Circle paid $1.4B to Coinbase as USDC growth eats into profits

Circle's 2025 10-K filing reveals a paradox: USDC is winning the supply race, but the company behind it is keeping a shrinking share of the economics.

Circle incurred $1.4 billion in distribution costs tied to Coinbase in 2025, up from $924.5 million the prior year, according to its 10-K filing. Those costs consumed roughly 51% of the company's $2.7 billion in total revenue and reserve income, even as USDC circulation surged 72% year over year to $75.3 billion in the fourth quarter.

"Circle depends on Coinbase for scale, but that access is expensive, and the cost is rising faster than revenue," JPMorgan analysts wrote in a note flagging the Hyperliquid structure as a near-term earnings headwind for both companies. The bank described a setup in which competition for USDC distribution is eroding what each side retains.

Full-year revenue and reserve income climbed 64% to $2.7 billion, yet Circle's margin after distribution and transaction costs held flat at 39%, unchanged from 2024. Distribution and transaction costs consumed roughly 63% of fourth-quarter reserve income alone, the filing shows.

The August 2026 expiration of Circle's collaboration agreement with Coinbase creates a natural leverage checkpoint. The agreement, signed in August 2023 with an initial three-year term, automatically renews for another three years if both sides continue meeting obligations — but only if they fail to agree on modifications. Coinbase, which is also a participant in the Open USD consortium alongside Visa and Mastercard, now has an alternative benchmark for how stablecoin economics can be divided among distribution partners.

Hyperliquid extracts 90% of reserve yield on $6.16B stablecoin base

Hyperliquid supplies the decentralized version of the same squeeze. The protocol's AQAv2 framework now directs roughly 90% of cost-adjusted reserve-yield revenue tied to aligned stablecoin supply back to Hyperliquid itself, even as USDC maintains roughly 97% dominance of the venue's stablecoin base, according to DeFiLlama.

Assuming the entire $6.16 billion stablecoin base on Hyperliquid qualifies as aligned supply and earns a 3.5% reserve yield, it would generate about $215.6 million in annual gross reserve income. A simple 90% calculation produces roughly $194 million flowing to the protocol rather than Circle, though cost adjustments mean the actual figure would differ.

Open USD, the rival stablecoin model backed by a consortium of more than 140 businesses, shares reserve earnings with members after deducting a management fee. That structure gives distributors — including Coinbase — a concrete reference point for demanding more favorable terms from Circle.

What Circle still has going for it

Circle's sensitivity analysis, which holds USDC circulation and reserve allocation constant, estimates that a 100-basis-point rate increase would add $756 million to reserve income and $369 million to distribution and transaction costs, leaving Circle with roughly $387 million, or 51%, of the incremental income.

The company recently received final OCC approval to establish a national trust bank, a regulatory credential that competitors lacking a federal charter struggle to match. If Open USD adoption stays slow, the Coinbase relationship renews on comparable terms, and Hyperliquid remains an isolated case, those conditions would support Circle's ability to preserve its current margin.

If other major exchanges, wallets, and DeFi protocols start demanding Hyperliquid-style or Open USD-style terms, and Coinbase enters its August 2026 discussions pointing to real alternatives, Circle's retained share of reserve income has room to fall further. USDC can keep expanding under that path, with each additional dollar of circulation becoming less valuable to the company that issues it.

This article is for informational purposes only and does not constitute investment advice.