In a recent analysis, Mizuho has downgraded Circle (CRCL) from neutral to underperform, slashing its price target from $85 to $50. This decision comes as a response to the competitive threat posed by OpenUSD, which was introduced on June 30 by the Open Standard consortium.

The analysts at Mizuho indicated that OpenUSD's innovative yield pass-through model could significantly squeeze Circle's profit margins. Unlike Circle's USDC model, which provides a larger share of reserve income to partners like Coinbase and Binance, OpenUSD retains a small operational fee but allocates most reserve income to its distributors. This strategic shift could compel Circle’s distribution partners to demand a bigger portion of the income over time.

Concerns About Financial Projections

Mizuho has also revised its adjusted EBITDA forecast for Circle for 2027. The new projection stands at $699 million, which is about 25% lower than the Wall Street consensus of $941 million. The downgrade reflects a potential rise in distribution and transaction costs, which the bank now anticipates to reach 73%, an increase from the previously estimated 64%.

Moreover, the impending renegotiation of Circle's revenue-sharing agreement with Coinbase, its largest distribution partner, slated for August, adds to the uncertainty. Coinbase's backing of OpenUSD may enhance its negotiating use, leaving Circle in a precarious position.

Market Dynamics for Circle

The situation is exacerbated by the declining momentum of USDC, which has seen its circulating supply drop from nearly $80 billion in March to approximately $73 billion now. This downturn corresponds with a broader contraction in the stablecoin market, which has shrunk by about $10 billion since May due to decreased crypto trading activity and increased competition from newly regulated stablecoin issuers.

As Circle navigates these challenges, the pressure on its financial structure grows, with analysts closely monitoring how these dynamics will play out in the near term. With significant shifts in market conditions, the future of Circle remains uncertain.

This material is informational and should not be considered financial advice.