'Stablecoin's first stock' Circle announced its latest layout in the Q2 2025 financial report, a public chain called Arc, which is also a Layer 1 dedicated to stablecoins. It clearly targets competitors like Tether's Plasma and Stable. Arc will launch a public testnet this fall, and let's take a look at Circle's latest creation and its technical features.
First of all, Arc is an EVM-compatible Layer-1 blockchain designed specifically for stablecoin finance and asset tokenization, providing a foundational settlement layer for programmable money on the internet, particularly suitable for scenarios such as global payments, foreign exchange (FX), and capital markets. The goal is to address the barriers faced by existing public chains in enterprise and institutional applications, such as volatility in transaction fees, uncertainty in settlement, and lack of privacy. Here we know that Arc is strongly related to payments, and it is notable that Arc seems not to be aimed at consumers.
Key technical features of Arc
Using USDC as the native Gas and stable fee mechanism
Arc uses USDC as the native asset for paying transaction fees (Gas) and employs a fee market mechanism inspired by Ethereum’s EIP-1559, but updates the base fee using an exponentially weighted moving average of block utilization to smooth short-term fluctuations and ensure transaction costs remain consistently low.
In addition to USDC, Arc also plans to integrate payment support for other stablecoins and tokenized fiat currencies through a dedicated 'Paymaster' (a payment channel).
Extremely high performance
Arc adopts a high-performance consensus engine called 'Malachite' based on the Tendermint BFT protocol. This enables it to achieve deterministic settlement finality, with transactions confirming in under a second and being irreversible.
Of course, there are validators, and the network is secured by a group of limited, permissioned, geographically distributed reputable institutions as validators. The identities of these validators are public and must comply with high standards of accountability and operational assurance. This easily evokes memories of the former Libra.
In a test setup with 20 geographically distributed validation nodes, Arc can process about 3,000 transactions per second (TPS), with finality confirmation times of less than 350 milliseconds. With 4 validation nodes, throughput can exceed 10,000 TPS, and finality times can be under 100 milliseconds.
Optional privacy protection features
Arc's privacy roadmap begins with the 'confidential transmission' feature, which can encrypt transaction amounts so they are not visible to the public, while the addresses of both parties remain visible. This is a very B2B feature that protects sensitive business information.
There is also a complete regulatory aspect; Arc's privacy model allows for selective disclosure through mechanisms such as 'view keys', similar to Monero, as many transactions have privacy but can authorize third parties (such as audit or regulatory institutions) to access specific transaction data. Institutions can always fully view their customers' transactions to meet regulatory requirements such as transaction monitoring and travel rules.
Privacy features are implemented through a modular backend, initially using Trusted Execution Environment (TEE) technology to handle encrypted data, with plans to integrate more advanced technologies such as Multi-Party Computation (MPC), Fully Homomorphic Encryption (FHE), and Zero-Knowledge Proofs (ZKP) in the future.
MEV mitigation roadmap
Arc believes that not all MEV is harmful. It categorizes MEV into 'constructive' (such as arbitrage activities that help stabilize stablecoin price discovery) and 'harmful' (such as sandwich attacks).
To mitigate the MEV issue, Arc's roadmap includes implementing technologies such as encrypted memory pools, batch transaction processing, and multiple proposers to curb predatory trading behaviors while retaining beneficial arbitrage activities.
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