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Investing.com - Software company Circle Internet (NYSE:CRCL) co-founded the USDC stablecoin in partnership with crypto exchange Coinbase (NASDAQ:COIN), and Bernstein looks at the resulting partnership.
There has been growing investor interest in Coinbase, since the successful listing of Circle, with the token underpinning much of the crypto exchange’s stablecoin revenue, which jumped nearly 51% in the first quarter as USDC’s market value hit a record high.
Under the current revenue sharing agreement, Coinbase received 100% of the interest income from USDC held directly on its platform, and for the USDC held off-platform (e.g. other exchanges, platforms), Coinbase and Circle split the revenue 50:50.
The two companies renew the agreement every three years and the next renewal is due by 2026, raising questions of whether this agreement would be renegotiated in the future.
“We believe, both partners do not see the agreement tactically but as a foundational partnership. Coinbase’s distribution and reach was critical for USDC to bootstrap liquidity, that has become a critical edge for Circle going forward,” said analysts at Bernstein, in a note dated July 2.
Coinbase also is the largest retail and institutional exchange in the U.S with a 67% market share (Exhibit 4). With the GENIUS Act and CLARITY Act (expected), as trading activity and stablecoin innovations comes onshore in the U.S., Coinbase will remain a key growth driver for USDC.
Coinbase is also launching its perpetual futures product in the U.S on July 21, which would involve USDC as principal collateral.
“There are enough tailwinds for both partners to continue this relationship over the long crypto industry build-out and USDC becomes widely adopted outside the crypto ecosystem,” Bernstein added.
Bernstein also sees Coinbase being pragmatic when it comes to new anchor partners, such as Binance, the largest global crypto exchange with 270mn registered users.
“Should Circle look at new anchor partnerships with leading internet platforms (hypothetically), we believe, Coinbase would consider the economic sharing in a broader context of extending USDC dominance into payments beyond Crypto markets,” Bernstein said.
“Thus, we believe, the partnership agreement will remain pragmatic, in the interest of growing USDC dominance and building on its network effects.”
Bernstein expects Coinbase’s natural share of revenue to marginally decline by 2027 (closer to 50% revenue share), as USDC gains market share in Binance and USDC growth from blockchain trading and financial services grows faster than demand from centralised exchanges.
“Over the long term, as USDC adoption grows beyond crypto, we believe, share of crypto capital markets itself would go down, as payments, financial services, and traditional capital markets utility evolves,” Bernstein added.
Stablecoin revenues have become increasingly material to Coinbase, driving growth in non-trading revenue (considered less volatile than trading revenues). Over the past four years, non-trading revenue has expanded from just $181mn in 2020 to $2.8bn in 2024, accounting for 42% of total revenue in 2024.
“This has helped build a more stable, annuity-like income stream and reduced Coinbase’s reliance on volatile trading activity,” Bernstein added.