenance. Currently, both Circle and Coinbase have staked 500k HYPE tokens, meeting the threshold to activate the AQAv2 mechanism.

In the future, USDC will serve as the official standard valuation asset for HIP-4 outcome markets, while continuing to hold its primary collateral asset status in HIP-1, HIP-2, and HIP-3 trading scenarios.

As early as September 2025, Hyperliquid’s full network verification nodes voted to select Native Markets to issue the native stablecoin USDH. At that time, candidates also included Paxos, Ethena, Frax, Sky, Agora, and others. Despite USDH adopting a conservative profit-sharing model of 50/50, it ultimately succeeded. However, subsequent market growth for USDH was sluggish, with circulation remaining around $100 million for a long time, while the USDC within the Hyperliquid ecosystem had already reached $5 billion. The new AQAv2 mechanism directly transfers the profit-sharing model originally belonging to USDH to the USDC system; additionally, the Hyper Foundation will distribute migration support funds to help projects relying on HIP-3, HIP-1 ecosystems, and those integrated with USDH to complete a smooth transition.

Our views

1. Direct economic benefit impact

The most immediate change brought by this cooperation is the further amplification of Hyperliquid’s already considerable profit margin. Hyperliquid’s revenue in the first quarter of this year reached $192 million, with an annual revenue forecast of up to $760 million. After the new cooperation, its annual revenue will increase by at least $160 million, nearly a 20% increase, with almost no additional costs. Compared to the previous USDH circulation of $100 million, which only generated about $500k in annual income, this profit increase is very significant. Beyond profitability, product experience is also optimized: previously, USDH faced natural experience barriers in market maker operations and user interactions, which long constrained the ecosystem expansion of HIP-4 trading pairs; now, adopting a compliant mainstream valuation asset avoids ecosystem fragmentation and clears obstacles to large-scale business development.

2. Deeper motivation behind Coinbase’s involvement

Coinbase already enjoys a 50% share of the interest income from USDC, and all interest income circulating within the platform’s USDC also belongs to it. Its initial motivation for involvement was unclear. Prior to this, USDC had long been the dominant stablecoin in the Hyperliquid ecosystem. Even if HIP-4 markets set USDH as the default valuation currency, it was difficult to shake USDC’s dominance in high-volume trading tracks. This time, directly acquiring and integrating USDH, and establishing USDC as the official valuation asset in HIP-4 markets, is equivalent to consolidating its leading advantage at a critical node where industry patterns are most likely to change. This is also the core reason why Coinbase actively engaged in negotiations (industry sources also say that Hyperliquid had already poached Circle’s former on-chain business leader months ago).

This cooperation also subtly reflects Coinbase’s overall product strategic layout. Its Ethereum Layer 2 network Base has yet to gain traction in perpetual contracts and derivatives markets, with the ecosystem focus shifting toward decentralized AI, exemplified by the rising popularity of Venice AI. If Coinbase aims to deeply develop perpetual contracts and event prediction trading, abandoning building its own ecosystem from scratch on Base and instead leveraging developer ecosystem tools to land HIP-3 and HIP-4 trading markets with USDC as the valuation asset is likely the most efficient current approach. This judgment remains speculative, but the mechanism-level clearance and comprehensive stakeholder alignment have already been achieved.

3. Policy-level strategic value

Coinbase is a highly influential lobbying organization in the US crypto industry. Now, with deep mutual interests—Coinbase completing token staking, taking on reserve asset management, and continuously sharing protocol revenue with Hyperliquid—it will help Hyperliquid better adapt to the latest US crypto industry regulatory rules, gaining more support in compliance development.

4. Community governance controversy

This also reveals the real-world contradictions in ecosystem governance concepts. In September 2025, Hyperliquid’s full network verification nodes voted publicly to select USDH’s issuer. At that time, the community unanimously regarded this process as a benchmark model for community autonomous selection of stablecoins, which was also widely reported in the industry. The core claim of Native Markets’ candidacy was to create a local stablecoin and reclaim the industry value occupied by Hyperliquid’s ecosystem, which was overlooked by top platforms. Eight months later, the project that initially won community support ultimately sold the related assets to the top institutions it aimed to counter; moreover, this major cooperation was finalized without verification node voting, only directly approved by the Hyper Foundation. From a business profit perspective, this integration undoubtedly makes the overall protocol more lucrative, but it also starkly contrasts with the original community autonomy and local value rise, highlighting a philosophical conflict that industry should reflect upon.