Mizuho Downgrades Circle as Open USD Emerges as a Formidable Rival

Japan’s investment banking giant, Mizuho, has initiated a significant shift in its outlook for stablecoin issuer Circle (CRCL), slashing its stock rating from “Neutral” to “Underperform.” This bold move is accompanied by a drastic reduction in Circle’s price target, plummeting from $85 to $50. The primary catalyst for this downgrade? The disruptive potential of the newly launched Open USD (OUSD) stablecoin, whose innovative business model is perceived as a direct threat to Circle’s established profitability.

Open USD’s “Profit-Sharing” Model Challenges Circle’s Dominance

At the heart of Mizuho’s apprehension lies Open USD (OUSD), introduced on June 30th by the Open Standard consortium. In a recent report, Mizuho analyst Dan Dolev highlighted OUSD’s capacity to fundamentally reshape the stablecoin landscape, directly impacting the revenue streams Circle has long relied upon.

Circle’s current operational framework heavily depends on retaining a substantial portion of its reserve earnings. The company strategically invests user-deposited U.S. dollars into assets like Treasury bonds, generating interest. A significant share of these earnings is then kept by Circle, with only a fraction distributed to key partners such as Coinbase and Binance.

In stark contrast, Open USD employs a revolutionary strategy. It charges minimal operational fees, opting instead to return the vast majority of its reserve income directly to its network of issuers and distributors. This “profit-sharing” approach is designed to incentivize widespread adoption and participation.

Adding to OUSD’s formidable competitive edge is the robust backing of its consortium, which boasts over 140 heavyweight partners. This impressive roster includes global financial titans like Mastercard, Stripe, Coinbase, and BlackRock, underscoring the profound ecosystem strength behind Open USD.

Circle’s Stock Plunges Amidst Market Shifts, Yet ARK Invest Sees Opportunity

Since the advent of Open USD in early July, Circle’s stock has faced considerable selling pressure. Despite a marginal uptick of 0.35% on Tuesday, closing at $63.22, the company’s shares have plummeted by over 24% in the past month alone. This sharp decline reflects growing investor concern regarding the evolving stablecoin competitive landscape.

However, not all market players share the same bearish sentiment. While Wall Street’s major institutions express caution, Cathie Wood’s ARK Invest has demonstrated a contrasting conviction. Latest transaction disclosures reveal that ARK Invest aggressively acquired 220,000 Circle shares on Tuesday through its flagship ETFs – ARKK, ARKW, and ARKF – an investment valued at approximately $13.9 million based on the day’s closing price. This move suggests a belief in Circle’s long-term potential despite immediate headwinds.

Erosion of Market Share and Mounting Negotiation Pressure Threaten Circle’s Profit Outlook

The innovative profit distribution model of Open USD is poised to exert immense pressure on Circle. As the stablecoin market matures, Circle’s distribution partners are expected to demand a greater share of the profits. This dynamic is particularly critical as Circle prepares to renegotiate its profit-sharing agreement with its largest distribution partner, Coinbase, in August. Mizuho’s report emphasizes that Coinbase’s burgeoning support for Open USD significantly strengthens its leverage at the negotiation table, potentially leading to less favorable terms for Circle.

Beyond the rise of new competitors, USDC’s own growth trajectory has shown signs of deceleration. Its current circulating supply stands at approximately $73 billion, a noticeable dip from its peak of nearly $80 billion recorded in March of this year.

The broader stablecoin market has also experienced a contraction, shrinking by roughly $10 billion since May. This decline is attributed to a combination of cooling cryptocurrency trading activity and the increasing entry of new, regulated stablecoin issuers intensifying market competition.

Mizuho Slashes Forecasts: Circle Faces a “Prisoner’s Dilemma” in Profitability

In light of potential shifts in future revenue distribution, Mizuho has significantly revised its projections for Circle’s 2027 distribution and transaction costs, elevating them from an initial 64% to 73%. Concurrently, the firm has drastically cut its adjusted EBITDA forecast for Circle from $1.09 billion to a more conservative $699 million.

Adding to the challenges, JPMorgan Chase, another Wall Street titan, issued a warning in its own Tuesday research report. The bank highlighted that the prior agreements between decentralized perpetual futures exchange Hyperliquid, Circle, and Coinbase have inadvertently created a “prisoner’s dilemma” within the market. This complex situation is expected to continue exerting substantial downward pressure on USDC’s long-term profitability.