JPMorgan (NYSE:JPM) on Tuesday cut earnings forecasts for Circle Internet (NYSE:CRCL) and Coinbase (NASDAQ:COIN) after their new agreement with Hyperliquid weakened USDC economics for both companies.

What Did JPMorgan Actually Say?

Analysts led by Kenneth Worthington said the Hyperliquid deal created a structural problem for the Circle-Coinbase partnership. 

Under the new arrangement, Coinbase classifies USDC held on Hyperliquid as “on-platform,” collects the reserve income, and pays 90% of it directly to Hyperliquid.

Previously, Coinbase split nearly all of that revenue evenly with Circle.

“We think the change in the Hyperliquid relationship showcases the challenge for Circle and Coinbase partnership agreements because it can create a prisoner’s dilemma that drives Coinbase and Circle to compete with each other when promoting USDC distribution,” Worthington wrote.

The problem is structural. Every time Coinbase chases a major distribution partner by offering better revenue terms, it cuts into Circle’s share. 

Every time Circle tries to protect its economics, it risks losing distribution. Both sides are now incentivized to undercut each other to secure the next Hyperliquid-scale deal.

Why Does Hyperliquid Make This A Bigger Deal Than It Looks?

Hyperliquid has grown into one of crypto’s largest trading venues, processing more than $150 billion in trading volume in July alone. 

Its volume relative to Binance climbed to 11.5%, and USDC balances on the platform have swelled to roughly $6 billion, representing about 8% of the entire circulating USDC supply.

That scale makes Hyperliquid an increasingly important distribution channel, which is exactly why Coinbase was willing to offer 90% of reserve yields to secure it. 

The more platforms of this size emerge, the more pressure Circle and Coinbase face to keep offering similar terms elsewhere.

How Much Has USDC Already Lost?

USDC’s circulating supply has fallen from nearly $80 billion in March to around $73 billion, part of a broader $10 billion contraction in the stablecoin market since May. 

Crypto trading activity cooled while new regulated rivals chipped away at both USDC and Tether’s USDT dominance.

JPMorgan cut earnings estimates for both Circle and Coinbase citing the Hyperliquid agreement alongside weaker crypto markets, though the bank noted higher interest rates provide some support for USDC-related revenue over the longer term.

Mizuho said last week that Circle’s approval from the U.S. Office of the Comptroller of the Currency to establish First National Digital Currency Bank is a positive milestone, but warned investors may be overestimating how much it moves the needle on USDC growth given the competitive pressures now in place.

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