Crypto
JPMorgan Warns Hyperliquid USDC Deal Could Hurt Circle
JPMorgan says Hyperliquid's USDC deal reshapes stablecoin economics by sending 90% of reserve yield to the exchange, pressuring Circle's revenue.
1d ago 4,280
BLOCKINSIDERLoadingJPMorgan says Hyperliquid's USDC deal reshapes stablecoin economics by sending 90% of reserve yield to the exchange, pressuring Circle's revenue.
Hyperliquid's latest USDC partnership with Circle and Coinbase is drawing attention beyond crypto trading. JPMorgan says the new agreement changes how stablecoin revenue is shared, giving Hyperliquid most of the yield generated by USDC reserves.
The deal could shape stablecoin economics as major platforms compete for users and liquidity.
In May, Circle and Coinbase updated their partnership with Hyperliquid, one of the fastest-growing decentralized perpetual futures exchanges.
Under the revised structure, Coinbase now treats USDC held on Hyperliquid as an "on-platform" asset. Coinbase collects the reserve income generated by those balances but sends 90% of that revenue back to Hyperliquid.
This means that the stablecoin still earns interest, but instead of that income mainly going to Circle and Coinbase, most of it now flows to Hyperliquid.
Hyperliquid plans to use that revenue to strengthen its ecosystem, including funding its Assistance Fund, which carries out HYPE token buybacks instead of relying on token inflation.
The agreement shows Hyperliquid's growing influence. The platform currently holds around $6 billion in USDC, representing roughly 8% of the stablecoin's circulating supply.
JPMorgan analysts led by Kenneth Worthington believe the new structure creates what economists call a "prisoner's dilemma."
To convince large trading platforms to adopt USDC, Circle and Coinbase may increasingly need to offer a larger share of their reserve income. While that helps USDC expand into new markets, it also reduces the profits both companies earn from the stablecoin.
The bank lowered its earnings forecasts for both Circle and Coinbase. It also warned that the long-term impact could be greater for Circle because reserve income remains one of the company's primary revenue sources.
To understand why JPMorgan is concerned, it helps to understand how stablecoins generate revenue. USDC earns money because the cash and U.S. Treasury bonds backing each token generate interest.
Traditionally, Circle and Coinbase shared most of that income, Circle for issuing USDC and Coinbase for bringing users and liquidity. But Hyperliquid changed the model.
Under the new deal, Coinbase collects the reserve yield but sends 90% of it to Hyperliquid. As a result, Circle and Coinbase earn much less from a pool that now holds nearly $6 billion in USDC, or about 8% of the token's circulating supply. This is why JPMorgan believes the economics of USDC are coming under pressure.
Despite the lower margins, Circle and Coinbase may have had little choice because Hyperliquid has become one of crypto's largest trading platforms and now leads the decentralized perpetual futures market.
The exchange processed more than $150 billion in trading volume during July alone, while its trading activity relative to Binance climbed to 11.5%, highlighting its rapidly expanding market share.
Securing USDC as the platform's primary stablecoin helps Circle defend its position against rivals such as Tether's USDT and newer regulated stablecoins entering the market.
The timing also comes as USDC faces growing competition. Its circulating supply has declined to roughly $73 billion, down from nearly $80 billion in March, while overall stablecoin growth has slowed as crypto trading activity cooled.
As competition for stablecoin distribution intensifies, reserve yield may no longer belong primarily to issuers. Instead, it could increasingly flow to the platforms that bring users, trading activity, and liquidity into the ecosystem.
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