Circle and Coinbase are on the lookout for platforms that can genuinely boost the issuance of USDC.

Written by: Eric, Foresight News

USDC is making a comeback to Hyperliquid.

On May 14th, Beijing time, Coinbase, Circle, Hyperliquid, and Native Markets, the deployers of the Hyperliquid native stablecoin USDH, released announcements one after the other. This also signifies that Hyperliquid has abandoned its native stablecoin plan that had been running for 8 months, shifting towards collaboration with Circle and Coinbase to use USDC as the sole settlement asset on the platform.

According to a statement released by Native Markets, Coinbase and Circle have acquired the 'USDH brand assets.' Native Markets will remain independently operational and 'focus on its next chapter.' Essentially, Coinbase and Circle are converting the 'Hyperliquid native stablecoin' from USDH to USDC, which means that staking HYPE is necessary, as well as sharing the earnings generated from USDC reserve assets on Hyperliquid.

This is what Hyperliquid refers to in their announcement about AQA (Aligned Quote Asset) v2. AQAv2 requires Coinbase to stake 500,000 HYPE, taking responsibility for reserve management and ensuring that the revenue generated from AQA (i.e., USDC) is shared; Circle also needs to stake 500,000 HYPE to deploy on-chain native USDC and CCTP V2 cross-chain infrastructure.

AQAv2's requirements for profit sharing are significantly higher than those of AQAv1. While v1 offered trading fee discounts for using USDH, it only required 50% of reserve yields to be allocated to Hyperliquid. V2, however, has no fee discounts but sends 90% of the yields to Hyperliquid. Interestingly, on-chain data shows that the peak circulation of USDH was only around $100 million. According to reserve proof documents from March this year, as of March 31, USDH's circulation was only about 90 million.

Meanwhile, the circulation of USDC within the Hyperliquid ecosystem has remained stable at around 5 billion, with the switch from USDC to USDH being minimal. Initially, Hyperliquid wanted to keep the issuance rights of stablecoins within the ecosystem, hoping that the ecosystem could share the reserve yields behind the stablecoins, rather than letting such a large ecosystem work for the stablecoin issuers for free.

At that time, players like Paxos, Frax, Sky (formerly MakerDAO), and Ethena Labs were all vying for the right to issue the native stablecoin USDH. In the end, it was Native Markets, deeply entrenched in the Hyperliquid ecosystem, that unexpectedly won the issuance rights. Everyone was calculating who could bring more revenue to Hyperliquid, but a significant issue that was overlooked then and is now very apparent is: who can truly get users to use USDH.

Clearly, Native Markets has failed on the product level, but it might not have mattered who was in charge. Many analyses on X point out that Native Markets used USDH as a bargaining chip, forcing Coinbase and Circle to not only stake 500,000 HYPE but also give up 90% of the profits.

This analysis holds some merit because even with USDH, the usage of USDC hasn't decreased, so Circle has no reason to 'give away' profits. However, saying they're using this as leverage to 'force' Circle into profit-sharing seems a bit flimsy.

I wrote an article during the initial phase of the 'Battle of the Hundred Groups' last September (Does USDH's minting power attract the masses, but does HyperLiquid really need a new stablecoin?). At the end of the article, I pointed out that 'even if Hyperliquid were to be lost, Circle could still choose to support other protocols, and could sacrifice some revenue like in their partnership with Coinbase to secure distribution channels. Perhaps the emergence of USDH will bring some short-term pain to Circle, but in the long run, it remains to be seen whether Circle’s influence and ecosystem coverage will be more attractive than the benefits of full returns on US Treasury bond interest yields.'

The reasoning is pretty straightforward; Hyperliquid isn't trying to pocket stablecoin yields for itself, but rather aims to push ecosystem growth through yield sharing and token buybacks. For founder Jeff, he might be more interested in how big Hyperliquid can get. Similarly, I don't think Coinbase and Circle's involvement is a result of a 'negotiation'; it's more likely an 'active embrace'.

Previously, Coinbase and Circle released their Q1 earnings reports, and both faced some issues with USDC, their flagship product. For Circle, while interest rates aren't likely to return to zero in the short term, a gradual decline is the trend, making an increase in issuance urgent; for Coinbase, costs associated with distributing USDC have risen above revenue growth for eight consecutive quarters, forming an almost irreversible trend; thus, increasing USDC issuance via Coinbase is also critical.

Circle's Q1 earnings report shows that USDC's on-chain transaction volume for the quarter was about $21.5 trillion. USDC achieved such a high transaction volume with an issuance of under 80 billion, primarily because in compliant payment and trading, especially in daily consumption, so much currency isn't actually needed.

So, expanding use cases is one aspect, while increasing issuance is another.

According to Robinhood's Q1 earnings report, the platform has approximately $45.7 billion in user deposits, with total assets (including user purchases of stocks, cryptocurrencies, etc.) reaching $345.4 billion. In comparison, Hyperliquid's figure is just $5 billion. In my view, Coinbase and Circle's entry into Hyperliquid is more about betting on the future substantial growth of capital on the Hyperliquid platform.

If Hyperliquid reaches one-third of Robinhood's scale in the future, the issuance of USDC could rival that of USDT's current scale. More importantly, unlike consumption, trading requires real money to mint USDC into Hyperliquid, which is the real way to boost 'issuance'. Because if you don’t have USDC, you can still pay with your local fiat currency or even barter, but on Hyperliquid, that’s the only settlement asset.

If that day really comes, whoever uses Hyperliquid will instantaneously achieve 'one above ten thousand'. Instead of praying that day never comes, it’s better to bind interests first and leave the rest to time.