JPMorgan Warns Hyperliquid’s Growth Challenges Circle’s USDC Economy

JPMorgan Raises Concerns Over Hyperliquid’s Impact on USDC

JPMorgan has issued a warning that the recent deal between Hyperliquid, Circle, and Coinbase poses significant risks to the economics surrounding Circle’s USDC stablecoin. The bank suggests that this partnership could create a “prisoner’s dilemma” that may undermine earnings for the involved parties.

Revenue Headwinds for Circle and Coinbase

In a recent report, JPMorgan analysts lowered their revenue forecasts for both Circle Internet and Coinbase, attributing this adjustment to the new arrangements with Hyperliquid. They noted that this deal could weaken Circle’s USDC economics and lead to intensified competition between Circle and Coinbase for USDC distribution.

Hyperliquid’s Growing Market Presence

Hyperliquid has rapidly ascended to become one of the largest crypto trading platforms, now holding approximately $6 billion of USDC, which constitutes around 8% of the coin’s circulating supply. This growth underscores Hyperliquid’s role as a significant distribution channel for the stablecoin.

Changes in Revenue Sharing Arrangements

Under the terms of the new agreement, Coinbase will categorize USDC on Hyperliquid as “on-platform,” which will result in Coinbase retaining 90% of the revenue generated from reserves. Previously, Coinbase and Circle shared almost all revenue evenly. This shift is expected to further challenge both companies’ profitability.

Market Context and Future Outlook

JPMorgan also noted that the general market conditions, along with the Hyperliquid agreement, have prompted them to adjust their earnings estimates. Despite these challenges, the bank remains optimistic about higher interest rates providing some long-term support for USDC-related revenue.

Recently, USDC’s circulating supply has diminished to around $73 billion from nearly $80 billion earlier this year, reflecting broader trends within the stablecoin market. This decline is part of a more extensive contraction, with the stablecoin market shrinking by approximately $10 billion.

Further complicating the outlook, analysts from Japanese investment bank Mizuho caution that while Circle’s recent approval from the U.S. Office of the Comptroller of the Currency to launch the First National Digital Currency Bank signals progress, investors may be placing excessive weight on its significance.