The Great Stablecoin Margin Recapture: Why Platforms Are Ditching Circle and Tether
Hyperliquid holds $5.97 billion in USDC deposits—nearly 10% of Circle's total circulating supply. At a conservative 4% Treasury yield, that represents $240 million in annual revenue flowing to Circle. Hyperliquid sees none of it.
So Hyperliquid launched USDH.
This isn't an isolated move. Across DeFi, the same calculation is playing out: why surrender hundreds of millions in yield to third-party stablecoin issuers when you can capture it yourself? MetaMask launched mUSD. Aave is building around GHO. A new class of white-label infrastructure from M0 and Agora is making protocol-native stablecoins viable for any platform with scale.
The stablecoin duopoly—Tether and Circle's 80%+ market share—is fracturing. And the $314 billion stablecoin market is about to get much more competitive.
The $240 Million Wake-Up Call
The economics are straightforward. Stablecoin issuers like Tether and Circle hold customer deposits in Treasury bills, money market funds, and cash equivalents. Those reserves generate yield—4-5% annually in the current rate environment. The issuers keep nearly all of it.
For major DeFi protocols, the numbers are staggering:
- Hyperliquid: $5.97B USDC deposits → ~$240M/year in foregone yield
- Binance USDe holdings: $2B+ after September 2025 integration
- Aave: $20-25B in active loans, with stablecoin collateral representing a significant fraction
When platforms deposit billions in Circle's USDC, they're effectively giving Circle an interest-free loan. Circle earns the yield. The platform earns nothing.
This asymmetry worked when DeFi was smaller and yield opportunities were abundant. But as protocol revenues mature and Treasury rates remain elevated, the calculation has shifted. Platforms are asking: why not issue our own stablecoin and capture that yield ourselves?
The New Stablecoin Infrastructure Stack
Three models have emerged for platforms seeking to recapture stablecoin margin:
1. Protocol-Native Issuance
The most aggressive approach: build your own stablecoin from scratch.
Hyperliquid's USDH exemplifies this model. Rather than develop the stablecoin internally, Hyperliquid reserved the ticker and ran a competitive selection process. Major issuers—Paxos, Ethena, Frax, Sky, and Agora—submitted proposals. Native Markets won the validator vote on September 15, 2025, beating established competitors despite offering less generous revenue sharing (50% versus 95-100% from others).
The architecture is sophisticated. USDH operates natively on Hyperliquid's HyperEVM, backed by cash and short-term U.S. Treasuries. BlackRock manages off-chain assets while Superstate handles on-chain reserves through Stripe's Bridge platform.
The economic impact is significant. Dragonfly partner Omar Kanji estimates that complete migration from USDC to USDH could generate $220 million in annual revenue for HYPE holders. Native Markets' 50/50 revenue split directs half of USDH revenues to Hyperliquid's Assistance Fund for protocol-driven buybacks.
Within 24 hours of launch on September 24, 2025, over $15 million in USDH was pre-minted, with early trading generating $2 million in volume.
2. White-Label Infrastructure
Not every platform wants to build stablecoin infrastructure from scratch. M0 and Agora have emerged as the middleware layer, offering turnkey stablecoin creation.
M0 raised $40 million to build what it calls the "universal stablecoin platform." The model works like this: M0 issues $M, a vanilla stablecoin backed by U.S. Treasury bills. Clients wrap $M to create their own branded stablecoins, customizing yield distribution, compliance parameters, and governance—all on-chain.
MetaMask's mUSD uses M0 infrastructure, with Stripe's Bridge as the U.S. licensed issuer and M0 providing the on-chain liquidity layer. Other M0 clients include Noble, Usual Labs, and gaming platform Playtron. The platform has seen 215% supply growth since early 2025.
M0's yield distribution is particularly flexible. Balances can be "static" (normal stablecoin behavior) or "rebasing" (automatically growing through continuous compounding). M0's Two-Token Governance (TTG) determines which participants qualify for yield access.
Agora took a similar path, raising $62 million total ($50M Series A led by Paradigm, $12M seed from Dragonfly). AUSD is backed 100% by cash, Treasury bills, and overnight reverse repos, managed by VanEck and custodied at State Street.
Agora's white-label product, launched after the July 2025 Series A, lets partners issue compliant stablecoins in days. Features include zero-fee minting via USDC/USDT conversion and revenue sharing from reserve yields. Partners who launch through Agora share in the Treasury yield—the exact value proposition that Tether and Circle don't offer.
3. Yield-Bearing Alternatives
Rather than replace Circle and Tether entirely, some protocols are building complementary yield-bearing stablecoins that capture margin through different mechanisms.
Ethena's USDe uses a delta-neutral model: combining perpetual futures funding rates with liquid staking rewards rather than relying on Treasury yield. By September 2025, $8.5 billion in Ethena assets were held as collateral across DeFi. USDe's market cap crossed $14 billion, up from $6 billion in January.
Binance's integration illustrates the appeal. Users in certain jurisdictions can now earn rewards on stablecoins held on the platform, including within portfolio margin on futures trading. Binance offered 12% APR for a limited time, driving USDe on-platform to over $2 billion.
Aave's GHO takes a different approach. As a decentralized stablecoin minted against Aave collateral, GHO generates revenue for the Aave protocol rather than external issuers. Aave's V4 upgrade positions GHO as central to its revenue model, with users able to "save and earn yield" natively.
How Tether and Circle Are Responding
The duopoly isn't standing still. Both companies recognize that yield distribution will increasingly determine market share.
Circle acquired Hashnote for $1.3 billion in 2025—the issuer of tokenized money market fund USYC. The acquisition enables convertibility between cash and yield-bearing collateral on blockchains, effectively letting Circle offer yield without directly distributing stablecoin interest (which could invite regulatory scrutiny).
The broader industry expects intensifying competition. Fireblocks projects as many as 50 new stablecoins by end of 2025. The EU's MiCA regime and U.S. GENIUS Act (signed into law in July 2025) create clearer regulatory frameworks—but also raise the bar for compliance.
The GENIUS Act mandates 1:1 reserve backing for USD-backed stablecoins and restricts issuance to regulated banks or licensed entities. White-label infrastructure like M0 inherently satisfies these requirements by designating qualified institutions to hold reserves.
The Stablecoin-First Chain Thesis
Some builders are taking the logic further: rather than adding stablecoins to existing chains, why not build chains specifically optimized for stablecoin flows?
Plasma exemplifies this approach. The chain is built from first principles to support stablecoin settlement, with stablecoins functioning as the native asset rather than an add-on. In months, Plasma grew to nearly $2 billion in circulating supply.
The design mirrors Tron's success. By specializing around a single financial primitive, Tron sustains massive daily volume and meaningful fee revenue. Plasma, along with projects like Stable, Arc (Circle), and Tempo (Stripe), signals that stablecoin-first settlement layers are becoming strategic priorities.
For these chains, every stablecoin transaction generates network revenue. The platform captures margin at the infrastructure layer rather than the application layer—a different form of yield recapture, but yield recapture nonetheless.
Market Implications
The stablecoin margin recapture trend carries several implications:
1. Fragmentation is accelerating. Tether and Circle's combined market share peaked at 91.6% in March 2024; by October 2025, it had fallen to ~80%. Expect continued erosion as more protocols launch native stablecoins.
2. Infrastructure providers win regardless. Whether platforms choose M0, Agora, or build their own systems, the infrastructure layer—custody, compliance, on-chain liquidity—captures value. Stripe's Bridge, BlackRock's reserve management, and VanEck's custodial services are all positioned as picks-and-shovels plays.
3. Yield distribution becomes competitive. When every platform can offer yield on stablecoin deposits, users will demand it. Protocols that don't share yield will lose deposits to those that do.
4. Regulatory clarity matters. The GENIUS Act's requirements favor institutionally-backed infrastructure over decentralized alternatives. Platforms using M0 or Agora's regulated stack have clearer compliance paths than those experimenting with novel designs.
5. Cross-chain stablecoins face pressure. USDC's value proposition—universal acceptance across chains—weakens when each major platform has its own stablecoin. Bridge solutions and chain-specific stablecoins may fragment the liquidity that made Circle valuable.
What Comes Next
The stablecoin market will likely bifurcate. Tether and Circle will retain dominance in payments, cross-chain transfers, and use cases requiring universal acceptance. But application-layer stablecoins—USDH, mUSD, GHO, and their successors—will capture an increasing share of deposits held within specific protocols.
The $314 billion stablecoin market is growing. Since January 2025, supply has increased by over $100 billion. But how that value is distributed—between issuers, protocols, and users—is fundamentally shifting.
Hyperliquid's USDH launch wasn't just a product announcement. It was a signal that platforms are done subsidizing external issuers. The $240 million question has been answered: if you can capture the yield, you should.
The next wave of stablecoin innovation won't be about stability mechanisms or reserve backing. It will be about who captures the margin—and how much of it reaches the users who provide the capital.
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