Circle Faces Margin Pressure as Stablecoin Competition Shifts to Distribution Economics

As new consortium-backed stablecoins emerge, analysts warn that the battle for market share is increasingly being fought over revenue sharing rather than issuance.

Wall Street analysts are raising concerns about Circle's long-term profitability, arguing that intensifying competition in the stablecoin market is beginning to reshape the economics underpinning USDC.

On Tuesday, Mizuho downgraded Circle from Neutral to Underperform and cut its price target by more than 41%, from $85 to $50. Separately, JPMorgan lowered earnings estimates for both Circle and Coinbase, citing growing pressure on the revenue model that has supported USDC's expansion.

While both firms highlighted different catalysts, their assessments point to the same trend: competition in the stablecoin market is moving beyond issuance and toward distribution economics.

Open USD Challenges the Traditional Stablecoin Revenue Model

According to Mizuho, one of the biggest competitive threats comes from Open USD, a consortium-backed dollar stablecoin supported by more than 140 companies across the financial, payments and crypto sectors, including Visa, Mastercard, Stripe, BlackRock and Coinbase.

Unlike Circle's current model—which retains roughly 38% of reserve income after sharing revenue with distribution partners such as Coinbase and Binance—Open USD is designed to pass nearly all reserve yield to distributors while earning only a small management fee.

The model could shift negotiating power toward exchanges, fintech platforms and payment providers that distribute stablecoins, forcing issuers to surrender a larger share of reserve income to remain competitive.

"We believe that over time, distribution partners will be emboldened to demand more from Circle," Mizuho analyst Dan Dolev wrote.

The firm also noted that Circle's revenue-sharing agreement with Coinbase—its largest USDC distribution partner—is expected to come up for renewal next month. Coinbase's role as a founding member of Open USD could strengthen its bargaining position during negotiations.

JPMorgan Sees Distribution Partners Gaining Leverage

JPMorgan reached a similar conclusion, pointing instead to Circle's recently revised partnership with decentralized exchange Hyperliquid.

Under the updated arrangement, Coinbase receives all reserve income generated by USDC balances held on Hyperliquid before returning approximately 90% of that yield to the decentralized exchange.

The bank described the structure as a "prisoner's dilemma," in which Circle and Coinbase are incentivized to offer increasingly generous revenue-sharing terms to retain distribution partners.

Hyperliquid currently holds approximately $6 billion in USDC, representing around 8% of the stablecoin's circulating supply, according to JPMorgan.

Stablecoin Competition Is Moving Beyond Market Share

The analysts' concerns reflect a broader shift across the stablecoin industry, where competition is increasingly centered on distribution networks rather than simply growing circulating supply.

Historically, issuers generated revenue primarily from interest earned on reserve assets while sharing part of that income with exchanges and platforms that expanded adoption.

However, the emergence of consortium-backed stablecoins and growing institutional participation is giving distributors greater leverage over how reserve income is allocated.

If issuers are forced to offer more attractive revenue-sharing terms, reserve income—one of the industry's primary revenue streams—could come under sustained pressure.

The trend also comes as stablecoins gain greater regulatory recognition in major markets, with governments increasingly viewing them as payment and settlement infrastructure rather than purely crypto-native assets. As adoption accelerates, competition may increasingly depend on commercial partnerships and financial incentives as much as regulatory compliance or technological capabilities.