Playing Both Sides: Circle, Coinbase and the August Renegotiation

1. The setup

On 30 Jun, Circle fell roughly 17.5% at the close. The catalyst was the announcement of Open USD (OUSD), a stablecoin backed by a consortium of more than 140 companies including Coinbase, Visa, Mastercard, Stripe, BlackRock, BNY, Standard Chartered and Google, operated by an independent entity, Open Standard, whose founding CEO is Zach Abrams (co-founder of Bridge, Stripe's stablecoin unit). The stock closed at $62.60 that day, down about 76% from its closing high of $263.12 reached on 23 Jun 2025, two weeks after an initial public offering (IPO) at $31.

This decline did not begin then. The month had already seen a sustained erosion for CRCL, with several sessions posting double-digit declines. Rumours of a consortium stablecoin led by Stripe, Visa and Mastercard had been circulating since early June, and the market was already partly pricing the event before its official confirmation. That event crystallized a narrative that was already in motion, rather than creating one.

The real stakes lie in August. The Circle-Coinbase relationship is now governed by two contracts filed with the SEC. The Collaboration Agreement of 18 Aug 2023 (Exhibit 10.15 of Coinbase's FY2024 10-K) sets the revenue-sharing mechanics between the two parties and runs for an initial three-year term with automatic three-year renewals. Its first renewal date falls around 18 Aug 2026. The Stablecoin Ecosystem Agreement of 14 Nov 2024 (Exhibit 10.16 of the same 10-K) supplements the first by creating a framework to bring approved third-party participants (such as Binance) into USDC economics, with their payments deducted upstream of Coinbase's residual share. The OUSD announcement therefore lands seven weeks before the date on which Coinbase can, contractually, renegotiate or walk away from the primary agreement that generates the bulk of its stablecoin revenue.

The Collaboration Agreement is Circle's largest cost item. Coinbase receives 100% of reserve income on USDC balances held on its platform, and 50% of residual reserve income elsewhere, computed after Circle's issuer retention, third-party management fees and (since November 2024) Ecosystem Agreement deductions. In 2024, Circle paid approximately $908mn to Coinbase, about 54% of reserve income. In Q1 2026, Coinbase received $330.6mn out of $652.5mn of reserve income, an effective share of 51%, actually below the 2024 level, reflecting the growing role of Ecosystem Agreement deductions.

The market has erased nearly half of Circle's market capitalization in six weeks. This correction aggregates two distinct forces: a general deterioration in sentiment towards stablecoin issuers and a specific risk tied to the renegotiation with Coinbase. The central question is which renegotiation scenario the market is pricing today. This note identifies the credible outcomes of the renegotiation, translates each into a valuation range, and then backs out the implicit probabilities the current price assigns to each.

2. The scenarios

The renegotiation of the Collaboration Agreement in August 2026 leads to four states of the world. Each rests on a different strategic logic, implies a different economic split, and produces a different P&L (profit and loss) profile for Circle.

The most direct parallel with OUSD is the Global Dollar Network (USDG) from Paxos, launched in late 2024 on a very similar model: revenue-sharing with distributors, multipartner governance, and an initial consortium including Robinhood, Kraken and Galaxy Digital. In 18 months, USDG has reached approximately $3bn in circulation, less than 4% of USDC circulation. The precedent shows two things. The revenue-sharing model attracts distributors, but it has not yet threatened USDC's dominant position. The question is whether OUSD, with a broader consortium and heavier names, can do better, or whether it will run into the same cold-start frictions.

OUSD fails to progress beyond a symbolic stage, mirroring USDG. The Collaboration Agreement is renewed on current terms (effective share 51%). USDC continues its growth trajectory (CAGR, compound annual growth rate, of 40%) and the multiple re-rates upwards as the threat recedes. This is the most favourable reading: OUSD is not yet live, the governance across 140 partners is untested, and USDC's network effect is the strongest in the industry.

Coinbase uses OUSD as leverage and obtains an improvement in its terms (effective share from 51% to 55%, or +4pp). USDC continues to grow at the same pace (CAGR of 40%). Circle preserves its distribution base but suffers a margin compression. In a negotiation, the party with a credible alternative is usually best placed to set the terms. The OUSD threat gives Coinbase precisely that alternative. This scenario appears the most likely because it maximises both parties' interests: Coinbase improves its economics without taking the risk of an abrupt transition to an untested asset, while Circle preserves the network effect, liquidity and distribution that make USDC's strength today. A full break would destroy value for both and would expose Coinbase to OUSD's execution risk. Conversely, a complete status quo seems hard to justify now that Coinbase has increased bargaining power. Losing Coinbase would also trigger knock-on effects on other distributors, giving Circle a strong incentive to accept an economic concession to preserve the relationship.

Coinbase renews the contract but grants OUSD privileged distribution within the Base ecosystem, gradually steering its incentives towards the new token. Over 18 to 24 months, a growing fraction of USDC balances migrates. This is probably the most economically rational scenario for Coinbase and the hardest to detect in real time: it allows it to keep collecting USDC revenue during the transition while building a position in OUSD. The Netflix parallel is relevant: distributing licensed content while building its own catalogue until the balance of power shifts. For Circle, this scenario is the most insidious. It produces no clear signal of rupture, only a progressive erosion of balances and competitive position. Unlike an explicit termination, this trajectory provides no identifiable inflection point for the market and can therefore be difficult to quantify until it materializes in quarterly reports.

Coinbase does not renew and actively pushes OUSD. According to the S-1, roughly 20% of USDC circulation was held on Coinbase, in the order of $15bn, whose loss, combined with knock-on effects, could reduce USDC's Assets Under Management (AUM) by around 20% in a mechanical scenario and by up to 40% in the case of significant contagion. This is the least likely scenario in the short term, for three reasons. Coinbase would earn zero USDC revenue during the OUSD ramp-up, and OUSD is not yet live. An abrupt break would expose Coinbase to reputational risk, with its institutional clients holding USDC. Finally, the contract likely includes a wind-down period, which spreads the rupture across several quarters. A further consideration raises the cost of rupture for Circle specifically: per Coinbase's disclosure to the SEC (April 2024 correspondence), if Circle fails to make payments after a restructuring period, Coinbase may require the assignment of certain trademarks used to market USDC, which would also impair Circle's ability to issue other US dollar-denominated stablecoins. In other words, a clean break is not clean. It is materially costly for Circle beyond the revenue loss alone. This scenario is more credible as the endpoint of the migration path than as an abrupt decision in August.

3. The model

This section translates the scenarios into implied valuation ranges for CRCL over a 12-month horizon, then backs out the probabilities the current price assigns to each. It relies on a model with three correlated dimensions, calibrated on Circle's Q1 2026 and projected for 12 months by incorporating the Fed rate trajectory implied by futures. The objective is not a price target but a contingent valuation map.

The starting point is the latest reported quarter (Q1 2026, released 11 May 2026). Quarterly reserve income was $652.5mn, generated by an average reserve of $75.2bn at an effective yield of 3.5%. Other revenue reached $42mn, for total revenue of $694mn. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $151mn, corresponding to a 53% margin on Revenue Less Distribution Costs (RLDC) of $287mn, and a 22% margin on total revenue. The RLDC margin itself is 41% (287/694). Annualized, these figures give reserve income of around $2.61bn, total revenue of $2.78bn and adjusted EBITDA of $604mn.

The Collaboration Agreement operates on a payment base that is reduced by issuer retention, reserve-management fees and, since November 2024, Stablecoin Ecosystem Agreement deductions. As a result, a simple theoretical calculation (100% of on-platform reserve income plus 50% of off-platform residual income) would imply a Coinbase share of roughly 59% at Q1 2026. However, the effective share actually observed was 51% ($330.6mn paid to Coinbase on $652.5mn of reserve income). The difference reflects the deductions that occur before Coinbase's residual share is calculated.

As of 2 Jul, the effective Fed Funds rate stands at around 3.6%. Futures price a rate near 3.8% by autumn, approaching 4% by end-2026. The FOMC dot plot of 17 Jun has a median of 3.75%–4.00% for end-2026. A forward yield of 3.8% is applied to the four scenarios, consistent with futures. Differentiation between scenarios operates through Coinbase share and growth, not through the rate, which is a macro parameter independent of contractual risk.

The model applies a 12-month forward EBITDA. It rests on three dimensions. Coinbase's share of reserve income: 51% at status quo, 55% under renegotiation, 25% under migration, 0% under rupture. USDC's AUM trajectory: CAGR of +40% in the bull and base scenarios, since a contractual renegotiation does not affect the underlying adoption dynamic, turning negative in the bear scenarios. Reserve yield at 3.8% uniformly. Other revenue is held constant ($168mn), and non-Coinbase distribution costs are calibrated on Q1 2026 actuals ($306mn annualized, up from the earlier $174mn assumption because this line now captures the Ecosystem Agreement deductions such as Binance-style payments). They are scaled proportionally to AUM. Operating expenses are scaled to AUM as well (70% fixed, 30% variable).

Each scenario is a triplet (Coinbase share, AUM CAGR, yield). All numerical values below reflect the recalibration.

(Source: Coinbase & Circle fillings)

Bull scenario: OUSD stays marginal, contract renewed on current terms. Upside of 44%–80% versus current price.

Base scenario: Coinbase negotiates +4pp (share from 51% to 55%). USDC continues to grow at 40% because underlying adoption does not depend on the contract's terms. Range $63–79: the current price of $68 falls exactly in the middle. This is the most honest reading of the observed price.

Bear scenario, migration. A fraction of balances migrates. EBITDA remains paradoxically elevated (Circle keeps more reserve income) but the multiple compresses. Range $50–70, straddling the current price.

Bear scenario, rupture. Non-renewal and active migration. Downside of 13%–48%. The trademark-assignment risk noted in Section 2 further increases the exit cost for Circle, which the multiple compression only partly captures.

The reserve yield is the largest macro lever in the model. A 100bp change modifies forward EBITDA by $300–400mn in the base scenario.

(Source: Coinbase & Circle fillings)

There are two observations to be made. Rate risk and contractual risk are multiplicative rather than additive: a decline in yield combined with an increase in Coinbase's share produces the sharpest compression. And the futures trajectory, with yields rising towards 4% by the end of 2026, is a tailwind for Circle regardless of the contractual scenario, which is what allows the base case to deliver an EBITDA above the current run-rate despite margin compression.

4. Signals to watch

The signals below are ordered by imminence.

Regulatory (18 Jul). Final rules are expected on yield sharing. The GENIUS Act prohibits issuers from paying yield to holders, and an OCC proposal from February aims to extend this prohibition to yield routed through third parties. If adopted, it could constrain certain distribution models based on reserve-income redistribution and reduce the economic appeal of new networks such as OUSD. This is probably the most binary regulatory catalyst in the near term.

Quarterly earnings (late July–early August). Q2 releases from Circle and Coinbase will allow observation of how USDC balances on Coinbase are evolving, and any change in risk factors or management commentary on OUSD and the USDC partnership.

OUSD infrastructure (H2). Launch date, adoption on Base and Solana, mint volume and resolution of the controversy around contested partners.

Macro (ongoing). Every 100bp decline in yield costs $300–400mn of EBITDA in the base scenario.

USDC partners (ongoing). Evolution of strategic partnerships (BNY, Nomura, Nubank), as well as the ramp-up of Circle Payments Network (CPN) and Arc. These initiatives are the main vectors for diversifying Circle's revenue away from reserve income and gradually reducing economic dependence on USDC balances alone.

5. Limits and methodological framework

The signals below are ordered by imminence.

Regulatory (18 Jul). Final rules are expected on yield sharing. The GENIUS Act prohibits issuers from paying yield to holders, and an OCC proposal from February aims to extend this prohibition to yield routed through third parties. If adopted, it could constrain certain distribution models based on reserve-income redistribution and reduce the economic appeal of new networks such as OUSD. This is probably the most binary regulatory catalyst in the near term.

Quarterly earnings (late July–early August). Q2 releases from Circle and Coinbase will allow observation of how USDC balances on Coinbase are evolving, and any change in risk factors or management commentary on OUSD and the USDC partnership.

OUSD infrastructure (H2). Launch date, adoption on Base and Solana, mint volume and resolution of the controversy around contested partners.

Macro (ongoing). Every 100bp decline in yield costs $300–400mn of EBITDA in the base scenario.

USDC partners (ongoing). Evolution of strategic partnerships (BNY, Nomura, Nubank), as well as the ramp-up of Circle Payments Network (CPN) and Arc. These initiatives are the main vectors for diversifying Circle's revenue away from reserve income and gradually reducing economic dependence on USDC balances alone.