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On August 12, 2025, USDC issuer Circle unveiled its own L1 blockchain, Arc. The project is designed to facilitate financial transactions with stablecoins, tokenized assets, and cryptocurrencies in the institutional sector.
Arc is built as an open ecosystem compatible with the Ethereum Virtual Machine (EVM), integrated with Circle services, and interoperable with other networks.
The project’s developers believe Arc will address unstable fees, settlement unpredictability, and fragmented liquidity.
What Is Arc and How Does It Work?
Arc was introduced in mid-August as part of Circle’s Q2 2025 financial report. The implementation stages are:
- A private testnet will launch in the coming weeks.
- Public tests are planned for autumn 2025.
- The mainnet beta is expected in 2026.
“Arc is more than just a blockchain for USDC. It is designed to be a home for all forms of digital money and tokenized value,” Circle said in a press release.
The network is powered by the Malachite consensus engine, created by the Informal Systems team—developers known for Byzantine fault tolerance and formal verification work on Cosmos SDK, Tendermint Core, and Red Belly Blockchain.
Malachite provides deterministic transaction finality in under a second. In tests, with 20 geographically distributed validators, Arc achieved ~3,000 TPS. With just four validators, it surpassed 10,000 TPS, with finality in less than 100 ms.
Key Features of Arc
One of Arc’s standout features is the use of USDC as the token for paying transaction fees. Circle emphasizes this enables cost predictability and removes the need for volatile assets.
The base fee model is inspired by EIP-1559, but Arc adds an algorithm that smooths short-term block load spikes using a moving average—ensuring more stable costs.
A Paymaster mechanism will also allow fees to be paid in other stablecoins and tokenized currencies, making adoption easier for local asset issuers.
The built-in FX engine provides 24/7 price discovery and Payment versus Payment (PvP) settlements between stablecoins, with automatic conversion into local fiat currencies.
Privacy is ensured through confidential transactions, encrypting amounts and participant addresses. Selective data disclosure via “view keys” allows compliance with regulatory frameworks like the travel rule.
Future features may include TEE, multi-party computation, fully homomorphic encryption, and zero-knowledge proofs.
Initial Use Cases
Circle initially targets Arc at:
- Cross-border payments and transfers via Circle Payments Network.
- Capital markets settlements with instant delivery versus payment (DvP).
- On-chain lending with off-chain data (identity, payment history, reputation).
- Perpetual futures on stablecoin pairs with leverage and deep liquidity.
- Agency commerce: automated payments, AI marketplaces, subscriptions, and programmable purchases.
Arc is positioned not just as a platform for USDC, but as a universal environment for all digital assets—ranging from national stablecoins to tokenized stocks, commodities, and real estate.
The Blockchain Race
The launch of Arc reflects a growing trend: major players are seeking to control both asset issuance and the underlying infrastructure.
For instance, on August 12, Stripe announced development of the Tempo network with Paradigm, aimed at payment processing and Solidity compatibility.
In June, the Stable team revealed its L1 blockchain for USDT payments, designed to address high fees, confirmation delays, and complex user interfaces. These same pain points mirror Arc’s stated goals.
Robinhood also launched its own L2 solution, initially targeting tokenized assets in the EU, pending regulatory approval.
This surge comes amid political and regulatory shifts. The GENIUS Act in the U.S. established a system for stablecoin oversight, giving institutions clearer rules for participation. With the stablecoin market valued at $282 billion, firms are racing to capture share not only through token issuance, but also by building networks.
Owning a blockchain gives companies advantages such as:
- Control over fee models and architecture.
- Ability to tailor protocols for partners or industries.
- Retention of liquidity within their ecosystem.
- Monetization through infrastructure services.
For Circle, Arc is both a payments platform and a strategic tool to strengthen USDC’s role—while opening doors for new products. Still, without critical mass in services, liquidity, and adoption, even advanced blockchains risk remaining niche.
Reactions and Opinions
Community reactions to Arc are mixed.
Supporters highlight its technical maturity, enterprise focus, and problem-solving approach. Critics, however, warn of excessive centralization and privacy risks.
Circle CEO Jeremy Allaire called Arc “massive progress,” noting its role in enabling always-on global payments with the convenience of online messaging.
Bernstein Research analysts predict Circle could build the “most dominant stablecoin network” thanks to Arc, reinforcing their $230 target price.
DeFi analyst Ignas pointed to Arc’s high performance, sub-second finality, privacy features, and stable USDC fees, suggesting it will compete with Coinbase’s Base network.
But skeptics remain. Venture capitalist Adam Cochran called Arc a “consortium blockchain” with private validators capable of reversing transactions—a model that undermines independent validation.
Columbia Business School’s Omid Malekan questioned the need for another L1, especially for stablecoins: “For the love of Satoshi, we don’t need more L1s—especially not for stablecoins.”
Others, like Steve Dirks of Charter Digital, see Arc as a bold strategic shift giving Circle control over payments infrastructure. Yet he warns of risks in partner relations and the challenges of execution.
Conclusion
The Arc debate reflects a larger tension in crypto: balancing institutional adoption and regulatory compliance with the principles of decentralization and openness.
As Arc moves into its public testnet phase, the coming months will show whether Circle’s technological advantages and service integration can attract the liquidity and adoption needed for full-scale success.
