JPMorgan Lowers Circle Profit Expectations, USDC Issuance Rights "Prisoner's Dilemma" Surfaces
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JPMorgan Lowers Circle Profit Expectations, USDC Issuance Rights "Prisoner's Dilemma" Surfaces
Circle and Coinbase face a new test in the distribution game.
Navigating Web3 tides with focused insightsWritten by: @G_Gyeomm
Compiled by: AididiaoJP, Foresight News
On July 14, JPMorgan downgraded its earnings forecast for Circle. Analysts believe that the cooperation agreement reached between Circle and Hyperliquid in May of this year is weakening USDC's revenue structure and creating a "Prisoner's Dilemma" style competition between Circle and Coinbase. JPMorgan judges that this agreement poses a greater long-term threat to Circle than its impact on Coinbase.
Looking back at the events surrounding Circle over the past two months, the context is gradually becoming clear:
May 14: Hyperliquid stopped using its own stablecoin USDH and switched to using USDC as its Aligned Quote Asset (AQA). Coinbase is responsible for reserve deployment, and Circle is responsible for cross-chain infrastructure. Both parties staked 500,000 HYPE tokens each and ceded approximately 90% of the reserve yield to Hyperliquid.
June 30: The Open Standard alliance, composed of approximately 140 companies, launched OUSD. This stablecoin has no fees or limits on minting and redemption, and most of the reserve yield will be distributed to distribution partners. On that day, CRCL stock price fell by 13% to 16%.
July 10: The Office of the Comptroller of the Currency (OCC) finally approved Circle to establish a federal chartered trust bank (Circle National Trust). The stock price subsequently rebounded 14%.
July 14: JPMorgan downgraded earnings forecasts for Circle and Coinbase. The scale of USDC held by Hyperliquid is approximately $6 billion, accounting for about 8% of USDC's total circulating supply.
During this period, CRCL stock price slid all the way from a 52-week high of $263 to the $63 range, with a cumulative fall of 44.6% in June alone. This is seen as resulting from OUSD announcing a revaluation of USDC's long-term profitability, coupled with mechanical selling by passive funds after CRCL was removed from growth indices.
There is only one fundamental reason for the downward revision of CRCL's valuation: the issuer's bargaining power has completely shifted to the distribution channels.
Reserve management is essentially standardized short-term Treasury bill management; stablecoin issuance itself has tended towards commoditization, and maintaining the peg is already a mature issue. The only remaining variable is distribution, and the changes this quarter confirm this shift in rules.
How the Stablecoin Negotiation Table Tilts
Issuance rights did not always lack a moat. USDC was initially managed by a consortium co-founded by Circle and Coinbase in 2018. When the consortium dissolved in 2023, Circle paid Coinbase approximately $200 million in share value to gain exclusive issuance rights. At that time, issuance rights were indeed worth that price.
Since then, the tilting of the negotiation table has gone through three stages:
Stage 1 (2018-2024): Revenue Sharing
Issuers and distributors share reserve management yield. In 2024, the distribution costs Circle paid to Coinbase were approximately $900 million, accounting for 90% of its total distribution costs. In the cooperation with Binance in the same year, Circle also prepaid $60 million. At this time, distribution costs were already heavy, but at least Circle could still lock in distribution channels by paying consideration.
Stage 2 (September 2025 - May 2026): Issuance Commoditization
Multiple institutions launched stablecoin issuance services (Paxos USDG, Agora, M0, etc.), making stablecoin issuance a purchasable service. Substitution did not happen immediately—Hyperliquid once issued USDH on its own, but due to insufficient liquidity and trading pairs, supply stagnated around $100 million for a long time, while USDC remained at $5 billion.
However, Hyperliquid ultimately abandoned USDH and instead took approximately 90% of USDC's reserve yield. Self-issuance performed poorly, but the conditions obtained through distribution were better. This shows: substitutes do not necessarily need to succeed; as long as distribution channels are solid, their existence itself can enhance bargaining power. Both parties actually admit—distribution decides everything.
Stage 3 (June 2026): Cracks Appear in Issuer Economic Model
Simply providing the single service of stablecoin issuance is no longer enough to sustain the business. OUSD has zero fees and zero limits on minting and redemption, and returns most of the reserve yield to partners, with the issuer only collecting a small management fee. Originally, issuers negotiated revenue sharing with distributors; now the structure has become "nothing left to share." Issuance has downgraded from a high-margin business to public infrastructure jointly maintained by distribution partners.
The key is that a clear precedent has been formed: a distributor holding 8% of circulation took 90% of the reserve yield. Compass Point estimates that this single Hyperliquid transaction alone will wipe out $60 million to $80 million in combined annual EBITDA for Circle and Coinbase. Other channels holding the remaining 92% of circulation—centralized exchanges, perpetual contract DEXs, lending protocols, wallets, brokers, etc.—have no reason not to gradually make the same demands.
Is the Independent Issuer Model Coming to an End? Where Does the Market Go Next
If issuance has been commoditized, then enterprises that only do issuance must re-prove their value of existence. Everything happening in the stablecoin market currently is either an attempt to prove this, or action by parties who no longer need to prove it.
Fragmented Market Without Negotiation: Tether occupies 59% of the stablecoin market with a USDT supply of $186.7 billion, but no single distributor holds such a scale of volume. USDT accounts for 88.5% of stablecoin activity in Nigeria, and 90.2% of orders in Venezuela Binance P2P, with over $600 billion in monthly flow in Asia, Africa, and Latin America, mainly consisting of small transactions under $1,000 per transaction. In a market where millions of users each hold less than $1,000, there is no counterparty to sit at the negotiation table.
Local License Moat: Local licenses follow a different logic—eliminating distributors' alternative choices through law. SBI is the only operator in Japan that can handle USDC, while superimposing exchanges, lending, RLUSD distribution, and JPYSC, forming a group structure integrating issuance and distribution. Singapore's StraitsX similarly occupies over 70% of the Southeast Asian non-USD stablecoin market thanks to XSGD (the only SGD stablecoin approved by MAS); although its market cap is only $13 million, the space provided by local regulation is secure yet narrow.
Issuers Enter Distribution: Circle is expanding its own distribution channels, including Arc, CPN, and trust banks, etc. Compared to sharing yield with external distributors, it is attempting to acquire new revenue sources such as Gas fees and payment fees, parallel to reserve management yield. The Circle CFO mentioned validator operations on Arc as an alternative revenue source, which belongs to the same logic. But the more distribution it directly controls, the easier it is to form a competitive dilemma with existing partners.
Distributors Enter Issuance: Distribution operators are jointly building issuance infrastructure (such as OUSD), or further launching their own stablecoins. Western Union is integrating USDPT into its global remittance network, Fidelity is advancing FIDD, and U.S. Bancorp is also advancing its own stablecoin. Companies possessing distribution channels have no reason not to issue stablecoins in their own name.
Outsourced Issuance: The entity actually issuing USDPT is not Western Union, but the federal chartered bank Anchorage Digital Bank. Agora, M0, and Bridge are also doing similar business; Circle itself also provides white-label issuance services, allowing other distributors to issue stablecoins based on USDC.
Issuance rights have downgraded from the "everything" of stablecoin business to a "single function." What follows is a decline in the market's valuation of issuance rights, and an increased probability that the independent issuer model is merely a transitional model. OUSD's liquidity performance in the early second half of the year, changes in distribution costs between Coinbase and Circle, and the progress of local stablecoins expanding distribution networks will all sequentially confirm this direction.
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