Wall Street analysts are warning of mounting pressure on Circle’s USDC economics, with JPMorgan Chase and Mizuho Securities downgrading their outlooks on the stablecoin issuer. The concerns stem from new stablecoin rivals and shifts in reserve income sharing with distribution partners.
These developments suggest a challenging period ahead for USDC, the second-largest stablecoin by market capitalization, which has already seen its supply decline. The concerns highlight an evolving stablecoin landscape where profitability models are being tested and traditional crypto partnerships are under renegotiation.
Circle USDC economics face mounting pressure
Mizuho took a definitive step, downgrading Circle’s stock (CRCL) from Neutral to Underperform and slashing its price target by over 41%, from $85 to $50. On the same day, July 14, 2026, JPMorgan also lowered its earnings estimates for both Circle and Coinbase, pointing to growing strains on USDC’s economic framework.
A primary driver of this cautious sentiment is Open USD (OUSD), a new dollar-backed stablecoin that launched on June 30, 2026. This rival is backed by a powerful consortium of over 140 companies, including giants like Visa, Mastercard, Stripe, BlackRock, and Circle’s long-time partner, Coinbase.
The core difference lies in OUSD’s “pass-through” model. Unlike Circle, which retains approximately 38% of reserve income after sharing revenue with partners, Open USD routes nearly all reserve yield directly to its distributors, keeping only a small management fee.
Mizuho analyst Dan Dolev suggests this model could compel Circle to cede a larger share of its reserve income to remain competitive, ultimately impacting its bottom line.
This dynamic creates substantial leverage for distribution partners. Circle’s revenue-sharing agreement with Coinbase, its largest USDC distribution partner, is due for renewal next month, on August 18, 2026. Given Coinbase’s involvement with Open USD, it could demand more favorable terms, further squeezing Circle’s margins.
The Hyperliquid precedent and a ‘prisoner’s dilemma’
JPMorgan’s analysis points to a recent agreement between Coinbase and the Hyperliquid decentralized exchange as a significant bellwether. Under this new arrangement, Coinbase will receive all reserve income tied to Hyperliquid’s USDC balances.
Crucially, Coinbase will then return approximately 90% of that yield to Hyperliquid. This effectively means a substantial portion of the yield generated by Hyperliquid’s $6 billion in USDC holdings, representing roughly 8% of the total USDC circulating supply, is now being redirected away from Circle.
JPMorgan described this scenario as a “prisoner’s dilemma.” It incentivizes both Circle and Coinbase to compete against each other to offer the most attractive revenue-sharing terms. This intense competition is aimed at retaining partners and ensuring their stablecoin remains the preferred choice for large platforms.
The shift demonstrates how key distributors are already securing more favorable economic terms, underscoring the pressure on Circle’s traditional revenue model. It’s a stark indication that the days of stablecoin issuers commanding a significant portion of reserve yields might be waning.
Mixed analyst reactions and Circle’s defense
Despite the growing caution, not all analysts share the same bearish outlook. Firms like Bernstein and William Blair maintain bullish stances, arguing that the threat from Open USD is overstated.
Following OUSD’s launch, Bernstein reiterated its Outperform rating and a $190 price target on Circle. The firm contends that Open USD actually validates stablecoins as a growing asset class, rather than posing an existential competitive threat to USDC. They believe Circle’s established liquidity, regulatory head start, and robust network effects will be difficult for newcomers to replicate, citing historical struggles of consortium-led financial projects.
Similarly, analysts at William Blair reiterated an Outperform rating, dismissing Open USD as a “solution searching for a problem.” This perspective suggests that while new entrants might create noise, the fundamental advantages held by established players like Circle will prevail.
Circle’s President, Heath Tarbert, publicly downplayed the threat from Open USD, stating the company is “playing the long game.” This stance implies a long-term strategy for maintaining market leadership and adapting to competitive dynamics, rather than reacting to short-term fluctuations.
It’s worth noting that Circle did receive final approval from the U.S. Office of the Comptroller of the Currency (OCC) on July 10, 2026, to establish Circle National Trust.
This approval saw CRCL stock surge by up to 13% pre-market, although gains pared to 5% by day’s end, suggesting regulatory wins may not fully offset economic pressures in the immediate term, as Wolfe Research also cautioned about limited impact on near-term earnings.
Broader implications for the stablecoin market
These shifts are unfolding in a stablecoin market already undergoing significant changes. USDC, with a market capitalization of over $73 billion as of July 7, 2026, remains the second-largest stablecoin, though still considerably behind Tether’s USDT at $184 billion.
However, USDC’s supply has been steadily declining, slipping from $82 billion to $76 billion, a 3.3% drop over the past six months. This shrinkage, coupled with the Federal Reserve’s rate cuts impacting the yield earned on USDC reserves, directly diminishes the profitability of stablecoin issuance.
The competitive maneuvers from OUSD and the renegotiation of terms with partners like Hyperliquid indicate a maturation of the stablecoin market. Issuers can no longer rely solely on market dominance to dictate revenue sharing. Instead, they must offer more compelling value propositions to maintain and expand their networks.
This evolving landscape suggests that stablecoin economics will increasingly favor distributors and users, as issuers are forced to compete more aggressively on yield sharing and other benefits. It shifts the balance of power, potentially leading to more innovation in how stablecoins generate and distribute value across their ecosystems.
The path ahead for Circle and its rivals
The impending renewal of the Coinbase partnership in August 2026 will be a critical moment for Circle. The outcome will likely set a precedent for future negotiations and significantly influence Circle’s revenue trajectory.
Coinbase, as a founding member of the Open Standard consortium, now holds a powerful bargaining chip. This could lead to a less favorable agreement for Circle than in previous years, further impacting its share of the USDC reserve income. The competition from OUSD is not just about a new stablecoin, but a new business model challenging the established order.
For the broader Ethereum ecosystem, where USDC plays a vital role in DeFi and other applications, these developments are crucial. A more competitive stablecoin market could lead to greater innovation and potentially better terms for users and protocols leveraging these assets. However, it also introduces a degree of uncertainty regarding the long-term stability and profitability of key infrastructure providers like Circle.
Ultimately, Circle’s ability to navigate these pressures—by adapting its revenue models, reinforcing its network effects, and leveraging its regulatory standing—will determine its continued dominance in the stablecoin space. The next few months, particularly the Coinbase negotiations, will offer significant insight into its strategic response.