The global digital asset market is experiencing a profound structural shift, as the highly profitable business of issuing stablecoins transforms from a high-margin monopoly into a highly competitive, low-margin utility. In a major research report that has sent shockwaves through the cryptocurrency and financial technology sectors, JPMorgan Chase downgraded its financial outlook for both Circle Internet Group and Coinbase Global. The bank warned that rising competition, aggressive revenue-sharing agreements, and a contracting token supply are putting severe pressure on the economics underpinning the USD Coin stablecoin, commonly known as USDC.
The primary catalyst for this Wall Street re-rating is a newly identified “prisoner’s dilemma” involving a deal between Coinbase and the fast-growing decentralized trading platform, Hyperliquid. According to JPMorgan’s analysis, while these distribution agreements successfully expand the reach and overall circulation of the stablecoin, they force the issuers to sacrifice a massive portion of their interest income. This competitive dynamic is turning into a major headwind for both firms, forcing them to concede a larger share of their reserve yields to prevent massive platforms from switching to rival digital assets.
This margin pressure is being amplified by the launch of a formidable new competitor. On June 30, a massive consortium of more than 140 global financial, technology, and cryptocurrency giants—including Mastercard, Visa, Stripe, BlackRock, and Coinbase—unveiled Open USD, a highly regulated, dollar-backed stablecoin designed to disrupt the industry’s traditional fee structures. The combination of this new rival and the aggressive yield concessions demanded by decentralized trading platforms has prompted analysts to execute a major, downward repricing of the entire stablecoin sector.
The Stablecoin Price War: Why JPMorgan Warns of a Yield Squeeze
To understand why the stablecoin business is facing such intense profit pressure, one must analyze the traditional economics of token issuance. For years, Circle enjoyed a highly profitable, straightforward business model. The company would issue USDC, take the physical fiat currency backing the tokens, and invest those reserves in highly secure, yield-bearing assets like short-term U.S. Treasury bills and bank deposits. Circle would then collect the interest generated on these reserves, sharing a portion with key distribution partners like Coinbase while pocketing the rest as pure profit.
This model, known as float-capture, became incredibly lucrative as the Federal Reserve raised interest rates. In the early months, as benchmark yields remained elevated, Circle and Coinbase generated hundreds of millions of dollars in highly predictable, high-margin interest income. This stable revenue stream provided a vital buffer, allowing the companies to remain highly profitable even during periods of low cryptocurrency trading volumes.
However, that highly profitable era is rapidly drawing to a close. The market has entered a phase of intense, margin-eroding competition. As trading platforms and payment gateways realize how much money stablecoin issuers make off their deposits, they are beginning to demand a much larger share of the interest income. This shift in bargaining power is forcing Circle and Coinbase into a competitive race to the bottom, where they must progressively surrender their reserve yields to retain their primary distribution channels.
The Hyperliquid Deal: Inside the “Prisoner’s Dilemma”
The most prominent example of this margin squeeze is the recent agreement between Coinbase and Hyperliquid, a decentralized perpetual futures exchange that has experienced a rapid rise in trading volume. Hyperliquid has emerged as one of the single largest distribution channels for USDC, currently holding approximately $6 billion worth of the stablecoin, representing roughly 8% of USDC’s total circulating supply.
Recognizing its immense leverage, Hyperliquid negotiated a landmark agreement designating USDC as its primary “Aligned Quote Asset,” making it the default currency powering the platform’s vast trading infrastructure. However, to secure this vital partnership, Coinbase had to agree to an unprecedented revenue-sharing concession. Under the terms of the deal, Coinbase will collect the interest generated from the USDC reserves sitting on Hyperliquid, but will then pay up to 90% of that interest income directly back to Hyperliquid.
Re-routing the $160 Million Yield Stream
This 90% yield concession represents a massive structural shift in how stablecoin profits are distributed. Previously, under their long-standing partnership agreement, Circle and Coinbase split the interest income generated from USDC reserves roughly 50/50.
By bypassing this traditional arrangement and routing 90% of the yield back to the trading platform, the Hyperliquid deal directly redirects an estimated $160 million in annual revenue away from the Circle-Coinbase ecosystem.
This loss of interest income is a major blow to Circle’s profitability. While the partnership successfully keeps $6 billion in USDC locked inside the Hyperliquid platform—preventing users from migrating to rival stablecoins—it leaves Circle with virtually no margin on a significant portion of its circulating supply. The company is essentially running a high-volume, high-cost infrastructure operation for free, receiving almost zero financial reward for managing the reserves that back Hyperliquid’s trading activity.
The Prisoner’s Dilemma of Distribution
JPMorgan’s research team, led by analyst Ken Worthington, characterized this corporate arrangement as a classic “prisoner’s dilemma.” In game theory, a prisoner’s dilemma describes a situation where two parties are incentivized to cooperate, but are ultimately forced to make decisions that harm their collective interests to prevent the other from gaining an advantage.
Circle and Coinbase are trapped in this exact dynamic. Both firms desperately want USDC to expand its market share and remain the dominant stablecoin of the decentralized finance ecosystem. However, to win the business of major platforms like Hyperliquid, they must offer increasingly aggressive yield-sharing terms.
If they refuse to share their reserve income, the platform will simply partner with a rival stablecoin, completely wiping out USDC’s circulation.
This forces Circle and Coinbase to proactively sacrifice their own profitability to defend their market share, creating a self-reinforcing downward spiral that erodes the overall economics of the stablecoin business.
The Existential Threat: Open USD’s Radical Pass-Through Model
While the Hyperliquid deal has compressed near-term margins, the long-term threat to Circle’s business model comes from the launch of Open USD. Unveiled by the Open Standard consortium, Open USD is designed specifically to disrupt the traditional float-capture model that has historically defined the stablecoin industry.
The consortium-backed coin is not a small, speculative startup. It is supported by a massive coalition of over 140 leading financial, technology, and digital asset companies, including payment giants Visa, Mastercard, and Stripe, asset management titan BlackRock, and Coinbase itself.
By uniting the world’s most dominant payment networks and distribution platforms under a single, unified stablecoin, Open USD possesses the scale and institutional trust required to challenge the dominance of both Tether and USDC.
Float-Capture vs. Pass-Through Yields
The fundamental difference between Circle’s USDC and Open USD lies in their approach to yield distribution. Under Circle’s current business model, the company retains roughly 38% of the total interest income generated from its reserves after paying out revenue-share commitments to key distribution partners. This retained interest serves as Circle’s primary source of corporate revenue, funding its global operations and research and development budgets.
Open USD completely inverts this approach, operating on a radical “pass-through” model. The issuing consortium keeps only a tiny, fixed management fee to cover basic administrative costs, routing nearly 100% of the remaining Treasury yields directly back to the distribution partners, exchanges, and fintech platforms that onboard users.
This model makes Open USD incredibly attractive to massive payment networks. If a platform can keep almost all of the interest income generated from its customers’ stablecoin balances, it has virtually no incentive to continue offering or supporting USDC, threatening to dismantle Circle’s global distribution network.
The August Coinbase-Circle Contract Renewal
The threat posed by Open USD is particularly critical because Circle’s current revenue-sharing contract with its primary partner, Coinbase, is scheduled for renewal next month, in August. Coinbase is not just a major shareholder in Circle; it serves as the single largest distribution channel for USDC, handling the vast majority of the token’s retail and institutional onboarding.
Because Coinbase is also a founding member of the Open USD consortium, the exchange holds immense, unprecedented leverage heading into the August contract negotiations.
Coinbase can use the threat of migrating its users to Open USD to demand a much larger share of USDC’s reserve yields from Circle.
If Circle refuses to yield to these demands, it risks losing its most important partner. If Circle agrees to the concessions, its corporate profit margins will contract significantly, forcing a complete recalibration of the company’s long-term financial projections.
Changing Valuations: Wall Street Reprices the Stablecoin Sector
This rapid accumulation of margin pressure has prompted Wall Street analysts to execute a major, downward repricing of both Circle and Coinbase. Investors are beginning to realize that the era of earning high, unhedged yields on stablecoin reserves with zero competition is over.
Against this challenging backdrop, JPMorgan lowered its earnings forecasts for both companies, cutting its price target for Coinbase Global significantly from $283 to $196 per share.
The bank noted that the Hyperliquid deal and the broader trend of rising revenue-share demands will act as a major headwind for Coinbase’s near-term earnings, offsetting the positive fee revenue generated by its trading platform.
The stock market reaction for Circle has been even more severe. Mizuho Securities analyst Dan Dolev downgraded Circle Internet Group to an Underperform rating and slashed his price target by more than 41%, dropping his valuation from $85 to $50 per share.
Dolev warned that Open USD’s competitive pass-through model could fundamentally alter Circle’s corporate business model, forcing the company to operate as a low-margin utility rather than a high-margin growth stock.
This re-rating marks a dramatic turnaround for Circle, which went public in a stellar New York Stock Exchange debut last year and had previously seen its shares climb to record highs on the back of rising global adoption.
The Divergent View: Why Some Analysts Remain Bullish
Despite the overwhelming caution from JPMorgan and Mizuho, some Wall Street analysts maintain a highly constructive, long-term outlook for the stablecoin sector. Following the launch of Open USD, research firm Bernstein reiterated its Outperform rating on Circle with a price target of $190 per share, arguing that the market is overreacting to the competitive threats.
Bernstein’s bullish thesis assumes that the entry of major payment networks like Visa and Mastercard is positive proof that stablecoins are transitioning into a legitimate, multi-trillion-dollar institutional asset class, rather than remaining a niche cryptocurrency phenomenon.
Furthermore, the implementation of the U.S. GENIUS Act and Europe’s Markets in Crypto-Assets framework has established strict, legally binding regulatory standards that favor established, highly compliant issuers.
As the market expands globally, the rising tide is expected to lift all regulated boats, allowing Circle to maintain strong absolute revenue growth through sheer volume expansion, even if its individual percentage profit margins experience some compression.
The coming months will serve as a critical, defining chapter for the future of the digital asset industry. As the line between traditional banking and blockchain technology continues to blur, the companies that survive and thrive will be those that can successfully balance aggressive expansion with strict margin discipline.
The current price war proves that the stablecoin has emerged as the most critical transactional tool of the modern digital economy. However, as Wall Street’s downgrades suggest, the ultimate winners of this revolution may not be the companies that issue the tokens, but the massive payment networks, decentralized exchanges, and fintech platforms that control the global distribution channels, ensuring that they capture the lion’s share of the wealth generated in the digital age.
