Mizuho has downgraded Circle (CRCL) from Neutral to Underperform, slashing its price target to $50 from $85. This move reflects growing concerns about Circle's long-term economics, primarily driven by the emergence of Open USD. Open USD, launched by a consortium including Mastercard, Stripe, Coinbase, and BlackRock, utilizes a yield pass-through model that distributes most reserve income to issuers and distributors, a stark contrast to Circle's model which retains a larger portion of the treasury yield.
Mizuho analysts, led by Dan Dolev, predict that Open USD's model could force Circle to share more of its reserve income with distribution partners, thereby compressing its margins. The bank raised its estimate for Circle's distribution and transaction costs in 2027 to 73% from 64%, consequently cutting its adjusted EBITDA forecast for 2027 to $699 million, which is approximately 25% below the Wall Street consensus of $941 million. This pricing pressure is expected to outweigh any benefits from higher interest rates.
Adding to the pressure, Circle's significant revenue-sharing agreement with Coinbase, its largest distribution partner, is due for renegotiation in August. Coinbase's involvement in the Open USD consortium could give it substantial leverage in these upcoming talks. JPMorgan also weighed in, highlighting a "prisoner's dilemma" created by Hyperliquid's deal with Coinbase, where Coinbase secures favorable economics, suggesting a broader trend of distributors demanding better terms.
While Mizuho and JPMorgan express caution, other analysts hold differing views. Bernstein reiterated an Outperform rating and a $190 price target for Circle, arguing that Open USD validates the stablecoin market rather than posing a direct threat. William Blair also maintained an Outperform rating, characterizing OUSD as a "solution searching for a problem," citing Circle's established liquidity, regulatory advantage, and network effects as difficult to replicate.
Circle's stablecoin, USDC, has also experienced a decline in momentum, with its circulating supply falling from nearly $80 billion in March to about $73 billion. This decrease parallels a broader $10 billion contraction in the stablecoin market since May, attributed to softer crypto trading and increasing competition from newly regulated issuers.
