Key Takeaways:
JPMorgan and Mizuho both downgraded their outlooks for Circle and Coinbase on Tuesday, warning that a revamped Hyperliquid partnership and a new rival stablecoin are squeezing USDC's economics from two directions at once.
JPMorgan lowered its earnings estimates for Circle Internet (CRCL) and Coinbase (COIN), saying their restructured agreement with Hyperliquid creates a "prisoner's dilemma" that pits the two partners against each other when distributing USDC. Hyperliquid, now one of the largest crypto trading venues, holds about $6 billion of USDC — roughly 8 percent of the stablecoin's circulating supply, the bank estimated.
"We think the change in the Hyperliquid relationship showcases the challenge for Circle and Coinbase partnership agreements because it can create a prisoner's dilemma that drives Coinbase and Circle to compete with each other when promoting USDC distribution," analysts led by Kenneth Worthington said in the report.
Under the new arrangement, Coinbase will classify USDC on Hyperliquid as "on-platform," collecting the income generated by reserves and paying 90 percent of it to Hyperliquid. JPMorgan estimated Coinbase previously split nearly all of that revenue evenly with Circle. The bank also cited weaker crypto trading volumes and asset prices as additional reasons for the downgrade.
USDC's circulating supply has fallen to about $73 billion from nearly $80 billion in March, part of a broader $10 billion contraction in the stablecoin market since May. The decline comes as crypto trading activity has cooled and new regulated rivals have emerged.
Mizuho turns bearish on Circle
Mizuho went further, downgrading Circle to underperform from neutral and slashing its price target to $50 from $85 — implying roughly 20 percent downside from Tuesday's closing price of $62.63. The Japanese investment bank said Open USD, a dollar-backed stablecoin unveiled June 30 by the Open Standard consortium, poses a structural threat to Circle's business model.
Open USD charges a small operating fee and distributes most reserve income to issuers and distributors, unlike Circle's model which captures reserve income before sharing a portion with partners. The consortium counts more than 140 partners, including Mastercard (MA), Stripe, Coinbase and BlackRock (BLK).
"Open USD could fundamentally alter CRCL's business model, which relies on retaining a large portion of the treasury yield to drive revenues," analysts led by Dan Dolev said.
Mizuho raised its estimate for Circle's distribution and transaction costs in 2027 to 73 percent from 64 percent, cutting its adjusted EBITDA forecast to $699 million from $1.09 billion. The new estimate is roughly 25 percent below analyst consensus of $941 million. The bank noted that Coinbase's support for Open USD could strengthen its negotiating position when the two companies renegotiate their revenue-sharing agreement in August.
What's at stake for USDC
The twin pressures highlight a structural shift in the stablecoin market. Hyperliquid's rise as a dominant trading venue — processing more than $150 billion in trading volume in July alone — has given it leverage to demand a larger share of reserve income. At the same time, Open USD's pass-through model threatens to reset industry expectations for how stablecoin revenue is split between issuers and distributors.
Higher interest rates could provide some support for USDC-related revenue over the longer term, JPMorgan said, but that may not be enough to offset the pricing pressure from both Hyperliquid and Open USD. Circle's final approval from the U.S. Office of the Comptroller of the Currency to establish First National Digital Currency Bank was a positive milestone, Mizuho said, but investors may be overestimating its significance.
This article is for informational purposes only and does not constitute investment advice.
