Recent developments indicate that JPMorgan has identified significant revenue challenges for Circle and Coinbase due to their new agreement with Hyperliquid. The bank's analysis suggests that this partnership may jeopardize the economic sustainability of Circle's USDC in both the short and long term.
JPMorgan expressed concerns regarding a "prisoner's dilemma" created by the deal, which compels both Circle and Coinbase to vie for USDC distribution to the detriment of their respective financial health. The bank's analysts have revised down their earnings forecasts for both entities, citing this new arrangement alongside declining trading volumes in the cryptocurrency market.
Hyperliquid, recently recognized as one of the largest crypto trading platforms, reportedly manages around $6 billion of USDC, approximately 8% of the stablecoin's circulating supply. This significant volume accentuates Hyperliquid's position as a vital distribution channel for USDC.
Under the modified agreement, Coinbase categorizes USDC as "on-platform" on Hyperliquid, which allows it to retain the income generated from reserves while distributing 90% of that income to Hyperliquid. Previously, revenue was shared more equitably between Coinbase and Circle. This shift in revenue distribution could further strain the economic viability of Circle's USDC.
JPMorgan's report highlights that while the Hyperliquid changes present immediate challenges, the long-term implications for Circle's stablecoin could be even more severe. In addition to the impact of this partnership, the bank noted a general downturn in cryptocurrency trading volumes and asset prices, which have compounded pressures on both firms.
As a response to these pressures, USDC has seen a decrease in its circulating supply, recently falling to about $73 billion from nearly $80 billion in March. This decline is part of a broader trend affecting stablecoins, indicating potential vulnerabilities in the market.
This material is informational and should not be considered financial advice.
