Image Credit: Shutterstock
Mizuho Securities downgraded Circle Internet Group while J.P. Morgan cut earnings estimates for the stablecoin issuer, citing growing pressure on the economics of USDC. The warnings focus on competition, higher payments to distribution partners and revenue-sharing deals designed to expand USDC adoption.
Mizuho Cuts Circle Target to $50
Mizuho lowered Circle to underperform from neutral and reduced its price target to $50 from $85. The bank pointed to Open USD, a rival stablecoin backed by a consortium of payments, financial and crypto companies.
Open USD uses a model that passes most of the income earned on reserve assets to issuers and distributors after charging an operating fee. Mizuho analysts argued that the structure could encourage Circle’s partners to demand a larger share of USDC reserve income.
Circle shares traded near $63.22 early Wednesday. The stock had fallen in the previous two sessions after briefly rising on federal approval for Circle National Trust.
Reserve Income Drives Circle’s Business
Circle earns interest from the cash and short-term U.S. government securities backing USDC. The company then shares part of that income with partners that distribute the stablecoin and hold USDC on their platforms.
Reserve income reached $653 million in the first quarter of 2026, up 17% from a year earlier. Growth in average USDC circulation offset a 66-basis-point decline in the return earned on reserves.
Distribution, transaction and other costs rose 17% to $407 million during the quarter. Circle attributed the
increase mainly to higher distribution payments. Total revenue and reserve income reached $694 million.
The figures show that growing USDC supply can raise revenue while also increasing the amount Circle pays to platforms that support its adoption.
Coinbase Agreement Approaches Renewal
Circle’s relationship with Coinbase is central to its distribution model. Under their collaboration agreement, Circle shares reserve-related income to support USDC liquidity and usage.
The companies are expected to renegotiate parts of the arrangement in August. Mizuho said Open USD’s partner-focused model could strengthen Coinbase’s position in those talks and reduce the share of reserve income retained by Circle.
Circle also remains exposed to Federal Reserve policy. Lower interest rates reduce the yield earned on the assets backing USDC, although growth in circulation can offset part of that effect.
Hyperliquid Deal Adds Pressure to Margins
J.P. Morgan separately lowered its earnings forecasts for Circle and Coinbase following a new USDC arrangement with decentralized derivatives exchange Hyperliquid.
Coinbase became the official treasury deployer for USDC on Hyperliquid, while Circle supports the stablecoin’s issuance and cross-chain infrastructure. The agreement makes USDC an aligned quote asset across Hyperliquid markets.
J.P. Morgan analysts described the arrangement as a “prisoner’s dilemma.” Circle and Coinbase can support the deal to protect USDC’s market position, but doing so may require them to surrender more of the reserve income to the platforms that generate demand.
USDC Growth Must Offset Weaker Unit Economics
USDC circulation ended the first quarter at $77 billion, up 28% from a year earlier. On-chain transaction volume increased sharply as the stablecoin expanded across payments, trading and decentralized finance.
That growth remains important to Circle’s outlook. The bearish analyst views do not suggest that USDC adoption is falling across the market. They question how much profit Circle can retain from each dollar of USDC as competition and partner payments increase. Circle will need continued supply growth, new fee-based services or stronger distribution terms to offset lower reserve yields and a larger share of income flowing to partners.
