Clarity Act Seen Weakening Circle's Earnings Amid Rising Stablecoin Competition

Mizuho analysts have expressed concerns about Circle's USDC stablecoin due to the potential impact of the Clarity Act, a US crypto market structure bill. According to Mizuho, the regulatory clarity provided by the Clarity Act will intensify competition in stablecoins and eventually erode Circle's earnings.

The research note from Mizuho highlights that the bill will open the door to more institutional competitors in the stablecoin market, further commoditizing USDC. This could ultimately hurt Circle's revenue.

Mizuho also points out a fundamental difference between Circle's revenue model and OpenUSD, a new dollar-pegged stablecoin project being pushed by a consortium of over 140 financial, technology, and crypto companies including Visa, Mastercard, Stripe, BlackRock, and Coinbase. While Circle retains about 38% of the income from USDC reserves after sharing revenue with partners, OpenUSD uses a pass-through model that gives most reserve income to distributors and charges only a small management fee.

The analysts also noted that Coinbase's backing of OpenUSD adds pressure on Circle. As the largest distributor of USDC, Coinbase has gained greater leverage in its next revenue-sharing negotiation with Circle by supporting OpenUSD, which could be renegotiated as early as next month.