Paxos Revamps USDH Proposal With PayPal Backing

Stablecoin issuer, Paxos, released its updated proposal, USDH Proposal V2, on Wednesday, outlining an ambitious plan to scale the Hyperliquid ecosystem globally. 

The firm emphasized a key message in the new framework: Paxos only benefits if Hyperliquid succeeds.

The updated proposal introduces three major enhancements aimed at unlocking broader adoption. Most notably, the plan features deep integration with PayPal, a global payment giant. 

Under the partnership, PayPal and its affiliated platforms, including Venmo, Braintree, Hyperwallet, Checkout, and Xoom, will support the Hyperliquid ecosystem. 

This includes the listing of HYPE, Hyperliquid’s native token, and the launch of free on/off-ramps for USDH, Hyperliquid’s upcoming stablecoin.

PayPal is also pledging $20 million in ecosystem incentives. These funds will go toward bolstering user engagement and expanding stablecoin functionality across its platforms. 

This collaboration follows PayPal’s recent launch of its “Pay With Crypto” feature, which now supports both USDH and HYPE tokens.

“We’re thrilled to have PayPal as a partner from day one of USDH issuance. Alongside our existing set of GENIUS-compliant reserve assets, we are adding PYUSD as an additional regulated, GENIUS-compliant reserve asset”, said the co-founder and CEO of Paxos Labs, Bhau Kotecha.

Kotecha also reaffirmed the firm’s goal of expanding Hyperliquid’s reach to a global user base. Paxos believes the partnership with PayPal, whose network includes over 400 million users and 35 million merchants, and processes more than $1 trillion in total payment volume (TPV) annually, will be a key driver in global adoption.

Beyond platform integration, the V2 proposal also seeks to bolster Paxos’ position as a legally compliant stablecoin issuer capable of operating across Europe and other jurisdictions. 

The company plans to add HYPE and USDH to its regulated brokerage infrastructure, which services many of the world’s largest enterprises.

Incentive-Driven Structure: Paxos Aligns With Hyperliquid’s Growth

One of the most striking features of Paxos’ V2 proposal is its revised rewards system. Under this model, Paxos will not receive any fees from USDH issuance until total value locked (TVL) in the ecosystem hits $1 billion. 

Even beyond that point, the company’s earnings will be capped at 5% once TVL surpasses $5 billion.

“Together, this framework ensures Paxos only wins if Hyperliquid wins. USDH becomes the gateway stablecoin for global DeFi adoption”, the company said in its announcement.

Initially, 80% of revenue generated through the project will be reinvested into growth initiatives and Hyperliquid’s Assistance Fund (AF). 

As TVL milestones are hit, Paxos’ share will increase gradually, starting at 1% at the $1 billion mark and scaling up to a maximum of 5% once $5 billion in TVL is achieved.

Any earnings Paxos receives during this period will be held in HYPE tokens and reinvested in ecosystem development and AF-related activities. 

The AF itself is a protocol-controlled treasury that uses revenues to buy back HYPE on the market. It serves as both a growth fund and an insurance mechanism for the ecosystem.

This AF-first incentive structure is designed to align Paxos’ financial interests with the health and expansion of the Hyperliquid protocol. 

The company emphasized that its success is directly tied to the growth of the USDH stablecoin and broader Hyperliquid adoption.

The previous iteration of Paxos’ proposal had focused largely on the firm’s distribution capabilities. Since then, Paxos has turned its attention to partnerships and growth mechanisms, starting with this major collaboration with PayPal.

Global Infrastructure, DeFi Products, and Strategic Differentiation

With Proposal V2, Paxos is also making a significant push to build a robust infrastructure for USDH and HYPE. 

According to the firm, it is uniquely positioned to issue regulated stablecoins in global markets, including within the European Union. This legal positioning is expected to offer USDH a smoother path to international circulation.

Paxos intends to add both HYPE and USDH to its enterprise-level brokerage services. These platforms already enable crypto purchases for some of the world’s largest digital platforms, and Paxos expects this move to dramatically increase the visibility and accessibility of both tokens.

Additionally, Paxos plans to offer developer access to order flows from these distribution platforms, which could help support builders creating new financial applications within the Hyperliquid ecosystem. 

It sees this initiative as a way to attract demand for trading liquidity and to position Hyperliquid as the preferred venue for tokenized asset listings.

Hyperliquid’s existing protocol (HIP-3) supports deployment of custom perpetual trading pairs. However, Paxos argues that a comprehensive strategy is needed to scale high-quality asset listings. It believes its brokerage tools, builder access, and global reach can provide that missing link.

The firm also announced plans to onboard new users to the HyperEVM through its distribution network. This initiative is expected to enable access to a wide range of decentralized finance services, including collateralized loans, on-chain lending markets, and tokenized yield products.

Among the upcoming products is a yield-generating Earn feature built on USDH. This tool will be embeddable into any consumer-facing frontend via a simple API. 

The company will also launch a suite of tokenized HLP products to help HIP-3 market deployers with liquidity and internal financing.

The Paxos V2 proposal comes amid increasing competition from other stablecoin issuers. Earlier this week, a coalition including MoonPay, Agora, and Rain submitted a joint proposal to issue USDH. 

They voiced concerns over another competing bid tied to a Stripe-affiliated entity, citing potential conflicts of interest. Agora CEO, Nick Van Eck, warned that Stripe’s vertical integration posed “clear conflicts.”

On Tuesday, Ethena Labs entered the race as the sixth bidder. The team behind USDe and USDtb proposed backing USDH with its own stablecoin product, which is connected to BlackRock’s BUIDL fund.

Despite the crowded field, Paxos is aiming to stand apart with a strategy rooted in distribution, regulatory compliance, and ecosystem alignment. Its revised proposal reflects a shift in stablecoin strategy, one that focuses on performance-based earnings, community incentives, and broad global integration through enterprise partnerships.

As the bidding process for USDH continues, Paxos is betting that its deep infrastructure, combined with PayPal’s global reach, can make USDH the defining stablecoin of the Hyperliquid ecosystem.