Original author: Xiao Bing, Deep Tide TechFlow

On May 14, Coinbase and Circle announced a re-entry into Hyperliquid using the 'AQAv2' framework, with Coinbase becoming the treasury deployer for USDC, returning most of the income generated from the USDC reserves back to the Hyperliquid protocol. Native Markets' USDH has agreed to be acquired by Coinbase's brand assets and will gradually exit.

Sounds like a standard partnership announcement? Not really.

Here are the numbers: Hyperliquid's USDC supply is around $5 billion, and based on the current treasury yield, it can generate about $200 million in reserve income annually. After accounting for the 'costs' of the outflow collaborations, around 90% of the reserve income will flow back into the Hyperliquid ecosystem, which is expected to boost protocol revenue by 22%–26%.

This is the largest concession made by an issuer to a single channel in stablecoin history. Previously, the only ones who could get profit-sharing from Circle were Coinbase (as a co-issuer, taking over more than half of Circle's distribution revenue), Binance, and a few undisclosed partners.

Hyperliquid, however, is a decentralized protocol with no equity relationships, no co-issuing history, and even a vaguely defined legal entity.

On what basis?

Pressure tactics.

To understand this transaction, we need to revisit September 2025.

Back then, Hyperliquid was still using bridged USDC as the main collateral asset, with USDC's supply nearing $6 billion, accounting for 7.5% of USDC's total circulation. At that interest rate level, this $6 billion contributed about $220 million annually to Circle's reserve income, while Hyperliquid got nothing.

A KOL commented: 'Hyperliquid holds $5.5 billion in USDC, generating $220 million in annual revenue for Circle. After USDH launches, it can retain $110 million within the protocol. No new products, no new users; it simply reallocates reserve income from Circle shareholders to HYPE holders.'

So, the Hyperliquid team did something extremely clever: instead of issuing a stablecoin themselves, they put the 'USDH' ticker up for open bidding. Paxos, Ethena, Frax, Sky, Agora, Native Markets—half of the stablecoin industry rushed to submit bids. The bidding criteria revolved entirely around 'how much reserve income you can return to the Hyperliquid ecosystem', with almost all bidders offering a profit-sharing ratio of 95%-100%.

In the end, the community gave the ticker to Native Markets, a team founded by former Uniswap Labs COO Mary-Catherine Lader and others, specifically tailored for Hyperliquid. The allocation set is 50% for HYPE buybacks and 50% for ecosystem incentives.

The real power of this move isn't that USDH can replace USDC; in fact, even after 8 months, USDH's scale is still far behind USDC. It's more about how it has put a knife to Circle and Coinbase.

Either you accept this 'protocol sovereignty' game rule and give up the earnings, or we will slowly replace you.

Coinbase's response is intriguing. Instead of standing in 'unity' with Circle, they directly took over the USDH brand assets and 'copied' the entire AQA framework into the USDC system. On the surface, it seems like Coinbase is protecting USDC's turf, but fundamentally, it acknowledges: the game rules have changed and concessions must be made.

Co-founder of Native Markets, Mary-Catherine Lader, tweeted on the day Coinbase announced: 'Eight months ago when we secured USDH, our argument was simple; people care about stablecoins that can deliver value to networks and users. Today, that argument has been validated.'

She was too polite; this is a meticulously designed, textbook-level transfer of power in the industry chain.

What does this rewrite?

Layer one: The 'channel profit-sharing era' of USDC reserve income has officially begun.

For the past decade, the business model of stablecoin issuers has been straightforward: users mint stablecoins → issuers buy US dollars as treasury bonds → all profits belong to the issuer. Circle made $2.6 billion in reserve income in 2025 through this method, supporting a $30 billion IPO valuation.

This model is based on an assumption: the issuer is scarce, while the channel is abundant. USDT and USDC, as the two most liquid stablecoins, both require CEX and DEX to beg for their listings.

Hyperliquid has proven that when a channel gets big enough (capturing 7.5% of USDC circulation), and has the ability to issue a stablecoin that can replace you at any time, the power dynamics flip. The issuer becomes the secondary player in the battle for scarce resources.

What happens next? A glance at Circle's recently submitted Q1 financial report makes it clear: in 2025, reserve income is projected to be $2.637 billion, which is the absolute backbone of their revenue. If in the future Binance, OKX, Bybit, Phantom on Solana, or even Ethereum L2 giants all negotiate with this 'AQA script', Circle's profit margins will be sliced thin.

CRCL's stock price has already reflected this anxiety. On May 14, it surged to 132.44 during trading but closed down at 122.34, a 7.6% pullback from the intraday high. The market voted with real money: short-term, it's bullish (USDC is expanding in Hyperliquid's turf), long-term, it's bearish (the profit-sharing model is being institutionalized).

Layer two: HYPE has secured a true 'cash flow anchor'.

Many people haven't realized that this transaction represents a structural upgrade in HYPE's valuation logic.

Previously, HYPE's value story was: transaction fees → aid fund → buyback and burn. This model relies on trading volume, which is cyclical and highly volatile.

Now there's an additional leg: treasury yield → protocol income → buyback HYPE. This leg doesn't rely on market sentiment or trading activity; it solely depends on one thing: how many dollars Hyperliquid has locked up.

This is a very different cash flow. Its nature is closer to a bank's net interest margin revenue rather than an exchange's transaction fee revenue. The latter fluctuates significantly with bullish and bearish markets, while the former remains stable as long as interest rates don't drop to zero and supply doesn't dwindle.

Putting current scale into simple calculations: $5 billion × ~4% treasury yield × 90% profit share ≈ $180 million/year in new protocol income. This money is entirely used for HYPE buybacks and aid funds, which for a token with a circulating market cap of about $15 billion means an additional 1% or more of 'passive deflation' annually, and this pool is also growing at a year-on-year doubling rate.

On the day of the announcement, HYPE rose 14%, and the market reaction was correct. But what’s more noteworthy isn’t the increase on that day, but the shift in HYPE's valuation model from 'exchange token to sovereign stablecoin's treasury yield distribution certificate'.

The latter is a completely different asset class, one that the market has yet to price.

Layer three: The 'neutrality' of USDC is beginning to collapse.

This is the layer that’s easiest to overlook but may have the most profound implications.

Stablecoins have become the settlement layer of the crypto world precisely because of their neutrality; theoretically, USDC treats all chains, exchanges, and applications equally. This is what sets it apart from banks: banks have client stratification, while stablecoins do not.

However, the AQAv2 protocol's treatment of Hyperliquid is different from USDC's treatment on the Ethereum mainnet, Solana, or Arbitrum. Hyperliquid secured 90% of the reserve income share; Circle and Coinbase still need to stake HYPE as validators. This is a highly customized, deeply integrated relationship.

So the question arises: when USDC offers different economic terms to different networks, can it still be considered a 'neutral' settlement layer?

Every channel with bargaining power will start demanding its own 'special terms'. Doesn't Solana want it? Doesn't Base want it? Doesn't Arbitrum want it? USDC will ultimately transform into a highly fragmented 'profit-sharing network' stitched together by dozens of bilateral agreements.

This is the true legacy left by USDH; it didn't lose to USDC; it forced USDC to become USDH.

The co-founder of Native Markets hid the real meaning in that statement: 'USDH may be disappearing, but its core innovation already won because Coinbase is adopting the underlying economics.'

Deep Tide Insights

From a trader's perspective, what's most interesting isn't that HYPE rose 14% or that CRCL dropped 7%. The most intriguing part is that every instance of 'channel reverse pricing upstream' in financial history has ended up in a similar way.

Visa and Mastercard can continuously capture the thickest slice of profits from card organizations because they are channels; commercial banks are willing to share profits with Walmart and Costco for co-branded credit cards because there are no transactions without terminals; Apple's 30% cut from the App Store was essentially a tax on developers imposed by the channel.

But the other side of the story is that when a channel grows to a certain critical point, it will start to reverse and eat into upstream profits. Costco's private label Kirkland has reached the forefront of consumer perception, Spotify has forced record companies to adopt a subscription model, and Steam has compelled publishers to accept a 30% profit share while relinquishing refund rights.

The stablecoins in the crypto world had previously been in the 'upstream decides' phase. What Hyperliquid did has forcefully pushed the industry into the next phase of 'channels decide'.

In the short term, this is just a transaction. In the medium term, it's the beginning of Circle's business model being structurally cut. Long-term, this is a turning point for stablecoins moving from 'issuer sovereignty' to 'network sovereignty'; stablecoins will no longer belong solely to the issuing company, but to the network that holds them.

Those who think this is just Hyperliquid winning a round haven't realized that the actual table has been flipped.

Who will be the next to act? I bet on Solana; it won’t take long.