JPMorgan sees Hyperliquid deal tightening margins for Circle and Coinbase
JPMorgan has lowered its earnings projections for both Circle and Coinbase after a revised USDC revenue-sharing deal with Hyperliquid reshaped how income from stablecoin reserves is split. The bank warned that despite rising adoption of USDC, the new commercial terms could erode the long‑term profitability of the stablecoin business for the two firms.
New revenue split weakens USDC economics
In a recent research note, JPMorgan argued that the updated arrangement with Hyperliquid materially dilutes the economics of USDC for Circle and Coinbase. The core issue is not adoption – which continues to grow – but how much of the yield on USDC’s underlying reserves the issuers are now giving up to distribution partners.
Under the structure highlighted by the bank, Coinbase will treat USDC balances held on Hyperliquid as “on‑platform” deposits. That classification means Coinbase will receive the interest earned on those reserves. However, instead of sharing that income with Circle under their existing economic framework, Coinbase will pass on 90% of that reserve yield to Hyperliquid.
JPMorgan pointed out that this significantly reduces the value Coinbase and Circle can extract from a meaningful slice of USDC’s supply. Hyperliquid is estimated to hold roughly 6 billion dollars’ worth of USDC, or around 8% of the stablecoin’s circulating supply. With that scale, any change in how yield is allocated can have a visible impact on forward earnings.
Market share vs. profit: a growing trade‑off
The bank framed the Hyperliquid agreement as part of a broader trend: competition among exchanges and distribution partners is forcing stablecoin issuers to concede more of their reserve income in exchange for visibility, liquidity, and volume.
In JPMorgan’s view, Circle and Coinbase are now caught in a strategic trade‑off. To maintain and expand USDC’s presence across major trading venues, they may need to consistently offer more generous economics to platforms like Hyperliquid. That boosts usage metrics but compresses margins.
The situation, the bank suggested, is increasingly one where chasing adoption can mean sacrificing profitability. For investors, this introduces a new layer of risk: strong growth in USDC circulation may no longer translate as directly into earnings as it did in earlier phases of the stablecoin market.
Hyperliquid’s rising role in the USDC ecosystem
The updated revenue‑sharing concerns stem from an announcement made on May 14, when Circle and Coinbase unveiled a partnership to deepen USDC integration on Hyperliquid. The platform runs both its own Layer‑1 blockchain and a decentralized exchange offering spot and perpetual futures trading.
Since June 11, USDC has become Hyperliquid’s preferred stablecoin, cementing the platform’s importance within Circle’s distribution network. Liquidity pools, trading pairs, and derivatives denominated in USDC all contribute to making the token central to Hyperliquid’s infrastructure.
JPMorgan noted that it is precisely the commercial terms underpinning this expansion – not the growth in volumes or supply – that now occupy the minds of investors. As more of USDC’s activity migrates to venues where issuers share a larger slice of yield, the aggregate profitability of the stablecoin franchise is called into question.
Wall Street split on Circle’s long‑term outlook
The Hyperliquid deal has sharpened an already noticeable divide among analysts following Circle. Some now view the company’s business model as more fragile in a world where distribution partners demand a larger share of economics.
Mizuho, for example, has adopted a more conservative stance and downgraded its rating on Circle, reflecting concerns that increased USDC adoption may not deliver the same level of profitability seen when interest rates rose and distribution dynamics were more favorable.
Other firms, including Bernstein and William Blair, remain optimistic. They continue to expect Circle to benefit from the secular growth of digital dollars, even as competition for partnerships intensifies. According to this more constructive camp, a larger share of a growing pie could still translate into attractive earnings, provided Circle executes well and maintains its regulatory and operational edge.
JPMorgan still sees growth – but with slimmer margins
Even after reducing its forecasts, JPMorgan is not writing off the USDC business. The bank continues to project growth in USDC‑related earnings through 2027, primarily because of its updated interest‑rate expectations. Its baseline scenario now includes a 25‑basis‑point Federal Reserve rate hike at the October 2026 meeting.
Higher short‑term rates usually translate into greater income on the cash and Treasury securities that back USDC. That incremental yield can partially offset the effect of giving up more revenue to partners like Hyperliquid.
In other words, JPMorgan expects the absolute profit pool tied to USDC reserves to expand if rates stay elevated or rise modestly. The concern is that Circle and Coinbase may retain a shrinking percentage of that pool as more platforms negotiate aggressive revenue‑sharing terms.
From supply growth to revenue allocation: a new investor focus
For much of USDC’s history, investors mainly tracked the token’s circulating supply as a proxy for the health of Circle’s business. Rising supply meant more reserves, more yield, and more revenue. The Hyperliquid agreement, and others like it, are forcing a shift in that framework.
JPMorgan’s analysis suggests that the key question is no longer just “How big can USDC get?” but also “Who actually earns the yield on its reserves?” Exchanges, custodians, and distribution partners are increasingly staking a claim on that income.
As more deals are struck, the financial value captured by Circle and Coinbase could come under sustained pressure, even in a scenario where USDC keeps gaining traction across trading platforms, payment use cases, and on‑chain finance.
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Why the Hyperliquid deal matters beyond one platform
Although the Hyperliquid arrangement is only one specific contract, it could set a precedent for how future negotiations unfold. Other exchanges and DeFi platforms may point to the 90% revenue‑sharing figure as a benchmark, arguing that similar or better terms are necessary to justify deep USDC integration.
If this pattern spreads, Circle and Coinbase may find themselves standardizing a lower margin structure across multiple partners. That would structurally reset expectations for the profitability of their stablecoin business, making it more volume‑driven and less yield‑driven for the issuers themselves.
For Hyperliquid, the deal highlights a strategy of leveraging stablecoin flows as a competitive differentiator. By capturing most of the reserve yield, the platform can potentially reinvest that income into incentives, liquidity mining, or reduced trading fees, strengthening its market position and further reinforcing its bargaining power.
Stablecoin competition and strategic positioning
The economic pressure on USDC does not exist in isolation. The broader stablecoin market features major rivals, particularly those tied to large exchanges or issuers with different cost structures. If competing stablecoins are willing to offer even more aggressive revenue splits to win listings and volume, the margin race could accelerate.
Circle’s challenge is to maintain USDC’s regulatory reputation, transparency, and institutional appeal while operating in an environment where distribution costs rise. Coinbase, as both a shareholder in Circle and a key commercial partner, must balance its role as a distributor with its own need to protect shareholder returns.
The Hyperliquid agreement illustrates how aligned interests can become complex: what is optimal for Coinbase’s trading platform users or for Hyperliquid’s growth may not be ideal for Circle’s bottom line, even though all sides benefit from broader USDC adoption.
Interest rates, duration, and reserve strategy
JPMorgan’s reliance on an interest‑rate‑driven earnings outlook also highlights another dimension of risk. If rates do not rise as expected, or if they fall faster than anticipated, the cushion that higher yields provide against revenue‑sharing concessions could disappear.
In that scenario, deals like the Hyperliquid partnership may look more painful in hindsight. With less yield to go around, the share retained by Circle and Coinbase would be even smaller in absolute terms, while partner commitments remain locked in.
This makes reserve management and duration strategy critical. How much of the USDC reserve portfolio is kept in short‑term instruments versus slightly longer‑dated Treasuries can influence how sensitive earnings are to shifts in monetary policy. A more conservative duration profile protects liquidity but may cap income just as distribution costs are rising.
What it means for investors in crypto‑linked equities
For equity investors, the key takeaway from JPMorgan’s warning is that stablecoin economics are becoming more complex and less linear. A simple formula of “more supply equals more profit” is no longer sufficient.
Analysts now need to model a combination of variables: interest rates, circulating supply, the mix of on‑platform versus off‑platform balances, the evolution of revenue‑sharing contracts, and competitive responses from other issuers and exchanges.
This complexity may contribute to the divergence of Wall Street views on Circle and Coinbase. Bulls can reasonably argue that USDC’s central role in crypto trading and on‑chain finance provides a durable growth engine. Bears can counter that the value captured by shareholders will be increasingly diluted as partners demand a larger share of the economics.
Strategic options for Circle and Coinbase
Facing these headwinds, Circle and Coinbase have several strategic levers they can pull. They can:
– Prioritize partnerships where USDC plays a central, irreplaceable role, giving them more negotiating power over revenue splits.
– Expand into adjacent services – such as on‑chain payments infrastructure, compliance tooling, and institutional services – that monetize USDC usage in ways that do not solely depend on reserve yield.
– Differentiate USDC through regulatory clarity, transparency, and integration into traditional financial rails, making platforms more willing to accept slightly less favorable economics in exchange for lower risk.
Over time, the companies may also explore tiered partnership structures, where the most aggressive revenue‑sharing terms are reserved for platforms that drive substantial net‑new demand, while more modest arrangements apply elsewhere.
The broader stablecoin business model under scrutiny
The debate triggered by the Hyperliquid deal goes beyond USDC. It raises fundamental questions about stablecoin business models in a maturing market. As regulators pay closer attention to reserve backing, disclosures, and systemic importance, the cost of compliance and oversight will likely rise.
At the same time, distribution partners are capturing more of the top‑line yield. The net result is that issuers may need to operate on tighter margins while still investing heavily in infrastructure, risk management, and regulatory engagement.
For now, JPMorgan’s analysis underscores a key inflection point: stablecoins are evolving from a high‑growth, high‑margin niche into a more competitive, capital‑intensive financial product. How Circle and Coinbase navigate that transition – and how deals like the Hyperliquid partnership are replicated or refined – will go a long way toward determining the value their shareholders ultimately realize from USDC’s expansion.