JPMorgan has lowered its earnings forecasts for Circle and Coinbase, warning that a new revenue sharing agreement with Hyperliquid is weakening the economics behind $USDC.

The bank said the arrangement creates a “prisoner’s dilemma” that encourages Circle and Coinbase to compete for $USDC distribution at the expense of their own revenue.

JPMorgan described the deal as an immediate earnings headwind for both companies and a larger long term threat to Circle.

Hyperliquid holds roughly $6 billion in $USDC, representing about 8% of the stablecoin’s circulating supply, according to estimates from JPMorgan.

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Under the revised agreement, Coinbase classifies $USDC held on Hyperliquid as an on platform balance. Coinbase collects the income generated by the reserves backing those tokens and passes 90% of it to Hyperliquid. The company previously shared nearly all of that income evenly with Circle, JPMorgan said.

“We think the change in the Hyperliquid relationship showcases the challenge for Circle and Coinbase partnership agreements,” analysts led by Kenneth Worthington wrote in a Tuesday report.

The agreement was announced in May as part of Hyperliquid’s updated Aligned Quote Asset framework. Coinbase became the treasury deployer for $USDC on the network, while Circle remained responsible for minting, redemptions and crosschain transfer infrastructure.

Circle also staked 500,000 HYPE tokens as part of the arrangement. $USDC remains the main collateral asset across Hyperliquid’s spot and perpetual futures markets.

Hyperliquid processed more than $150 billion in trading volume during July, while its volume relative to Binance reached 11.5%, according to JPMorgan. The bank said the platform’s growing share of the crypto derivatives market has made it an increasingly important distribution channel for $USDC.

Previous estimates from Compass Point suggested the agreement could redirect between $135 million and $160 million in annual reserve income toward Hyperliquid. The firm estimated that the arrangement could reduce the combined annual earnings of Circle and Coinbase by between $60 million and $80 million.

JPMorgan also cited weaker crypto trading volumes and asset prices in cutting its forecasts for both companies. Higher interest rates could provide some support for $USDC reserve income over the longer term.

$USDC circulation has fallen to approximately $73 billion from nearly $80 billion in March. The broader stablecoin market has contracted by about $10 billion since May as crypto trading activity weakened and competition from regulated stablecoin issuers increased.