JPMorgan warns Hyperliquid deal threatens $80M in Circle, Coinbase earnings

JPMorgan cut its earnings forecasts for Circle and Coinbase, warning that a revamped revenue-sharing agreement with Hyperliquid is weakening the economics behind USDC and could drain $80 million in combined annual profit.

"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 at JPMorgan said in a Tuesday report.

Hyperliquid holds roughly $6 billion in USDC, representing about 8% of the stablecoin's circulating supply, JPMorgan estimated. Under the revised agreement, Coinbase classifies USDC on Hyperliquid as an on-platform balance, collects the income generated by the reserves backing those tokens and passes 90% of it to Hyperliquid. The company previously split nearly all of that income evenly with Circle, the bank said.

The deal creates an immediate earnings headwind for both companies and a larger long-term threat to Circle, JPMorgan said. Compass Point estimated the arrangement could redirect between $135 million and $160 million in annual reserve income toward Hyperliquid, reducing the combined annual earnings of Circle and Coinbase by $60 million to $80 million.

Hyperliquid processed more than $150 billion in trading volume during July, with its volume relative to Binance reaching 11.5%, according to JPMorgan. The bank said the platform's growing share of the crypto derivatives market has made it an increasingly important distribution channel for USDC. Hyperliquid's rise from a niche DeFi protocol to one of the largest trading venues in crypto has been fueled by its low-latency order book and deep liquidity pools.

The agreement was announced in May as part of Hyperliquid's updated Aligned Quote Asset framework. Coinbase became the treasury deployer for USDC on the network, while Circle remained responsible for minting, redemptions and crosschain transfer infrastructure. Circle also staked 500,000 HYPE tokens as part of the arrangement. USDC remains the main collateral asset across Hyperliquid's spot and perpetual futures markets.

The arrangement marks a departure from the standard USDC distribution model, where Circle and Coinbase split reserve income from tokens held on Coinbase's platform. By reclassifying Hyperliquid-held USDC as on-platform, Coinbase effectively cedes most of its share to the trading venue while Circle loses its portion entirely, JPMorgan said.

USDC Supply Shrinks as Competition Intensifies

JPMorgan also cited weaker crypto trading volumes and asset prices in cutting its forecasts for both companies. Higher interest rates could provide some support for USDC reserve income over the longer term, the bank said.

USDC circulation has fallen to approximately $73 billion from nearly $80 billion in March. The broader stablecoin market has contracted by about $10 billion since May as crypto trading activity weakened and competition from regulated stablecoin issuers increased, including the launch of Open USD by a consortium of traditional financial firms.

Mizuho Securities separately downgraded Circle Internet Group to Underperform from Neutral, cutting its price target to $50 from $85 on competition from the Open USD stablecoin. Circle shares fell 3.68% to $60.68 on Tuesday.

The twin pressures — Hyperliquid siphoning reserve income and new competitors eroding market share — raise questions about Circle's long-term revenue model. USDC's dominance in DeFi collateral and cross-border payments faces its most serious challenge since the stablecoin market began consolidating around a handful of issuers. The Hyperliquid agreement also creates a precedent that could reshape how other large trading platforms negotiate USDC distribution terms, potentially triggering a cascading erosion of stablecoin-related income for both Circle and Coinbase.

The shift in USDC economics reflects a broader realignment in the stablecoin market, where trading venues with large token holdings are demanding a greater share of the yield generated by reserve assets. If this model spreads, it could compress margins across the stablecoin industry and accelerate consolidation among issuers.

This article is for informational purposes only and does not constitute investment advice.