Wall Street analysts are turning more cautious on Circle as a new wave of competition threatens to reshape the economics of the stablecoin market, putting pressure on one of the company’s most important sources of revenue: the interest earned on reserves backing its USDC token.
Mizuho downgraded Circle’s stock to Underperform from Neutral and cut its price target to $50 from $85, a reduction of more than 41%. JPMorgan also lowered earnings forecasts for both Circle and Coinbase, citing growing pressure on Circle’s USDC business model as rival stablecoin projects offer more generous revenue-sharing terms to platforms that help distribute their tokens.
The shift in tone reflects a broader concern on Wall Street: stablecoin issuers may no longer be able to keep as much of the yield generated from reserves as competition increases. For Circle, whose USDC is the second-largest dollar-pegged token in circulation, that could mean lower margins even if stablecoin adoption continues to grow.
At the center of the debate is Open USD, a dollar-backed stablecoin project supported by more than 140 companies, including Visa, Mastercard, Stripe, BlackRock and Coinbase. Analysts say its structure could challenge the way Circle has historically made money from USDC.
Open USD is designed around a “pass-through” model, in which nearly all reserve yield is distributed to participating platforms, with the issuer keeping only a small management fee. Circle’s model is different. According to Mizuho analyst Dan Dolev, Circle keeps roughly 38% of income after sharing economics with partners.
That difference may become increasingly difficult to defend if major distribution platforms begin demanding higher payouts.
“Competition is moving from branding and trust to economics,” one market participant familiar with stablecoin distribution said. “If two tokens both claim to be dollar-backed, the next question becomes who shares more of the yield.”
Circle shares are now being judged not only on stablecoin growth, but also on whether the company can protect its take rate as rivals try to win distribution through better financial terms.
Pressure builds on USDC revenue model
Circle earns a large portion of its revenue from the reserves backing USDC. When traders hold USDC, Circle places the dollar-equivalent reserves in cash and short-term instruments, including Treasury bills. The yield generated on those assets becomes revenue, part of which may be shared with distribution partners.
That model has been highly profitable during a period of elevated interest rates. But it is also vulnerable to two forces: declining stablecoin supply and rising partner payouts.
The first issue is already visible. The broader dollar-pegged token market has lost about $10 billion in total value since late May, according to recent market figures cited by analysts. USDC supply has also fallen from roughly $80 billion in March to about $73 billion today.
A smaller reserve base means less yield income. At the same time, competition from newer token projects may force Circle to share more of whatever income remains.
Mizuho warned that the spread between Circle’s economics and Open USD’s pass-through approach could pressure Circle to renegotiate revenue splits with distributors. That risk is particularly sensitive because Circle’s revenue-sharing agreement with Coinbase, its largest USDC distribution partner, is due for renewal next month.
Coinbase’s role adds complexity. The company has long been a key partner in USDC distribution, but it is also listed among the companies supporting the Open USD consortium. That places Coinbase in a stronger negotiating position if competing stablecoin issuers are willing to offer more favorable economics.
JPMorgan reached a similar conclusion, saying Circle and Coinbase may face incentives to offer better terms in order to secure and retain platform relationships. The bank described the setup as a “prisoner’s dilemma,” a situation in which each side may feel pressure to give away more economics to avoid losing distribution to rivals.
Hyperliquid deal signals changing terms
One example drawing analyst attention is Circle’s revised USDC arrangement tied to Hyperliquid, a decentralized exchange that has become one of the largest venues for on-chain derivatives trading.
Under the structure described by JPMorgan, Coinbase retains reserve income generated from Hyperliquid’s USDC positions before returning about 90% of the yield to the platform. Hyperliquid currently holds roughly $6 billion in USDC, representing about 8% of USDC’s total circulating supply.
The size of that balance makes the arrangement significant. If other major platforms demand similar terms, Circle’s economics could come under greater strain.
The Hyperliquid example also shows how stablecoin distribution is becoming more competitive. Large platforms that attract large balances can now negotiate for a bigger share of reserve income. In earlier phases of the stablecoin market, trust, liquidity and regulatory positioning carried more weight. Those factors still matter, but the financial return on idle balances is becoming a more central point of competition.
This is especially important for platforms that serve active traders. For many users, stablecoins are not just payment tools. They are parking places for cash between trades. If a platform can offer better yields on idle dollar balances, that can become a meaningful advantage.
The pressure may be strongest in markets where users move funds quickly and compare returns across trading venues. In that environment, stablecoin issuers must offer attractive economics not only to end users, but also to the platforms that control access to those users.
Cost of distribution becomes a bigger concern
Analysts are also focusing on Circle’s distribution costs, which are expected to rise as the stablecoin market becomes more crowded. Mizuho has indicated that distribution expenses could reach 73% by 2027 under its revised assumptions.
That figure reflects the growing amount of reserve income that may need to be shared with partners, rather than retained by Circle. If those costs rise faster than supply or interest income, earnings could fall even in a market where stablecoins remain widely used.
Mizuho cut one of its future earnings estimates for Circle to $699 million from $1.09 billion, reflecting a more cautious view of the company’s ability to maintain margins as competition increases.
The downgrade does not suggest that USDC is losing relevance. Rather, it highlights a narrower issue: whether the economics of USDC can remain as strong as they were when fewer large rivals were offering aggressive revenue sharing.
The stablecoin business has often been viewed as simple: issue tokens, hold reserves, earn yield. The new competitive landscape shows that the business may be more complicated. Distribution partners want a larger share. Platforms want to offer better terms to traders. Rival issuers are willing to sacrifice more economics to gain market share.
That combination can compress margins across the sector.
Open USD raises the competitive threat
Open USD’s backers are presenting the project as a more open and more distributor-friendly alternative to existing stablecoin models. Its promise of free token creation, no volume limits and broad sharing of reserve yield is meant to appeal to platforms that want to reduce costs or capture more income from user balances.
If the project gains adoption, it could create a benchmark for stablecoin economics. Platforms may ask why they should accept lower payouts from established issuers if a competing token offers more generous terms.
However, the challenge for Open USD is execution. Stablecoins depend heavily on trust, liquidity, compliance systems, redemption reliability and broad acceptance across financial and crypto infrastructure. A more attractive revenue-sharing model does not automatically guarantee adoption.
That is one reason some Wall Street firms remain positive on Circle despite the recent pressure.
Bernstein reiterated its Outperform rating and $190 price target, arguing that the arrival of Open USD shows growing traditional finance acceptance of stablecoins rather than a direct threat that undermines Circle’s long-term position. The firm pointed to Circle’s liquidity, existing network and early regulatory positioning as advantages that may be difficult for newer competitors to replicate quickly.
William Blair maintained a similar rating, noting that consortium-driven projects often struggle to sustain adoption over time. Large groups can help launch a product, but keeping members aligned and building deep market usage are separate challenges.
Those more optimistic analysts argue that Circle’s established infrastructure gives it a level of stability in a market entering a more competitive phase. In their view, the company may face margin pressure, but it also has brand recognition, regulatory momentum and existing integrations across the digital asset economy.
Regulation remains a key advantage
Circle has also worked to position itself as a regulated stablecoin issuer, a point that may become more important as governments tighten rules around dollar-backed digital tokens.
Regulatory clarity can affect which stablecoins banks, payment companies, asset managers and large platforms are willing to support. If Circle is seen as being ahead of rivals on compliance, that could help defend its market share even as competitors offer richer economics.
The question is whether that advantage is enough to offset rising distribution costs.
Stablecoin users generally want three things: confidence that the token is fully backed, the ability to redeem at par, and easy acceptance across platforms. Increasingly, they may also expect a better share of the yield generated by the reserves backing those tokens.
That last point is where the market appears to be changing fastest.
For years, stablecoin issuers benefited from the fact that many users did not receive any direct return on token balances. As interest rates rose, the yield on reserves became a large profit pool. Now, platforms and users are looking more closely at who captures that value.
If interest rates eventually fall, the amount of yield available to share will decline. That could reduce revenue for issuers while leaving competitive pressure in place. If rates remain higher for longer, the yield pool stays large, but platforms may demand an even bigger cut.
Either scenario creates strategic pressure for Circle and other established issuers.
Traders watch yield competition
For traders, the immediate issue is not only which stablecoin is most widely accepted, but how platforms treat idle balances. As competition grows, digital asset platforms may try to attract users by passing along more of the interest earned on reserves or by linking accounts to higher-yield stablecoin arrangements.
That could make yield-sharing terms more visible over the next several weeks, particularly as Circle’s key distribution agreement with Coinbase approaches renewal.
Still, higher yield is only one factor. Traders also need liquidity, redemption access, platform reliability and confidence in reserve management. A stablecoin that offers better economics but lacks deep acceptance may not be useful in fast-moving markets. Conversely, a widely accepted token with lower yield may remain attractive if it offers smoother settlement and broader trading pairs.
The growing competition also raises risk for platforms and token holders if terms change quickly. A platform that offers a high payout today may adjust rewards later if issuer economics change, transaction activity slows or reserve yields decline.
That does not mean traders will abandon established stablecoins. It does mean stablecoins are moving into a new phase, where market share may depend more on economic incentives than on reputation alone.
A market entering a price war
The debate around Circle captures a wider shift in the stablecoin sector. The market is no longer only about issuing dollar-backed tokens and building trust. It is increasingly about distributing the income generated by those tokens.
Open USD and similar models are putting pressure on older structures by offering more generous terms to partners. Circle, as one of the largest and most visible issuers, is now at the center of that pressure.
Mizuho and JPMorgan see the risk of lower margins and higher distribution costs. Bernstein and William Blair see a company with strong existing advantages that may be able to withstand new competition. Both views can be true at the same time: Circle may remain a major stablecoin issuer while earning less per dollar of USDC in circulation.
That possibility is what has changed the tone on Wall Street.
Stablecoin adoption may continue to grow, especially as payment companies, asset managers and financial technology firms build more products around tokenized dollars. But growth in usage does not automatically translate into higher profits for issuers if more of the economics are passed through to platforms and users.
For Circle, the coming months may be critical. The renewal of major distribution agreements, the pace of USDC supply growth, the rollout of Open USD and the behavior of large platforms such as Hyperliquid will all help determine whether the company can defend its economics in a market that is becoming more aggressive.
The stablecoin sector is still expanding, but the profit pool is being contested more directly. That is why analysts are watching Circle closely, and why the next phase of competition may be fought less on technology and more on who gets paid for holding the dollars behind the tokens.
To navigate shifting stablecoin dynamics, explore how evolving models impact liquidity, yield-sharing, and long-term opportunities for traders and institutions.
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