Mizuho Downgrades Circle as Open USD Raises Pressure on USDC Economics

What to Know

• Mizuho downgraded Circle to underperform from neutral and reduced its price target to $50 from $85.
• The downgrade centers on competitive pressure from Open USD, a dollar backed stablecoin unveiled June 30 by the Open Standard consortium.
• Mizuho said Open USD could challenge Circle by passing more reserve income to issuers and distributors, potentially pressuring USDC margins.
• Circle shares were trading 0.6% lower at $62.63 at publication time.
• USDC circulating supply has fallen to about $73 billion from nearly $80 billion in March.
• The broader stablecoin market has shrunk by roughly $10 billion since May amid softer crypto trading and rising competition from newly regulated issuers.
• The Open Standard consortium includes more than 140 partners, including Mastercard, Stripe, Coinbase and BlackRock.
• Mizuho cut its Circle 2027 adjusted EBITDA forecast to $699 million from $1.09 billion, about 25% below Wall Street consensus of $941 million.
• Mizuho raised its estimate for Circle distribution and transaction costs in 2027 to 73% from 64%.
• The bank said an August renewal of Circle revenue sharing terms with Coinbase could add pressure.

Mizuho Turns More Cautious on Circle

Mizuho has moved to a more bearish stance on Circle, downgrading the stablecoin issuer to underperform from neutral and lowering its price target to $50 from $85. The shift reflects concerns that Open USD may create a more difficult competitive backdrop for Circle and its USDC stablecoin, particularly if distribution partners push for a larger portion of reserve income.

The downgrade adds to a growing debate around the economics of stablecoin issuers. Stablecoin businesses often depend on interest generated from reserves that back the tokens in circulation. When interest rates are favorable, reserve income can become a key revenue source. The question now facing Circle is whether that revenue can remain as profitable if rival models offer more of the yield to issuers, distributors and other partners that help bring stablecoins to users.

Circle shares were trading 0.6% lower at $62.63 at publication time, reflecting a modest immediate market reaction to the rating change. Still, the implications of the downgrade go beyond the single trading session. Mizuho is effectively warning that Circle may face a structural challenge if Open USD changes partner expectations across the stablecoin industry.

Why Open USD Matters for USDC

Open USD, unveiled June 30 by the Open Standard consortium, is a dollar backed stablecoin designed around a yield pass through model. The consortium includes more than 140 partners, among them Mastercard, Stripe, Coinbase and BlackRock. That partner list gives the project market visibility and makes it a potential competitive force, even as its long term adoption remains uncertain.

Mizuho analysts led by Dan Dolev said Open USD could fundamentally alter Circle business economics because Circle has historically relied on retaining a large portion of treasury yield to drive revenues. In a model where reserve income is shared more generously with issuers and distributors, partners in the stablecoin ecosystem may begin demanding richer terms from established issuers such as Circle.

The central risk is not only that Open USD competes directly for stablecoin users. It is also that Open USD could influence pricing standards across the market. If partners see an opportunity to earn more from reserve income elsewhere, they may negotiate more aggressively with Circle. That would create margin pressure even if USDC remains widely used.

Reserve Income Is at the Center of the Debate

Circle USDC model captures reserve income and then shares a portion with key partners such as Coinbase and Binance. Open USD, by contrast, is described as charging a small operating fee while distributing most reserve income to issuers and distributors. This difference is central to Mizuho view that Circle could be forced to share more of the economics that support its revenue base.

In practical terms, a stablecoin issuer holds liquid reserves to back tokens that are designed to maintain a one to one relationship with the dollar. The income earned on those reserves can support the issuer business model. When market competition increases, however, reserve income can become a bargaining chip among issuers, exchanges, payment companies and other distribution channels.

Mizuho now expects Circle distribution and transaction costs in 2027 to rise to 73% from a prior estimate of 64%. That change is a major driver behind the bank cutting its 2027 adjusted EBITDA forecast to $699 million from $1.09 billion. The revised estimate is roughly 25% below Wall Street consensus of $941 million, underscoring how much the bank believes competitive pressure could alter future profitability.

Coinbase Renewal Seen as a Key Risk Point

One of the most important near term issues is Circle revenue sharing agreement with Coinbase, its largest distribution partner. Mizuho warned that the upcoming renewal in August could add pressure, especially because Coinbase is also listed among the partners in the Open Standard consortium. That dual position could strengthen Coinbase negotiating leverage if it seeks a greater share of reserve income.

For Circle, Coinbase is not just another partner. Distribution relationships help stablecoins reach retail traders, institutions and on platform liquidity pools. If a major distribution partner demands improved economics, the result could affect revenue retention and investor expectations for future margins.

Market participants are watching whether Circle can protect its economics while maintaining strong distribution relationships. The outcome of partner negotiations may influence how investors value the stablecoin issuer, particularly because the market is already focused on whether USDC can regain momentum after recent supply declines.

USDC Supply Has Lost Momentum

USDC circulating supply has fallen to about $73 billion from nearly $80 billion in March. That decline has occurred as the broader stablecoin market has shrunk by roughly $10 billion since May. Softer crypto trading activity and growing competition from newly regulated issuers have contributed to the pressure.

Stablecoin supply is an important indicator because it can reflect user demand, trading activity, payment usage and institutional adoption. When supply expands, issuers generally have a larger reserve base from which to earn income. When supply contracts, reserve income opportunities can shrink unless offset by higher yields or improved economics elsewhere.

Mizuho said it now expects somewhat higher interest rates in 2027 than it previously forecast, but the bank does not expect those higher reserve yields to be enough to offset pricing pressure. That distinction matters. Higher interest rates may help stablecoin issuers earn more on reserves, but if more of that income must be passed through to distributors, the benefit to Circle could be limited.

Competitive Pressure Extends Beyond Open USD

Circle is also facing other headwinds in the stablecoin market. JPMorgan has warned that Hyperliquid deal with Circle and Coinbase creates a prisoner dilemma that puts pressure on earnings from the dollar pegged stablecoin. The broader point is that fast moving trading platforms and new distribution arrangements can reshape how value is divided across the stablecoin ecosystem.

Stablecoins have become essential infrastructure in crypto markets, serving as settlement assets, trading collateral and liquidity tools. As the sector matures, the competition is no longer only about brand trust or token circulation. It is increasingly about who controls distribution, who earns the reserve yield and how much of that yield must be shared to keep partners aligned.

That dynamic creates a difficult balance for established issuers. Circle benefits from USDC recognition and a broad market footprint, but rivals can compete by offering better economics to partners. If those incentives attract issuers or distributors, Circle may need to adapt its own model to defend market share.

What Investors Are Watching Next

Investors are likely to focus on several questions after the Mizuho downgrade. The first is whether USDC supply can stabilize after falling from nearly $80 billion in March to about $73 billion. The second is whether the overall stablecoin market can return to growth after shrinking by roughly $10 billion since May. The third is whether Open USD gains enough traction to influence market pricing and partner negotiations.

The Coinbase renewal in August may be especially important because it could provide a clearer signal on how distribution economics are changing. If Circle is able to maintain favorable terms, investor concerns about margin compression may ease. If the company must concede more reserve income to partners, Mizuho bearish case could gain support.

For now, the downgrade highlights a central tension in the stablecoin industry. Stablecoins may look simple to users because they are designed to hold a steady dollar value, but the business models behind them can be complex. Reserve income, partner incentives, regulatory positioning and distribution power all shape profitability. As Open USD enters the market with a different economic model, Circle faces a more demanding competitive landscape.

Frequently Asked Questions (FAQs)

What did Mizuho change about its Circle rating?

Mizuho downgraded Circle to underperform from neutral and lowered its price target to $50 from $85, citing rising competitive pressure from Open USD and concerns about future margins.

Why is Open USD seen as a threat to Circle?

Open USD uses a yield pass through model that distributes most reserve income to issuers and distributors after charging a small operating fee. Mizuho believes this could pressure Circle to share more reserve income with partners.

What is Circle stock trading at?

Circle shares were trading 0.6% lower at $62.63 at publication time, following the downgrade and renewed attention on stablecoin competition.

How has USDC supply changed recently?

USDC circulating supply has fallen to about $73 billion from nearly $80 billion in March, reflecting weaker momentum at a time when the stablecoin market is also facing broader pressure.

How much has the stablecoin market shrunk?

The stablecoin market has shrunk by roughly $10 billion since May, with softer crypto trading activity and competition from newly regulated issuers contributing to the decline.

What did Mizuho forecast for Circle 2027 adjusted EBITDA?

Mizuho cut its Circle 2027 adjusted EBITDA forecast to $699 million from $1.09 billion. The revised estimate is about 25% below Wall Street consensus of $941 million.

Why does the Coinbase agreement matter?

Coinbase is Circle largest distribution partner, and an August revenue sharing renewal could affect how much reserve income Circle keeps. Coinbase support for Open USD could strengthen its negotiating position.

Does Mizuho expect higher interest rates to help Circle?

Mizuho now expects somewhat higher interest rates in 2027 than previously forecast, but the bank said higher reserve yields would not be enough to offset expected pricing pressure.

What should stablecoin investors watch next?

Market participants are watching USDC supply trends, Open USD adoption, partner negotiations and the broader stablecoin market after recent contraction and rising competition.

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