Clarity Act’s impact on Circle could be negative over the long term, Mizuho says

If and when the Clarity Act becomes law, the landmark crypto market structure bill is widely expected to lift all boats across the digital asset industry, but Mizuho analysts argue Circle could be an exception.

"Our view is that CLARITY Act opens the door for even more institutional scale competition for stablecoins, further commoditizing CRCL's USDC," Mizuho analysts led by Dan Dolev wrote in a research note on Wednesday.

Mizuho argues the regulatory certainty provided by the Clarity Act could potentially attract more competition in the stablecoin space as commoditization of the crypto tokens accelerates, eventually eroding Circle (CRCL) revenues.

The analysts have previously said the recently announced Open USD stablecoin poses a significant threat to Circle revenue. The project is backed by a consortium of more than 140 financial, technology and crypto companies, including Visa, Mastercard, Stripe, BlackRock and Coinbase.

Unlike Circle, which retains approximately 38% of USDC’s reserve income after sharing revenue with partners such as Coinbase and Binance, Open USD is built around a "pass-through" model that routes nearly all its reserve yield to distributors while retaining only a small management fee.

On Wednesday, the Clarity Act took one step closer to becoming law as Republicans released the latest text for the legislation, setting it up for a possible full Senate vote as soon as next week. There still may be some issues around ethics, however, that could limit the bill's chances of getting all the votes it needs to clear the Senate.

Open USD is a new dollar-backed stablecoin project backed by a consortium of more than 140 financial, tech and crypto companies, including Visa, Mastercard, Stripe, BlackRock and Coinbase.

Mizuho also suggested that Coinbase, USDC’s largest distributor, could gain additional leverage in its next revenue-sharing negotiation with Circle because it has endorsed Open USD. The analysts said the companies’ distribution agreement could be renegotiated as soon as next month.

The analysts maintained their $50 price target for Circle. Shares of the (USDC) issuer were changing hands at about $67, down roughly 6% on the day, according to The Block's equities price data.