Wall Street turns cautious on Circle as analysts warn USDC economics face mounting pressure

Wall Street analysts are growing more cautious on Circle as competition ramps up in the stablecoin market, with Mizuho downgrading the stock and JPMorgan lowering earnings estimates, each citing concerns that the economics underpinning USDC are coming under pressure on multiple fronts.

Mizuho downgraded Circle (CRCL) to Underperform from Neutral and slashed its price target by over 41%, to $50 from $85.

On the same day, JPMorgan lowered earnings estimates for Circle and Coinbase, with both firms pointing to growing strains of Circle's (USDC) economics.

For Mizuho analyst Dan Dolev, the biggest of these threats is Open USD, a new dollar-backed stablecoin backed by a consortium of more than 140 financial, tech and crypto companies, including Visa, Mastercard, Stripe, BlackRock and Coinbase.

Unlike Circle's model, where it retains roughly 38% of 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 reserve yield to distributors, while it keeps a small management fee. Mizuho argues that could force Circle to follow suit and concede a bigger share of reserve income in order to compete.

"We believe that over time, distribution partners will be emboldened to demand more from CRCL," Dolev wrote.

Mizuho also noted that Circle's current revenue-sharing agreement with Coinbase (COIN), which just so happens to be its largest USDC distribution partner, is expected to be up for renewal next month. And because Coinbase is also a founding Open USD member, it could give the exchange extra leverage in negotiating new terms.

The 'prisoner dilemma'

JPMorgan came to a similar conclusion, albeit from a different direction.

The bank pointed to Circle's revised USDC partnership with the Hyperliquid decentralized exchange as evidence that distributors are already securing more favorable economics. Under the new agreement, Coinbase will receive all reserve income tied to Hyperliquid's USDC balances before giving back roughly 90% of the yield to the DEX.

JPMorgan referred to the arrangement as a "prisoner's dilemma" that incentivizes Circle and Coinbase to compete against each other to offer the most attractive revenue-sharing terms to retain partners.

Hyperliquid currently holds about $6 billion in USDC, equal to roughly 8% of the circulating supply, according to the bank.

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Contrarian takes

Other analysts see these fears as exaggerated.

Following the OUSD consortium's launch earlier this month, Bernstein reiterated its Outperform rating and $190 price target on Circle, arguing that Open USD validates stablecoins as a growing asset class rather than posing a competitive threat.

The firm said Circle's liquidity, regulatory head start and network effects will be difficult to replicate, adding that other consortium-led financial projects have historically struggled to gain traction.

Analysts at William Blair also reiterated an Outperform rating, describing OUSD as a "solution searching for a problem."