Circle, the American issuer of the USDC stablecoin, is embarking on an ambitious journey: building its own blockchain. Unlike typical rollups that expand on existing networks, Circle’s new project, named Arc, is a sovereign layer-1 chain. The primary vision is to create a full-stack solution that manages every aspect of the payment process, from issuance to settlement, all in a controlled environment.
At the heart of this initiative is the belief that a direct and proprietary pathway between a dollar and a smart contract will streamline payments. Arc aims to deliver rapid, efficient transactions with sub-second deterministic finality, while remaining fully compatible with Ethereum, utilizing USDC as its native gas token. This setup raises significant questions about the future of stablecoin activity on Ethereum and whether Arc will reshape the landscape or merely serve as a centralized hub.
Circle’s decision to forgo deploying on a popular modular layer 2 in favor of a dedicated layer 1 has rekindled debates within the crypto community. Some argue this move could signal a retreat to enterprise-centric blockchains, while others see it as a rational step toward creating a platform designed specifically for dollar-based transactions. Will this development undermine Ethereum’s longstanding status as the foundational layer for stablecoins, or will it enhance its position through improved interoperability?
Vertical Integration
While Circle has remained tight-lipped about Arc’s technical specifics during its quiet period, details from the light paper reveal some intriguing elements. The new chain operates on Malachite, an innovative high-performance Byzantine Fault Tolerant (BFT) consensus mechanism developed by the team at Informal Systems. Notably, the team behind Malachite has joined Circle, contributing their expertise to this new venture while maintaining the open-source nature of the engine.
As explained by Informal co-founder Ethan Buchman, Circle’s choice to create its own blockchain shouldn’t be viewed as a rejection of Ethereum. Instead, it’s a strategic move that values the advantages of vertical integration. “Having control over the entire stack allows for predictability and hedges against uncertainties,” Buchman notes, highlighting the benefits of owning full operational capabilities.
The crypto community remains divided on the implications of this move. Proponents of Ethereum assert that corporate-backed chains still nurture Ethereum’s network effects and broad ecosystem. Conversely, critics warn that developers might be drawn away from Ethereum projects, potentially diminishing the platform for emerging EVM projects.
Concerns about censorship and oversight have also emerged. Some commentators warn that corporate-controlled layer 1s could risk more open networks, whereas others highlight Arc’s fast transactions and stable governance as essential features for payments and foreign exchange transactions. According to Arc’s design philosophy, transactions must either remain unconfirmed or attain 100% finality and irreversibility—an essential trait for a payments-focused blockchain.
This brings into focus the distinction between layer 1 and layer 2 as a business choice. Sovereign layer 1s, unlike rollups that depend on Ethereum’s finality, control foundational policies, including gas fees, KYC regulations, and transaction ordering. While operating costs for layers can vary, the allure of sovereignty in settlement economics makes this new approach even more appealing.
Stablecoin Boom as Backdrop
The stablecoin landscape is experiencing explosive growth, reshaping payment systems globally. According to a recent report, monthly stablecoin payments skyrocketed to $6.3 billion by early February 2025, illustrating a massive increase in the market. With projections indicating annual stablecoin transactions could hit $1 trillion by 2030, it’s no surprise that companies are keen on establishing their own sovereign payment infrastructures.
Alchemy’s CTO, Guillaume Poncin, points out that businesses are recognizing the significant revenue potential from owning their settlement layers, surpassing traditional payment processing profits. This shift suggests a preference for customizable solutions over rapid deployment options currently offered by rollups. Yet, as Circle aims to compete with giants like Visa and FedNow, its approach emphasizes a distinct philosophy focused on long-term stability and payment efficiency.
Ethereum Isn’t Going Anywhere
Critics assert that Circle’s development of Arc portends a distancing from Ethereum, where USDC represents nearly 30% of the stablecoin supply. However, Buchman argues that Ethereum remains steadfast in its relevance and importance, regardless of Circle’s choices. He believes Ethereum is entrenched as a vital technology for not only the crypto realm but also broader societal impacts related to freedom and rights.
The ongoing evolution of Ethereum will include adaptations such as Circle’s Arc. Nevertheless, Buchman emphasizes the importance of maintaining Ethereum’s role as a central hub for stablecoin transactions, even as issuance and trading flows transition to Arc. There are implications, though, particularly concerning censorship and asset freezing—if USDC also serves as the gas for transactions, what happens if the token faces regulatory challenges?
While Circle is aware of these potential issues, the extent to which they prioritize privacy protections and regulatory compliance remains an open question. Buchman notes that while Malachite could support privacy-centric solutions, its implementation is yet to be determined. The balance between creating interoperable solutions and maintaining individual user privacy is crucial as the landscape continues to evolve.
With various projects on the horizon, including potential competition with other sovereign chains, the decision by enterprises to adopt or reject standalone blockchains—especially those like Arc—indicates a complex interplay of strategic objectives in the broader blockchain ecosystem. As the discourse around layer 1 and layer 2 technologies evolves, the nuanced pros and cons of each option are likely to spark further debate in the crypto community for years to come.
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