Japan's Mizuho Securities cut its investment rating on stablecoin USDC issuer Circle to underperform from neutral. Underperform means it expects the stock's future return to lag the market average.

On July 23 (all times local), blockchain outlets including CoinPost and The Block reported that Mizuho said competition among institutions could intensify and USDC could become commoditised more quickly if the U.S. Clarity bill passes.

Mizuho's analyst team in particular pointed to a new stablecoin, OpenUSD, as a key threat. OpenUSD is a project being pursued by a consortium involving more than 140 financial, technology and cryptocurrency companies, including Visa, Mastercard, Stripe, BlackRock and Coinbase.

The issue is the revenue-sharing structure. OpenUSD adopts a pass-through model that returns most reserve-generated income to distributors, leaving the issuer with only a small management fee. Circle, by contrast, shares revenue with partners including Coinbase and Binance and then keeps about 38 percent of USDC reserve income. That means Circle's existing profitability could come under direct pressure if rival stablecoins present a more aggressive distribution model.

The Coinbase factor also stood out. Mizuho said Coinbase, the largest distributor of USDC, could gain additional leverage in the next revenue-sharing negotiations with Circle by backing OpenUSD. The companies' distribution agreement is being discussed as potentially coming up for renegotiation as early as next month.

Three reasons were presented for why the Clarity bill could be a burden for Circle. First, the bill includes provisions that prohibit or strongly restrict the provision of interest or passive income on stablecoin balances. Circle has created incentives for users to hold through revenue-sharing agreements with Coinbase and others, but if that approach is blocked, it could become less attractive compared with traditional interest-paying accounts.

Another variable is entry by traditional finance. If a framework is established for federally chartered trust banks and commercial banks to issue their own stablecoins, barriers to entry for major banks such as JPMorgan and BNY Mellon would fall. Mizuho judged that in that case Circle's differentiation as a "regulatory-compliant alternative" could weaken.

Pressure on profitability was also cited. Most of Circle's revenue comes from interest on short-term U.S. Treasury bonds, which are reserve assets for USDC. It said net profit margins could shrink over the medium to long term if higher compliance costs from tighter regulation overlap with competition from payment networks that charge no fees.

Still, Circle is also moving to strengthen its regulatory footing. Circle has secured approval from the U.S. Office of the Comptroller of the Currency (OCC) to establish a national digital currency bank. That suggests it is pursuing a strategy of locking in regulatory status early as market competition grows.

The legislative timetable also remains a variable. The Clarity bill, which includes a U.S. digital asset regulatory framework, was discussed as potentially coming up for a Senate floor vote as early as next week after Republicans released a revised version on July 22. Disputes remain over ethics provisions related to the president, however, leaving uncertainty over whether it can secure the votes needed to pass. As a result, it was suggested that the competitive landscape around Circle and USDC could be shaken again depending on the bill's outcome and the timing of the Coinbase renegotiation.