JPMorgan Chase & Co. NYSE:JPM, a major banking group, has lowered its estimates for Circle Internet Group Inc. NYSE:CRCL, the company behind the USDC stablecoin, and Coinbase Global Inc. NASDAQ:COIN, a cryptocurrency exchange, as changing distribution economics appear likely to pressure both companies' stablecoin revenue. The bank said the partnership announced in May between Coinbase and Hyperliquid, a cryptocurrency exchange, changes how the income generated by USDC reserves is divided. Under the arrangement, Coinbase manages the movement of USDC onto Hyperliquid's system and shares most of the associated reserve-yield revenue with the protocol. JPMorgan analysts, including Kenneth Worthington, believe Coinbase may pass much of the economics from USDC activity on Hyperliquid to the platform, limiting the additional revenue Coinbase could otherwise earn.
JPMorgan described the arrangement as a near-term revenue headwind for both Circle and Coinbase, arguing that it may place the companies in a prisoner's dilemma as they compete while also working together to expand USDC distribution. The bank noted that exchanges and payment platforms are gaining greater bargaining power, potentially requiring stablecoin issuers to give up more of the interest income earned on reserves in exchange for wider distribution. JPMorgan also said more difficult cryptocurrency market conditions are weighing on transaction activity and cryptocurrency asset levels. The bank reduced its Coinbase price target to $196 from $283, although Coinbase shares rose about 2.3% to $160.94 as of 12:42 p.m. in New York, while Circle shares were little changed at approximately $62.84.
Competition across the stablecoin market appears to be adding further pressure to the economics of issuing and distributing digital dollars. Visa Inc. NYSE:V, a payments company, BlackRock Inc., an asset manager, Alphabet Inc. NASDAQ:GOOG, a technology company, and Coinbase are backing a consortium that introduced Open USD, a competing stablecoin expected to share nearly all of its reserve income with distribution partners. Mizuho Securities Co. Ltd., a brokerage firm, downgraded Circle from neutral to underperform, warning that competitors offering banks, exchanges, and payment companies more generous revenue-sharing terms could reduce margins across the industry. The brokerage also highlighted the upcoming renewal of Circle's revenue-sharing agreement with Coinbase as another potential source of pressure, giving investors an additional factor to watch as competition for stablecoin distribution intensifies.