Wall Street Rebels Against the Model Student

For years, Circle was seen as the obedient, regulated face of the stablecoin industry. That reputation is now being questioned. JPMorgan cut its target price on Circle from $283 to $196, a reduction of roughly 30%. Mizuho went further, downgrading the stock and slashing its target from $85 to $50.

You would never have expected this. A company that followed the rules, stayed compliant, and was treated as the model student of stablecoins has now become a target for Wall Street shorts. I want to walk through how Circle's business is being squeezed from both sides at the same time.

Hyperliquid's 90% Interest Deal

The story starts with Hyperliquid, one of the largest decentralized derivatives exchanges today. It holds billions of dollars in USDC. Those funds do not just sit idle. Circle and Coinbase invest them in US Treasury bills and earn interest. Previously, Circle and Coinbase split that interest between themselves, leaving Hyperliquid with nothing.

Hyperliquid was not happy. It first tried to launch its own stablecoin to capture the yield, but that failed. In the end, it negotiated a new agreement with Circle: 90% of the interest earned on those USDC deposits would go back to Hyperliquid. Circle and Coinbase would keep only 10%.

Right now, about $6.1 billion in USDC sits on Hyperliquid. That amount generates roughly $160 million in annual reserve income. Under the new deal, Circle and Coinbase lose between $60 million and $80 million in combined annual operating profit. Hyperliquid gains $135 million to $160 million, and as its scale grows, that figure could reach $350 million.

This is not pocket change. It is cash flow being pulled directly out of Circle's pocket. You can see the market's verdict in the price of Hyperliquid's HYPE token. While other coins have been falling without fight, HYPE has been grinding upward. The market is voting with real money, and the winner is clear.

Why Ordinary Users Should Care

You might think this is just a fight between institutions, far removed from ordinary investors. But the interest these platforms earn comes from our USDC deposits. The stablecoins sitting in exchange accounts are what generate that yield in the first place.

When these companies fight over how to split the pie, their margins get squeezed. They will not simply absorb the losses. Eventually, the cost gets passed down to users. That could mean lower yields on stablecoin products, higher transaction fees, or other hidden charges. The wool comes from the sheep, and in this case, we are the sheep.

So this battle between giants is directly connected to the money in your pocket.

A Dangerous Precedent for the Whole Stablecoin Market

If Hyperliquid were the only case, Circle could absorb the blow. What worries Wall Street is that this deal sets a dangerous precedent. Hyperliquid is not the only platform holding large amounts of stablecoins. Polymarket and others have similar leverage.

If Hyperliquid can extract 90% of the interest, why not every other platform with millions of users? Circle and Coinbase may be forced to give ground everywhere, and soon no partner will be willing to accept the old terms.

We are already seeing the result. USDC's circulating supply has dropped from nearly 80 billion to 73 billion in just a few months. That is real money flowing out of the ecosystem, and the trend is not comforting.

The AUSD Alliance: A Coordinated Replacement

Bad news continued in late June with the emergence of an even more aggressive player: a stablecoin called AUSD. The alliance behind it includes Visa, Mastercard, Stripe, PayPal, plus Coinbase itself and over 140 other companies. You only need to hear that list to understand how serious this is.

Circle currently shares about 30% of its yield with distribution partners. That is its main way to attract users and distribution. AUSD flips the model completely: it gives 100% of the interest to the distribution giants and keeps almost nothing for itself, earning only a small service fee. It is a direct attack on Circle's core business.

The most painful part is that Coinbase, Circle's largest distribution partner, is a founding member of AUSD. The existing distribution agreement between Circle and Coinbase brings Coinbase over $900 million a year, more than half of Circle's total revenue. When that agreement comes up for renegotiation, Coinbase will hold both the Hyperliquid 90% deal and AUSD as leverage. I would not want to be Circle's negotiator.

Mizuho's Math and Circle's Shrinking Confidence

Mizuho Securities published a report that lays out the damage clearly. It expects Circle's distribution payouts to rise from 64% of revenue to 73% by 2027. That means for every dollar Circle earns, even more of it goes to partners rather than to Circle's own bottom line.

The same report also cut its revenue outlook for Circle by more than 20%. Even if Circle continues to scale its business, its valuation multiple will remain lower than comparable companies. The market's confidence in Circle's current way of making money has been shaken.

Circle's Countermoves: Bank Charter, Direct Channels, Ark

Circle is not defenseless. In July, it received regulatory approval to operate a national digital currency bank. This strengthens its control over reserve assets and makes its territory harder to attack by competitors.

Circle is also diversifying its distribution channels. It no longer relies solely on Coinbase for user traffic. Its direct distribution share has grown from 6% to about 10%. The bigger move is Ark, Circle's own public chain. The strategy is clear: stop depending only on interest spread. Earn from on-chain transfers, transaction fees, and other new revenue streams.

These are meaningful moves, but the market is not giving Circle much credit yet. The bank charter and Ark are slow medicine. They cannot fix the immediate pressure on USDC supply and profitability.

Stablecoins Are No Longer a Quiet Safe Haven

Stablecoins have long been treated as a safe island. People assume they will not drop even when everything else collapses. This fight shows that even the most compliant, supposedly safe players are now fighting for scraps. Behind a calm-looking business there are hard constraints.

If you hold stablecoins, pay attention to changes in yields, rules, and security. These battles between giants can affect you directly. As I always say, do your own research and judge for yourself. The stablecoin business may look boring, but the ground underneath it is shifting.