Channels taxing issuers: How is Hyperliquid prying open Circle's money bag?

Original Author: Xiaobing, Deep Tide TechFlow

On May 14, Coinbase and Circle jointly announced that they would re-enter Hyperliquid under the "AQAv2" framework, with Coinbase becoming the treasury deployer for USDC, returning most of the yield generated by USDC reserves to the Hyperliquid protocol. Native Markets' USDH agreed to have its brand assets acquired by Coinbase and will gradually phase out.

Sounds like just a routine cooperation announcement? No.

The specific numbers are as follows: The USDC holdings on Hyperliquid are approximately $5 billion. Based on current Treasury bond yields, this could generate around $200 million in reserve income annually. According to leaked cooperation details, about 90% of the reserve income, after deducting "costs," will flow back into the Hyperliquid ecosystem, potentially boosting protocol revenue by 22%–26%.

This is the biggest concession an issuer has ever made to a single channel in the history of the stablecoin industry. Previously, the only entities that could receive revenue sharing from Circle were Coinbase (as a co-issuer, taking over half of Circle's distribution revenue), Binance, and a handful of undisclosed partners.

And Hyperliquid is a decentralized protocol with no equity relationship, no history of joint issuance, and even a vague legal entity.

Why does it deserve this?

The Power Play

To understand this deal, you need to go back to September 2025.

At that time, Hyperliquid was still using bridged USDC as its primary collateral asset. USDC holdings were approaching $6 billion, accounting for 7.5% of USDC's total circulating supply. Based on interest rates at the time, this $6 billion was contributing approximately $220 million in reserve income to Circle annually, while Hyperliquid received nothing.

A KOL commented: "Hyperliquid holds $5.5 billion USDC, generating $220 million in annual revenue for Circle. After USDH launches, it can retain $110 million of that within the protocol. No new products, no new users needed—just redirecting reserve income from Circle shareholders to HYPE holders."

So the Hyperliquid team did something incredibly clever: Instead of launching their own stablecoin, they put the "USDH" ticker up for public bidding. Paxos, Ethena, Frax, Sky, Agora, Native Markets—half the stablecoin industry vied to bid. The bidding conditions all centered around "how much reserve income can you return to the Hyperliquid ecosystem," with almost all bidders offering a 95%–100% revenue share.

The community ultimately awarded the ticker to Native Markets, a team founded by Mary-Catherine Lader (former COO of Uniswap Labs) and tailored specifically for Hyperliquid. Their plan allocated 50% of the income to HYPE buybacks and 50% to ecosystem incentives.

The true power of this move wasn't that USDH could replace USDC—in fact, eight months after launch, USDH's scale remained far smaller than USDC's. Rather, it put a knife to the throat of Circle and Coinbase:

Either you accept this "protocol sovereignty" rulebook and give up the income, or we'll slowly replace you.

Coinbase's reaction was telling. Instead of joining forces with Circle to push back, it directly acquired USDH's brand assets and then "copied" the entire AQA framework into the USDC system. On the surface, Coinbase saved USDC's turf. In essence, Coinbase admitted: The rules of the game have changed; concessions are necessary.

Mary-Catherine Lader, co-founder of Native Markets, tweeted on the day of Coinbase's announcement: "8 months ago when we won USDH, our thesis was simple—people care about stablecoins that deliver value to the network and its users. Today, that thesis was validated."

She was being too polite. This was a meticulously designed, textbook example of power transfer in the industry chain.

What Has This Changed?

Layer 1: The Era of "Channel Revenue Sharing" for USDC Reserve Income Has Officially Begun

For the past decade, the business model for stablecoin issuers has been brutally simple: Users mint stablecoins → The issuer buys U.S. Treasuries → All the yield goes to the issuer. In 2025, Circle generated $2.6 billion in reserve income this way, supporting a $30 billion IPO valuation.

This model is built on an assumption: Issuers are scarce, and channels are abundant. USDT and USDC, as the two most liquid stablecoins, are sought after by both CEXs and DEXs to list.

Hyperliquid has proven: When a channel grows large enough (accounting for 7.5% of USDC's circulating supply), and has the ability to launch a competing stablecoin at any time, the power dynamic reverses. The issuer becomes the supplier competing for scarce distribution channels.

What happens next? Look at Circle's Q1 financial report: $2.637 billion in reserve income in 2025, the absolute pillar of its revenue. If Binance, OKX, Bybit, Phantom on Solana, and even major Ethereum L2s start using this "AQA playbook" in negotiations, Circle's profit margin will be shaved thin, layer by layer.

CRCL's stock price already reflected this anxiety. On May 14, it surged to an intraday high of $132.44 before closing at $122.34, a 7.6% drop from the session high. The market cast its vote with real money: Short-term good news (USDC expansion on Hyperliquid's turf), long-term bad news (revenue sharing model becomes institutionalized).

Layer 2: HYPE Gains a True "Cash Flow Anchor"

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

Previously, HYPE's value narrative was: Trading fees → Assistance fund → Buyback and burn. This model relies on trading volume, which is cyclical and highly volatile.

Now there's a new leg: Treasury yield income → Protocol revenue → HYPE buybacks. This leg doesn't depend on market sentiment or trading activity; it only relies on one thing: how many dollars are locked within Hyperliquid.

This is a very different type of cash flow. It's closer to a bank's net interest margin than an exchange's trading fees. The latter fluctuates wildly with market cycles, while the former flows steadily as long as interest rates aren't zero and the deposit base isn't zero.

HYPE rose 14% on the day of the announcement; the market reaction was correct. But more significant than the single-day gain is the migration of HYPE's valuation model from an "exchange token" to a "sovereign stablecoin's Treasury yield distribution certificate."

The latter is a completely different asset class, one for which the market has no established pricing framework yet.

Layer 3: The Death of USDC's "Neutrality"

This is the most easily overlooked layer, yet potentially the most profound.

Stablecoins can serve as crypto's settlement layer because of their neutrality. USDC theoretically treats all chains, all exchanges, and all applications equally. This is what differentiates it from banks: banks have tiered customer relationships; stablecoins don't.

But the AQAv2 agreement gives Hyperliquid different treatment than USDC receives on Ethereum mainnet, Solana, or Arbitrum. Hyperliquid gets 90% of the reserve income share, and Circle and Coinbase must also stake HYPE as validators. This is a highly customized, deeply entrenched 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." Won't Solana ask for it? Won't Base? Won't Arbitrum? USDC will eventually fragment into a highly splintered "revenue-sharing network" stitched together by dozens of bilateral agreements.

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

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

Deep Tide's Take

From a trader's perspective, the most interesting part isn't HYPE up 14% or CRCL down 7%. It's that: Every story in financial history where "channels reverse-price upstream suppliers" ends very similarly.

Visa and Mastercard can consistently capture the thickest slice of profits in card networks because they are the channels. Commercial banks ultimately agree to share revenue with Walmart and Costco for co-branded credit cards because without the terminal, there are no transactions. Apple's 30% App Store commission is, in essence, a tax imposed by the channel on developers.

But the other side of the story is: When a channel grows to a certain critical mass, it starts to encroach upstream. Costco's private label Kirkland has become a top-of-mind consumer brand. Spotify has forced record labels to accept subscription models. Steam compels publishers to accept a 30% cut while also conceding refund rights.

Stablecoins in crypto have previously been stuck in the "upstream calls the shots" phase. What Hyperliquid did has forcefully shoved this industry into the next phase: "the channels call the shots."

Short-term, this is just one deal. Medium-term, it's the beginning of a structural carve-up of Circle's business model. Long-term, it's an inflection point where stablecoins shift from "issuer sovereignty" to "network sovereignty." Stablecoins no longer belong solely to the company that issues them; they begin to belong to the network that holds them.

Those who think this is just Hyperliquid winning a single round haven't seen that the real gaming table has already been flipped over.

Who will make the next move? My bet is on Solana, and it won't be long.