📉 Bearish
⏱ 3 min read
JPMorgan lowered its earnings outlook for Circle and Coinbase, warning that Hyperliquid’s revamped partnership framework places both firms in direct competition over USDC distribution and weakens the stablecoin’s earnings potential.
What Happened
JPMorgan issued a report spotlighting the structural risks arising from a new partnership between Hyperliquid—now one of the largest decentralized perpetual futures exchanges—and both Circle, the issuer of USDC, and crypto exchange Coinbase. Hyperliquid has rapidly emerged as a dominant crypto trading venue, processing over $150 billion in July trading and growing its share to 11.5% of Binance’s volume. According to JPMorgan, Hyperliquid now holds approximately $6 billion in USDC, an estimated 8% of total circulating supply. Under the new partnership terms, Coinbase will classify USDC on Hyperliquid as ‘on-platform’, allowing Coinbase to collect income from USDC reserves, but must pass on 90% of those earnings to Hyperliquid instead of splitting them evenly with Circle, as was previously done.
JPMorgan’s analysis characterizes this shift as introducing a classic ‘prisoner’s dilemma’: Circle and Coinbase are both incentivized to maximize distribution on Hyperliquid to claim a larger share of the USDC market, even if the resulting competition undermines their joint economics. The Wall Street bank’s analysts, led by Kenneth Worthington, explicitly lowered earnings forecasts for both companies, citing both the Hyperliquid agreement and flagging trading volumes as key headwinds. While long-term, higher rates could provide revenue support, the immediate effect is a thinning of profit margins for USDC-related business.
Why It Matters
This development reconfigures the economics of one of crypto’s largest stablecoins and underscores how emerging trading venues can tip the balance of power in the digital asset infrastructure. The new revenue-sharing model pivots much of the economic benefit towards Hyperliquid, diminishing the direct upside for both Circle and Coinbase from USDC reserves. For USDC itself, growing reliance on trading venues like Hyperliquid raises questions about stablecoin control, float management, and the sustainability of current business models as distribution channels fragment.
Historically, collaborative distribution agreements have enabled stablecoin providers to present unified strategies and stable margins. However, the introduction of zero-sum dynamics among partners often presses profit margins and fuels market share battles—challenges that the legacy banking sector has previously encountered, and which now echo in this new crypto context. With decentralized exchanges gaining scale, legacy providers may find their ability to enforce distribution terms and capture value increasingly constrained.
Key Takeaways
- JPMorgan flags the new Hyperliquid partnership as a source of direct competition between Circle and Coinbase.
- Hyperliquid’s USDC balances have grown rapidly, now representing a major segment of stablecoin liquidity.
- Revenue sharing changes will cut into both firms’ earnings forecasts, per JPMorgan.
- This may accelerate a shift in stablecoin power dynamics toward decentralized venues.
What’s Next
The market will be watching how Circle and Coinbase respond to the escalating competition triggered by the Hyperliquid agreement. Analysts will focus on whether the altered revenue model leads to further fragmentation in the stablecoin ecosystem and whether decentralized exchanges like Hyperliquid will continue to absorb increasing market share. Subsequent regulatory developments, shifts in trading volumes, and stablecoin adoption trends will remain critical levers as the competitive landscape continues to evolve. Both Circle and Coinbase may seek to renegotiate terms or diversify their distribution strategies to restore margin resilience. For now, margins remain under pressure as the market recalibrates to these new realities.
🧠 HafidWatch Take
JPMorgan lowered its outlook for Circle and Coinbase as a revised Hyperliquid partnership introduces direct competition for USDC distribution. Hyperliquid’s growing trading volumes and USDC use threaten the stablecoin’s earnings dynamics and underline strategic challenges for Circle and Coinbase.
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