- JPMorgan slashed earnings forecasts for Circle and Coinbase after Hyperliquid secured a revenue-sharing deal that redirects 90% of USDC reserve income to the platform.
- Hyperliquid now holds roughly $6 billion in USDC, about 8% of the stablecoin’s circulating supply, and processed over $150 billion in trading volume in July.
- The bank describes the arrangement as a “prisoner’s dilemma,” forcing Circle and Coinbase to compete for distribution at the expense of their own margins.
- USDC supply has dropped to $73 billion from $80 billion since March, as broader stablecoin market contraction and rising competition add pressure.
The rapid rise of decentralized perpetuals exchange Hyperliquid is forcing a fundamental reassessment of stablecoin economics, with JPMorgan now warning that a new revenue-sharing agreement with Circle and Coinbase could significantly dent the profitability of USDC. The bank’s analysts have cut their earnings forecasts for both companies, citing the deal as an immediate headwind and a longer-term structural threat to Circle’s core business model.
Hyperliquid has emerged as one of the fastest-growing trading venues in crypto, processing more than $150 billion in trading volume during July alone. Its volume relative to Binance climbed to 11.5%, underscoring its growing share of the derivatives market. The platform currently holds roughly $6 billion in USDC, which JPMorgan estimates represents about 8% of the stablecoin’s total circulating supply. That concentration makes Hyperliquid a critical distribution channel for USDC, but the commercial terms behind that integration are now raising red flags on Wall Street.
Hyperliquid’s Rapid Growth Reshapes USDC Economics
Under the revised arrangement highlighted by JPMorgan, Coinbase will classify USDC held on Hyperliquid as “on-platform” balances. This means Coinbase collects the income generated by the reserves backing those tokens but must pass 90% of that revenue directly to Hyperliquid. Previously, Coinbase split nearly all of that reserve income evenly with Circle. The shift effectively reduces Circle’s share of revenue from one of its largest distribution relationships, while Hyperliquid captures a much larger slice of the stablecoin velocity that issuers typically monetize through interest on Treasury-held reserves.
JPMorgan analysts led by Kenneth Worthington described the setup as a classic “prisoner’s dilemma.” The structure pushes Circle and Coinbase to compete against each other when pursuing new USDC distribution deals, eroding the economics of their own partnership. The bank said the arrangement is a near-term revenue headwind for both companies, but flagged a greater long-term risk for Circle specifically, given that stablecoin reserve income is a core part of its business model. Previous estimates from Compass Point suggested the agreement could redirect between $135 million and $160 million in annual reserve income toward Hyperliquid, potentially reducing the combined annual earnings of Circle and Coinbase by $60 million to $80 million.
The New Revenue-Sharing Structure
The agreement was announced in May as part of Hyperliquid’s updated Aligned Quote Asset framework. Coinbase became the treasury deployer for USDC on the network, while Circle remained responsible for minting, redemptions, and cross-chain transfer infrastructure. Circle also staked 500,000 HYPE tokens as part of the arrangement. USDC remains the main collateral asset across Hyperliquid’s spot and perpetual futures markets, which routinely handle north of $5 billion in daily notional volume.
JPMorgan noted that the deal’s effect isn’t limited to Hyperliquid alone. It sets a precedent for other exchanges and protocols that hold significant USDC balances. If Binance, Bybit, or other large venues demand similar terms, Circle could face a wave of margin compression that accelerates as on-chain derivatives markets keep eating into traditional exchange volume. The bank also pointed to a partial offset: higher interest rates support USDC reserve income over time because those earnings rise alongside rates. JPMorgan now expects a 25-basis-point Federal Reserve rate increase at the October 2026 meeting, which could provide some support.
Market Reaction and Analyst Divergence
Wall Street remains divided on Circle’s long-term outlook. Mizuho has taken a more cautious stance, downgrading the stock as concerns grow over whether expanding USDC adoption will continue to generate attractive economics. By contrast, Bernstein and William Blair have maintained positive ratings on Circle, indicating they still expect the stablecoin issuer to benefit from continued growth in digital dollar usage despite increasing competition for distribution partnerships.
USDC’s circulating supply has contracted in recent months, falling from nearly $80 billion in March 2026 to roughly $73 billion by mid-July. That decline is part of a broader $10 billion contraction across the stablecoin market since May, which JPMorgan attributed to slower crypto trading activity and growing competition from regulated rivals. Both USDC and Tether’s USDT have lost market share to those competitors during that period. Japanese investment bank Mizuho also noted that Circle received preliminary approval from the U.S. Office of the Comptroller of the Currency to establish First National Digital Currency Bank, calling it a positive step but cautioning that investors may be overestimating its near-term significance.
For investors, the latest debate has shifted attention away from USDC’s circulating supply alone and toward how reserve income is divided among issuers, exchanges, and distribution partners. JPMorgan’s analysis suggests that while adoption can continue rising, the financial value retained by Circle and Coinbase may come under increasing pressure as more platforms negotiate similar commercial terms. The bank continues to forecast growth in USDC-related earnings through 2027, but that expectation is now heavily dependent on the interest-rate outlook rather than on the underlying economics of the stablecoin business itself.