Channels tax issuers: How Hyperliquid is prying open Circle’s coffers?

Original Author: Xiaobing, Shenchao 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, funneling most of the yield generated from USDC reserves back to the Hyperliquid protocol. Native Markets' USDH agreed to have its brand assets acquired by Coinbase and will gradually be phased out.

Sounds like an ordinary partnership announcement? No, it's not.

Here are the specific numbers: The USDC supply on Hyperliquid is approximately $5 billion. At current treasury yields, this generates around $200 million in reserve income annually. According to leaked partnership details, approximately 90% of the reserve yield, after deducting "costs," will flow back into the Hyperliquid ecosystem, estimated to boost protocol revenue by 22%–26%.

This is the biggest concession a stablecoin issuer has ever made to a single channel. Before this, only Coinbase (as a co-issuer, capturing over half of Circle's distribution revenue), Binance, and a few undisclosed partners could share profits with Circle.

And Hyperliquid is a decentralized protocol with no equity relationship, no history of co-issuance, and an ambiguous legal entity.

Why does it deserve this?

The Power Play

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

At that time, Hyperliquid was still using bridged USDC as its primary margin asset. Its USDC supply was already approaching $6 billion, accounting for 7.5% of USDC's total circulation. At the prevailing interest rates, this $6 billion was contributing approximately $220 million in annual reserve income for Circle, while Hyperliquid received nothing.

One KOL commented: "Hyperliquid holds $5.5 billion USDC, creating $220 million in annual revenue for Circle. With USDH, it could capture $110 million of that within the protocol. No new products, no new users needed – just redirecting reserve yield from Circle shareholders to HYPE holders."

So the Hyperliquid team did something incredibly clever: instead of launching its own stablecoin, it **put the "USDH" ticker up for open tender**. Paxos, Ethena, Frax, Sky, Agora, Native Markets – half the stablecoin industry bid for it. The bidding criteria all revolved around "how much reserve yield you can return to the Hyperliquid ecosystem," with almost all bidders offering 95%–100% profit-sharing ratios.

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

The true power of this move wasn't that USDH could replace USDC (in fact, eight months after its launch, USDH's scale remained far behind USDC). Instead, it held a knife to Circle and Coinbase's throats:

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

Coinbase's reaction was telling. Instead of uniting with Circle and resisting, it directly took over USDH's brand assets and "copied" the entire AQA framework into the USDC system. On the surface, Coinbase saved USDC's home turf, but in essence, Coinbase admitted: **The game has changed; concessions are necessary.**

Native Markets co-founder Mary-Catherine Lader tweeted on the day Coinbase announced: "When we won USDH 8 months ago, our thesis was simple — people care about stablecoins that bring value back to the networks and users. Today, that thesis was validated."

She was too polite. This is a textbook, meticulously designed power shift in the industry's value chain.

What Did This Change?

Layer 1: The Era of "Channel Profit-Sharing" for USDC Reserve Yield Officially Begins

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

This model was built on an assumption: issuers are scarce, and channels are abundant. As the two deepest liquidity stablecoins, USDT and USDC were sought after by both CEXs and DEXs.

Hyperliquid proved that when a channel becomes large enough (7.5% of USDC circulation), and **has the ability to launch its own stablecoin to replace you at any time**, the power dynamic flips. **The issuer becomes a supplier competing for scarce channels.**

What happens next? Just look at Circle's just-filed Q1 financial report: In 2025, reserve income was $2.637 billion, the absolute pillar of its revenue. If Binance, OKX, Bybit, Phantom on Solana, or even major Ethereum L2s start negotiating with this "AQA script" in the future, Circle's profit margin will be shaved thin, piece by piece.

CRCL's stock price has already priced in this anxiety. On May 14, it hit an intraday high of $132.44 before closing at $122.34, a 7.6% pullback from the day's high. The market voted with real money: Short-term bullish (USDC expansion on Hyperliquid's turf), long-term bearish (institutionalized profit-sharing model).

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

Many haven't realized that this deal structurally upgrades HYPE's valuation logic.

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

Now there's a new leg: **Treasury yield → Protocol revenue → Buyback of HYPE**. This leg doesn't depend on market sentiment or trading activity. It depends on just one thing: **how many US dollars are locked on Hyperliquid**.

This is a very different kind of cash flow. Its nature is closer to a bank's net interest margin than an exchange's fee income. The latter fluctuates wildly with bull and bear markets. The former flows steadily as long as interest rates aren't zero and the locked supply isn't zero.

A simple calculation based on current scale: $5 billion × ~4% treasury yield × 90% profit share ≈ $180 million in new annual protocol revenue. All of this will be used for HYPE buybacks and the assistance fund. For a token with a circulating market cap of around $15 billion, this means an additional ~1% annual "passive deflation," and this pool is growing at a year-over-year doubling rate.

HYPE rose 14% on the day of the announcement. The market reaction was correct. But more noteworthy than this single day's gain is the migration of HYPE's valuation model from "exchange token" to **"sovereign stablecoin treasury yield distribution certificate"**.

The latter is a completely different asset class for which the market doesn't yet have a pricing framework.

Layer 3: The "Neutrality" of USDC Begins to Collapse

This is the most overlooked but potentially the most profound layer.

Stablecoins can serve as the settlement layer of the crypto world because they are neutral. In theory, USDC treats all chains, exchanges, and applications equally. This is what differentiates it from banks: banks have client tiers, stablecoins don't.

But the AQAv2 agreement gives Hyperliquid a different treatment than USDC on Ethereum mainnet, Solana, or Arbitrum. Hyperliquid gets a 90% reserve yield share, and Circle and Coinbase must also stake HYPE as validators. This is a highly customized, deeply intertwined 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." Solana won't? Base won't? Arbitrum won't? USDC will eventually become a highly fragmented "profit-sharing network" pieced together from dozens of bilateral agreements.

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

"USDH may be disappearing, but its core innovation already won because Coinbase is adopting the underlying economics." – That quote from the Native Markets co-founder holds the real meaning.

Shenchao Perspective

From a trader's perspective, the most interesting part isn't HYPE rising 14% or CRCL falling 7%. The most interesting part is that **stories of "channels pricing upstream suppliers in reverse" in financial history always end similarly.**

Visa and Mastercard can consistently capture the thickest profit margins as card networks because they are the channels. Commercial banks eventually agree to share profits with Walmart and Costco for co-branded credit cards because without end terminals, there are no transactions. Apple's 30% App Store commission is essentially a tax channels impose on developers.

But the other side of the story is: **When a channel grows to a certain critical mass, it begins to eat into upstream profits.** Costco's private label Kirkland has become a top-of-mind consumer brand. Spotify forced record labels to accept the subscription model. Steam compelled publishers to accept a 30% cut while also granting refund rights.

Stablecoins in the crypto world were previously stuck in the "upstream calls the shots" phase. **What Hyperliquid did has forcibly pushed the industry into the next phase: "the channel calls the shots."**

In the short term, this is just one deal. In the medium term, it marks the beginning of a structural cut into Circle's business model. In the long term, it's an inflection point where stablecoins move from "issuer sovereignty" to "network sovereignty." Stablecoins no longer belong solely to the company that issues them; they begin to belong to the network where they settle.

Those who think this is just Hyperliquid winning one round have missed that the real table has already been flipped.

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