Key facts
- JPMorgan has lowered its earnings forecasts for Circle and Coinbase.
- A new revenue-sharing deal between Circle, Coinbase, and Hyperliquid impacts the distribution of income from USDC reserves.
- Under the agreement, Coinbase will allocate 90% of the income generated from USDC reserves held on Hyperliquid to the platform.
- JPMorgan estimates Hyperliquid holds approximately $6 billion in USDC, representing about 8% of the total circulating supply.
- The partnership aims to increase USDC adoption on Hyperliquid's blockchain and decentralized exchange.
- Mizuho has downgraded Circle's stock due to concerns about USDC economics, while other firms remain bullish.
JPMorgan has revised down its earnings forecasts for Circle and Coinbase following a new revenue-sharing agreement with Hyperliquid that alters the distribution of income generated from USDC reserves. The bank views this arrangement as a "prisoner's dilemma," where both Coinbase and Circle may sacrifice revenue share to boost USDC volume.
The deal, announced on May 14, involves Coinbase categorizing USDC on Hyperliquid as "on-platform" balances, with 90% of the generated income being returned to Hyperliquid instead of being split between Coinbase and Circle. JPMorgan estimates that Hyperliquid holds approximately $6 billion in USDC, representing about 8% of the stablecoin's total circulating supply.
This partnership is intended to expand USDC adoption on Hyperliquid's Layer-1 blockchain and decentralized exchange, where USDC has become the preferred stablecoin since June 11. However, JPMorgan's analysis suggests the financial terms will negatively impact the future revenue streams for both Circle and Coinbase.
Wall Street sentiment on Circle is divided. While JPMorgan and Mizuho have expressed increased caution, with Mizuho downgrading the stock, firms like Bernstein and William Blair maintain a bullish stance. Despite these concerns, JPMorgan still anticipates growth in USDC-related earnings through 2027, supported by expectations of sustained higher interest rates.