Morgan Stanley downgraded Circle (USDC issuer) on concerns that tokenized money market funds and its Open USD product will cannibalize USDC adoption and stall revenue growth.
The bank trimmed its price target, citing slower USDC expansion as the primary headwind. Circle's stablecoin dominates the crypto ecosystem with roughly $37 billion in circulation, trailing only Tether's USDT. However, competition from tokenized money market funds (like Blackstone's BDT and Franklin Templeton's BENJI) now poses a structural threat to USDC's positioning.
Open USD, Circle's newest offering, allows institutions to mint dollars on-chain without direct custody risk. While positioned as a growth driver, Morgan Stanley argues it dilutes USDC's core value proposition and fragments liquidity across multiple products. The bank specifically flagged that institutional customers might prefer the economics of Open USD over holding USDC long-term.
Circle's business model relies heavily on USDC velocity and adoption. Revenue streams include interest on reserves, cross-chain bridging fees, and financial services attached to the stablecoin. Slower growth translates directly to compressed earnings potential. The company went public via SPAC in 2021 at a $4.1 billion valuation and has faced persistent pressure as the broader crypto market matured.
Tokenized money market funds represent a material shift in on-chain infrastructure. Institutions deploying capital now have direct access to yield-bearing vehicles without counterparty risk traditionally associated with centralized stablecoin issuers. This forces Circle to compete on speed, integration, and ecosystem breadth rather than mere stablecoin supply.
The downgrade reflects growing skepticism about Circle's moat. USDC remains the second-largest stablecoin by market cap and carries institutional credibility. Yet fragmentation of the tokenized dollar narrative into competing products signals the market is moving away from single-stablecoin dominance toward a diversified infrastructure model.