Mizuho downgrades Circle as OUSD consortium threatens USDC margins
Circle's stock faced fresh scrutiny after Mizuho downgraded the company and JPMorgan cut earnings estimates, warning that a new rival stablecoin consortium could erode USDC's lucrative reserve economics.
Mizuho downgraded Circle to Underperform from Neutral and cut its price target by 41% to $50 from $85. JPMorgan simultaneously reduced its earnings estimates for both Circle and its largest distribution partner, Coinbase. The downgrades reflect growing Wall Street concern that the economics supporting the USDC stablecoin are deteriorating.
The immediate catalyst is Open USD (OUSD), a new dollar-backed stablecoin launched this month by a consortium of over 140 financial and technology firms. Backers include Visa, Mastercard, Stripe, BlackRock, and Coinbase. Unlike Circle, which currently retains about 38% of the yield generated by USDC reserves after paying partners like Coinbase and Binance, OUSD uses a pass-through model. It returns nearly all reserve yield to distributors while keeping only a small management fee.
Analysts warn this structural difference could force Circle to surrender a larger share of its reserve income to keep distribution partners. "We believe that over time, distribution partners will be emboldened to demand more from CRCL," Mizuho analyst Dan Dolev wrote. The pressure is particularly acute because Circle's revenue-sharing agreement with Coinbase is up for renewal next month. As a founding member of OUSD, Coinbase may have the leverage to negotiate significantly more favorable terms.
JPMorgan pointed to a recent USDC partnership with the Hyperliquid decentralized exchange as evidence that distributors are already capturing more value. Under that arrangement, Coinbase receives all the reserve income from Hyperliquid's USDC balances, returning 90% of the yield to the decentralized exchange. The bank described the dynamic as a "prisoner's dilemma," arguing it incentivizes Circle and Coinbase to undercut each other with increasingly attractive revenue-sharing terms to retain partners. Hyperliquid currently holds $6 billion in USDC, representing roughly 8% of the token's circulating supply.
Not all analysts are convinced the margin compression is inevitable. Bernstein reiterated its Outperform rating and $190 price target, arguing that the creation of OUSD actually validates stablecoins as a maturing asset class. The firm believes Circle benefits from entrenched network effects, superior liquidity, and a regulatory head start that consortium-led projects historically struggle to replicate. William Blair also maintained its Outperform rating, dismissing OUSD as a "solution searching for a problem."
