If Arc successfully launches and attracts enough users and liquidity, Circle will establish itself as a leader in the stablecoin infrastructure space.
Written by: David, Deep Tide TechFlow
On August 12, the same day it released its first quarterly report after going public, Circle dropped a bombshell: Arc, an L1 blockchain specifically designed for stablecoin finance.
If you only look at the news headline, you might think this is just another ordinary public chain story.
But when you interpret it in the context of Circle's trajectory over the past seven years, you will find:
This is not a public chain; this is a territorial declaration about a "digital central bank."
Traditionally, central banks have three main functions: issuing currency, managing payment and clearing systems, and formulating monetary policy.
Circle is gradually completing a digital replica—**first securing the "minting rights" with USDC, then building a *clearing system* with Arc, and next, perhaps, formulating digital currency policy.**
This is not just about one company; it is about the redistribution of monetary power in the digital age.
Circle's Central Bank Evolution
In September 2018, when Circle and Coinbase jointly launched USDC, the stablecoin market was still dominated by Tether.
Circle chose a path that seemed "clumsy" at the time: extreme compliance.
First, it proactively faced the most stringent regulatory hurdles, becoming one of the first companies to obtain a New York State BitLicense. This license, known in the industry as "the hardest crypto license to obtain," has an application process so cumbersome that many companies are deterred.
Second, it did not choose to go it alone but partnered with Coinbase to form the Centre Consortium—which not only shared regulatory risks but also provided immediate access to Coinbase's vast user base, allowing USDC to stand on the shoulders of giants from its inception.
Third, it maximized reserve transparency: publishing monthly reserve audit reports from accounting firms to ensure that 100% of reserves were composed of cash and short-term U.S. Treasury securities, avoiding any commercial paper or high-risk assets. This "honor roll" approach was not well-received in the early days—between 2018 and 2020, during a period of rampant growth, USDC was criticized for being "too centralized" and grew slowly.
The turning point came in 2020.
The explosion of DeFi in the summer led to a surge in demand for stablecoins, and more importantly, hedge funds, market makers, and payment companies began to enter the space, revealing USDC's compliance advantages.
From $1 billion in circulation to $42 billion, and now to $65 billion, USDC's growth curve has been almost vertical.
But merely being a "money printer" is not enough.
In March 2023, Silicon Valley Bank collapsed, and Circle had $3.3 billion in reserves at that bank, causing USDC to briefly depeg to $0.87, and panic spread rapidly.
The result of this "stress test" was that the U.S. government, due to systemic risk prevention, ultimately provided full guarantees for all Silicon Valley Bank depositors.
Although this was not a rescue specifically for Circle, the incident made Circle realize that merely being an issuer was not enough; it needed to control more infrastructure to truly master its own destiny.
What truly sparked this sense of control was the dissolution of the Centre Consortium. This event exposed Circle's "worker" dilemma.
In August 2023, Circle and Coinbase announced the dissolution of the Centre Consortium, with Circle taking full control of USDC. On the surface, this was Circle gaining independence; but the cost was heavy, as Coinbase obtained a 50% share of USDC reserve income.
What does this mean? In 2024, Coinbase earned $910 million from USDC, a 33% year-over-year increase. Meanwhile, Circle paid over $1 billion in distribution costs that year, most of which went to Coinbase.
In other words, half of the profits from the USDC that Circle worked hard to grow must be shared with Coinbase. This is akin to a central bank printing money but having to give half of the seigniorage to commercial banks.
Additionally, the rise of Tron has made Circle see a new profit model.
In 2024, Tron processed $54.6 trillion in USDT transactions, averaging over 2 million transfers daily, earning substantial fee income just by providing transfer infrastructure, which is a more upstream and stable profit model than issuing stablecoins.
Especially under the expectation of interest rate cuts by the Federal Reserve, traditional stablecoin interest income will face contraction, while infrastructure fees can maintain relatively stable growth.
This also served as a wake-up call for Circle: **Whoever controls the infrastructure can *continuously* collect taxes.**
Thus, Circle began its transformation towards building infrastructure, laying out multiple initiatives:
Circle Mint allows enterprise clients to directly mint and redeem USDC;
CCTP (Cross-Chain Transfer Protocol) enables native transfers of USDC across different blockchains;
Circle APIs provide a complete suite of stablecoin integration solutions for enterprises.
By 2024, Circle's revenue reached $1.68 billion, and its revenue structure began to shift—besides traditional reserve interest, an increasing portion came from API usage fees, cross-chain service fees, and enterprise service fees.
This transformation was confirmed in Circle's recently released financial report:
Data shows that Circle's subscription and service revenue reached $24 million in the second quarter of this year, although it only accounted for about 3.6% of total revenue (with the bulk still coming from USDC reserve interest), it grew rapidly by 252% year-over-year.
Transitioning from a single business of printing money for interest to a diversified "rental" business gives the business model more control.
The emergence of Arc is the highlight of this transformation.
This is a blockchain tailored for stablecoins (USDC):
USDC serves as the native gas, eliminating the need to hold ETH or other volatile tokens; an institutional-grade quote request system supports 24/7 on-chain settlement; transaction confirmations are under 1 second, providing enterprises with balance and transaction privacy options to meet compliance needs.
These features are more like a technical declaration of monetary sovereignty. Arc is open to all developers, but the rules are set by Circle.
Thus, from Centre to Arc, Circle has completed a triple jump:
First jump: Secured minting rights (USDC);
Second jump: Built financial pipelines (APIs, CCTP);
Third jump: Established sovereign territory (Arc).
This path almost reenacts the historical evolution of central banks in the digital world:
From private banks issuing banknotes to monopolizing currency issuance rights, and then to controlling the entire financial system—only, Circle's speed is faster.
And this "digital central bank dream," it is not the only dreamer.
Similar ambitions, different paths
In the stablecoin landscape of 2025, several major players share a "central bank dream," but their paths differ.
Circle has chosen the most difficult but potentially most valuable path: USDC → Arc blockchain → complete financial ecosystem.
Circle is not satisfied with merely being a stablecoin issuer; it aims to control the entire value chain—from currency issuance to clearing systems, from payment rails to financial applications.
The design of Arc is filled with "central bank thinking":
First, there are monetary policy tools, with USDC as native gas, allowing Circle to have a control capability similar to a "benchmark interest rate"; second, there is clearing monopoly, with an embedded institutional-grade RFQ foreign exchange engine, making on-chain foreign exchange settlements mandatory through its mechanism; finally, there is rule-making authority, as Circle retains control over protocol upgrades, deciding which features go live and which behaviors are permitted.
The most challenging aspect here is ecosystem migration—how to persuade users and developers to leave Ethereum?
Circle's answer is not to migrate but to supplement. Arc is not meant to replace USDC on Ethereum but to provide solutions for use cases that existing public chains cannot meet. For example, enterprise payments requiring privacy, foreign exchange transactions needing instant settlement, and on-chain applications with predictable costs.
This is a gamble. If successful, Circle will become the "Federal Reserve" of digital finance; if it fails, the investment of billions of dollars may go down the drain.
PayPal's approach is pragmatic and flexible.
In 2023, PYUSD debuted on Ethereum, expanded to Solana in 2024, and launched on the Stellar network in 2025, recently also covering Arbitrum.
PayPal did not build a dedicated public chain but allowed PYUSD to flexibly spread across multiple available ecosystems, with each chain serving as a viable distribution channel.
In the early stages of stablecoins, distribution channels were indeed more important than building infrastructure. When you have something ready to use, why build it yourself?
First, occupy users' minds and usage scenarios, and consider infrastructure issues later; after all, PayPal has its own network of 20 million merchants.
Tether, on the other hand, acts as the de facto "shadow central bank" of the crypto world.
It almost does not intervene in the use of USDT; once issued, it circulates like cash, and how it flows is up to the market. Especially in regions and use cases where regulation is ambiguous and KYC is difficult, USDT has become the only choice.
Circle founder Paolo Ardoino once stated in an interview that **USDT primarily serves *emerging markets* (such as Latin America, Africa, and Southeast Asia), helping local users bypass inefficient financial infrastructure, functioning more like an international stablecoin.**
With 3-5 times the number of trading pairs compared to USDC on most exchanges, Tether has formed a strong liquidity network effect.
Interestingly, Tether's attitude towards new chains is not to actively build but to support others in building. For example, it supports stablecoin-specific chains like Plasma and Stable. This is like placing a bet, maintaining a presence in various ecosystems at a low cost to see which one can succeed.
In 2024, Tether's profits exceeded $10 billion, surpassing many traditional banks; Tether did not use these profits to create its own chain but continued to buy government bonds and Bitcoin.
Tether bets that as long as it maintains sufficient reserves and there is no systemic risk, inertia will keep USDT in a dominant position in the stablecoin circulation.
The three models above represent three different judgments about the future of stablecoins.
PayPal believes in user supremacy. With 20 million merchants, the technical architecture is secondary. This is internet thinking.
Tether believes in liquidity supremacy. As long as USDT remains the base currency for trading, everything else is unimportant. This is exchange thinking.
Circle believes in infrastructure supremacy. Controlling the rails means controlling the future. This is central bank thinking.
The rationale for this choice may lie in Circle CEO Jeremy Allaire's testimony before Congress: "The dollar is at a crossroads; currency competition is now a technology competition."
Circle sees not just the stablecoin market but also the standard-setting authority for a digital dollar. If Arc succeeds, it could become the "Federal Reserve System" for the digital dollar. This vision is worth the risk.
2026, a Critical Time Window
The time window is narrowing. Regulation is advancing, competition is intensifying, and when Circle announced that Arc would launch its mainnet in 2026, the first reaction from the crypto community was:
Too slow.
In an industry that adheres to the creed of "rapid iteration," taking nearly a year to move from testnet to mainnet seems like a missed opportunity.
However, if you understand Circle's situation, you will find that this timing is quite reasonable.
On June 17, the U.S. Senate passed the GENIUS Act. This is the first federal-level regulatory framework for stablecoins in the United States.
For Circle, this is the long-awaited "name recognition." As the most compliant stablecoin issuer, Circle has almost met all the requirements of the GENIUS Act.
2026 is just the right time for these details to be implemented and for the market to adapt to the new rules. Circle does not want to be the first to take the plunge, but it also does not want to arrive too late.
Enterprise clients value certainty the most, and what Arc provides is precisely that certainty—**certain regulatory status, certain technical performance, and certain **business model.
If Arc successfully launches and attracts enough users and liquidity, Circle will establish itself as a leader in the stablecoin infrastructure space. This could usher in a new era—where a "central bank" operated by a private company becomes a reality.
If Arc performs mediocrely or is surpassed by competitors, Circle may have to rethink its positioning. Perhaps in the end, stablecoin issuers can only be issuers and cannot become the dominant players in infrastructure.
But regardless of the outcome, Circle's attempt is pushing the entire industry to consider a fundamental question: In the digital age, who should hold the control over currency?
The answer to this question may become clear in early 2026.
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