In the fast-evolving world of stablecoins, a recent tweet from Bitwise Invest research analyst Danny Nelson has stirred up discussions among blockchain enthusiasts. Nelson, known for his sharp insights into crypto regulations, pointed out a potential conflict for bidders vying to launch Hyperliquid's upcoming USDH stablecoin. Check out the original tweet here.

For those new to the scene, stablecoins are cryptocurrencies designed to maintain a stable value, often pegged to the US dollar. They're backed by reserves like cash or Treasury bills, which can generate yields from interest. The GENIUS Act, officially the Guiding and Establishing National Innovation for US Stablecoins Act (full bill text), signed into law in July 2025, sets strict rules for stablecoin issuers in the US. One key provision in Section 4(a)(11) explicitly bans issuers from paying any form of interest or yield to holders just for holding the stablecoin. This ensures stability and compliance with anti-money laundering rules under the Bank Secrecy Act.

Hyperliquid, a popular decentralized finance (DeFi) platform, is currently in the process of selecting a partner to issue its native USDH stablecoin. Several high-profile bidders, including Sky (formerly MakerDAO), have thrown their hats in the ring, promising attractive yields—up to 4.85% in some cases—to attract users and grow adoption (Sky's proposal details). Other contenders like Stripe, MoonPay, and Paxos are also competing, with proposals emphasizing compliance and innovation (more on the bidding war).

But here's the catch Nelson highlights: Many of these USDH hopefuls are touting their designs as "GENIUS Act-ready," meaning they're aiming for full regulatory compliance. Yet, they also promise to return yields from the backing reserves to the community or holders. According to the Act, that's a no-go. Issuers can't distribute those earnings directly to users without risking violations, which could lead to hefty penalties like fines up to $1,000,000 or even imprisonment.

Nelson suggests that Circle's USDC, one of the most established stablecoins, might be better positioned for quick approval under the GENIUS Act—once the approval process is fully in place. Why? USDC doesn't pass on yields from its reserves to holders; instead, those earnings stay with the issuer. This aligns perfectly with the Act's prohibitions. Interestingly, Circle isn't in the running for USDH, leaving the field open for others who might need to rethink their yield-sharing models.

This dilemma raises bigger questions for meme token creators and DeFi projects: How do you balance user incentives like yields with stringent regulations? For blockchain practitioners eyeing meme tokens tied to stablecoins, understanding these rules is crucial to avoid regulatory pitfalls. Projects like Hermetica's USDh (note the lowercase 'h'—a different Bitcoin-backed variant offering up to 25% APY) show alternative approaches, but they operate outside the US regulatory framework for now (Hermetica's site).

As the USDH bidding heats up, with major players like Sky leveraging their $8 billion balance sheets, the crypto community will be watching closely. Will bidders adjust their proposals to ditch yield distribution for compliance, or find creative workarounds? Either way, Nelson's tweet serves as a timely reminder that in the world of stablecoins, regulatory readiness might mean sacrificing some community perks.

Stay tuned to Meme Insider for more updates on how regulations like the GENIUS Act are shaping the meme token and stablecoin landscapes. If you're building in blockchain, this is the kind of insight that can help you navigate the evolving tech and legal terrain.