JPMorgan Warns Hyperliquid’s Expansion Could Undermine Circle and Coinbase’s USDC Economics Over Time
Table of Contents
You might want to know
How does Hyperliquid’s new arrangement change the economics of USDC for Circle and Coinbase?
Could the deal force Circle and Coinbase into competitive behavior that harms both firms’ revenue streams?
Main Topic
JPMorgan has flagged a recent deal between Hyperliquid and major crypto platforms as a material shift in the distribution economics for USDC, the widely used dollar-pegged stablecoin issued by Circle. In the bank’s assessment, the revised commercial relationship is a near-term revenue headwind for Circle and Coinbase and presents a larger, structural threat to Circle’s USDC economics over time.
At the heart of JPMorgan’s analysis is the idea that the new arrangement creates what the bank terms a "prisoner’s dilemma." Under this framing, Circle (the stablecoin issuer) and Coinbase (a leading exchange) could be driven to compete aggressively for USDC distribution, each prioritizing market share or platform flows over preserving joint revenue economics. When both parties take such actions, JPMorgan argues, the net result may be weaker economics for both firms rather than a mutually beneficial equilibrium.
Hyperliquid has emerged as one of the fastest-growing venues in crypto trading, notably in the derivatives and perpetual futures segment. The platform reportedly processed more than $150 billion in trading volume in July, and its share of derivatives flow relative to Binance climbed noticeably, reflecting an expanding footprint. JPMorgan estimates Hyperliquid now holds roughly $6 billion in USDC balances — about 8% of the circulating supply — making it an increasingly important channel for stablecoin distribution.
According to JPMorgan’s read, the revised arrangement will have Coinbase classify USDC held on Hyperliquid as "on-platform." This classification allows Coinbase to capture the income generated by the reserves backing those tokens while remitting 90% of that income to Hyperliquid under the new terms. JPMorgan contrasts that with the prior setup, in which Coinbase effectively split most reserve-generated revenue more evenly with Circle. The altered split narrows Circle’s share of the economics derived from USDC held on the growing Hyperliquid venue.
JPMorgan’s analysts lowered earnings estimates for both Circle and Coinbase citing multiple factors: the Hyperliquid agreement, a slowdown in crypto trading volumes, and softer asset prices. The bank does note that higher interest rates can support some USDC-related revenues over a longer horizon, but the immediate effect of the deal is a downgrade to near-term expectations for both companies.
USDC itself has seen a decline in circulating supply in recent months, falling from nearly $80 billion in March to about $73 billion at the time of JPMorgan’s note. This contraction is part of a broader reduction across stablecoins — around $10 billion since May — driven by cooling crypto activity and competition from newly regulated stablecoin offerings. These market dynamics further complicate the revenue picture for issuers and distributors of dollar-pegged tokens.
Some market participants have pointed to regulatory milestones as potential offsets to these pressures. For example, Mizuho highlighted Circle receiving final approval from the U.S. Office of the Comptroller of the Currency to establish a dedicated banking entity as a positive development. JPMorgan and other analysts caution, however, that such regulatory progress may be valuable but could be overinterpreted by investors relative to its immediate economic impact.
The central takeaway: JPMorgan believes the Hyperliquid relationship alters the incentive structure around USDC distribution and creates competitive dynamics that may erode revenues for both Circle and Coinbase, while adding uncertainty to earnings forecasts amid a softer macro crypto environment.
Key Insights Table
| Aspect | Description |
|---|---|
| Key Fact 1 | Hyperliquid holds roughly $6 billion in USDC, about 8% of circulating supply, becoming a major distribution channel. |
| Key Fact 2 | Under the new deal, Coinbase will classify USDC on Hyperliquid as on-platform and pay 90% of reserve income to Hyperliquid, reducing Circle's prior revenue share. |
Afterwards...
Looking forward, the episode highlights several areas of technological and market development worth further attention. First, distribution channels and venue-level economics for stablecoins are becoming critically important; monitoring reserve income allocation, custody classifications, and revenue-sharing arrangements will be essential for assessing issuer and exchange economics. Greater transparency in these commercial terms could reduce informational asymmetries that lead to inefficient competitive behavior.
Second, growth in decentralized derivatives and new trading venues — and their ability to attract stablecoin liquidity — suggests the market structure is evolving. Protocol and infrastructure design choices that affect how reserves are managed, how on- and off-platform balances are classified, and how yield is sourced will have material financial consequences for ecosystem participants.
Finally, regulatory and banking developments remain significant. Licenses, charters, and clearer regulatory frameworks can change business models and capital treatment for stablecoin issuers, but they are unlikely to be a panacea for competitive pressures introduced by commercial agreements. Continued innovation in settlement, custody, and intermediation — combined with prudent disclosure practices — will help market participants adapt to shifting economics and preserve efficient, stable distribution of tokenized dollars.
In sum, the Hyperliquid arrangement is a concrete example of how commercial partnerships and venue growth can materially reshape the incentives driving stablecoin distribution and monetization. Market participants, analysts, and policymakers should watch these dynamics closely as the ecosystem continues to evolve.