Author: David, Deep Tide TechFlow
Translated by: @mangojay09, Yujian Web3
On August 12, the same day that Circle released its first financial report after going public, it dropped a bombshell: @arc, an L1 blockchain specifically designed for stablecoin finance.
If you only look at the news headlines, you might think this is just another ordinary public chain story.
However, 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, but a territorial declaration about the '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 the digital replica - first acquiring 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, but about the redistribution of monetary power in the digital age.
Circle's Central Bank Evolution Theory
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 actively faced the most stringent regulatory barriers, becoming one of the first companies to obtain a New York State BitLicense. This license is referred to as 'the hardest crypto license in the world', with an application process so cumbersome that many companies refrain from applying.
Secondly, it did not choose to fight alone but partnered with Coinbase to form the Centre Alliance - which can share regulatory risks and access Coinbase's vast user base all at once, allowing USDC to stand on the shoulders of giants from birth.
Third, it maximizes reserve transparency: publishing monthly reserve audit reports issued by accounting firms, ensuring 100% consists of cash and short-term US government bonds, avoiding any commercial paper or high-risk assets. This 'honor student' approach was unpopular in the early days - from 2018 to 2020, during the era of wild growth, USDC was criticized for being 'too centralized' and grew slowly.
The turning point occurred in 2020.
The explosion of DeFi summer has led to a surge in demand for stablecoins, and more importantly, hedge funds, market makers, payment companies, and other institutions have begun to enter the fray, revealing USDC's compliance advantages.
From $1 billion in circulation to $42 billion, and now to $65 billion, USDC's growth curve is almost vertical.
In March 2023, Silicon Valley Bank collapsed, and Circle had $3.3 billion in reserves at that bank, causing USDC to briefly de-peg to $0.87, with panic spreading rapidly.
The result of this 'stress test' was that the US government, due to systemic risk prevention, ultimately provided full guarantees for all depositors of Silicon Valley Bank.
Although it was not a specific rescue for Circle, this incident made Circle aware that merely being an issuer is not enough; it must control more infrastructure to truly master its destiny.
What truly triggered this sense of control was the dissolution of the Centre Alliance. This incident exposed Circle's 'worker' dilemma.
In August 2023, Circle and Coinbase announced the dissolution of the Centre Alliance, with Circle taking full control of USDC. On the surface, this appears to grant Circle independence; however, the cost is heavy, as Coinbase acquired a 50% share of USDC reserve income.
What does this mean? In 2024, Coinbase earned $910 million from USDC, a 33% year-on-year increase. Meanwhile, Circle paid over $1 billion in distribution costs that year, most of which went to Coinbase.
In other words, Circle's hard-earned USDC profits must be shared with Coinbase. It's like a central bank printing money but having to give half of the minting tax to commercial banks.
In addition, the rise of Tron has made Circle see new profit models.
In 2024, Tron processed $5.46 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 serves as a wake-up call for Circle: whoever controls the infrastructure can continue to collect taxes.
Thus, Circle began its transformation towards infrastructure building, laying out a multi-pronged approach:
Circle Mint allows corporate clients to directly mint and redeem USDC;
CCTP (Cross-Chain Transfer Protocol) enables the native transfer of USDC across different blockchains;
Circle APIs provide a complete stablecoin integration solution for businesses.
By 2024, Circle's revenue reached $1.68 billion, and the revenue structure began to shift - increasingly coming from API usage fees, cross-chain service fees, and enterprise service fees, in addition to traditional reserve interest.
This shift was confirmed in the recent financial report released by Circle:
Data shows that Circle's subscription and service revenue reached $24 million in the second quarter of this year, although it only accounts for about 3.6% of total revenue (the bulk still comes from USDC reserve interest), but it has grown rapidly by 252% year-on-year.
Transitioning from a single business of printing money and earning interest to a diversified 'rental income' business model provides more control.
The arrival of Arc is the highlight of this transformation.
USDC, as native Gas, requires no holding of ETH or other volatile tokens; institutional-level quoting request system supports 24/7 on-chain settlements; transaction confirmation is less than one second, providing enterprises with options for balance and transaction privacy, meeting compliance needs.
These functions are more like a technical assertion 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:
From issuing banknotes by private banks to monopolizing currency issuance rights, to managing the entire financial system - only, Circle's speed is faster.
And this 'digital central bank dream' is not the only dreamer.
Same ambition, different paths
In the stablecoin landscape of 2025, several giants share a 'central bank dream', but the 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, but 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 are the monetary policy tools, with USDC as the native Gas, allowing Circle to have a regulatory capability similar to a 'benchmark interest rate'; secondly, there is the monopoly on clearing, with the built-in institutional-level RFQ forex engine, making on-chain forex settlements must go through its mechanism; finally, there is the rule-making authority, as Circle retains control over protocol upgrades, determining which features go live and which behaviors are permitted.
The hardest part here is ecological migration - how to convince users and developers to leave Ethereum?
Circle's answer is not to do migration, but to do supplementation. Arc is not meant to replace USDC on Ethereum, but to provide solutions for use cases that existing public chains cannot meet, such as enterprise payments that require privacy, foreign exchange transactions that require instant settlement, and on-chain applications that require predictable costs.
This is a gamble. If successful, Circle will become the 'Federal Reserve' of digital finance; if it fails, tens of billions of dollars in investment may go down the drain.
Paypal's approach is pragmatic and flexible.
In 2023, PYUSD was launched on Ethereum, expanded to Solana in 2024, and went live on the Stellar network in 2025, recently covering Arbitrum.
PayPal did not build a dedicated public chain but allowed PYUSD to flexibly expand across multiple available ecosystems, with each chain serving as a usable 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 user mindset and usage scenarios, and consider infrastructure issues in the future, after all, Paypal has its own network of 20 million merchants.
Tether acts as the de facto 'shadow central bank' in the crypto world.
It almost does not intervene in the use of USDT, sending it out like cash; how it circulates is a market issue. Especially in areas and use cases where regulation is vague and KYC is difficult, USDT has become the only choice.
Circle founder Paolo Ardoino 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, more like an international stablecoin.
With 3-5 times the trading pairs of USDC on most exchanges, Tether has formed a strong network effect of liquidity.
Interestingly, Tether's attitude towards new chains is to not actively build, but to support others in building. For example, supporting stablecoin-specific chains like Plasma and Stable. This is like betting, maintaining a presence in various ecosystems at a low cost to see which can succeed.
In 2024, Tether's profits exceeded $10 billion, surpassing many traditional banks; Tether did not use these profits to build its own chain, but continued to buy government bonds and Bitcoin.
Tether bets that as long as it maintains sufficient reserves and systemic risks do not occur, inertia can sustain USDT's dominance in the circulation of stablecoins.
The three modes above represent three different judgments about the future of stablecoins.
PayPal believes in the user-first principle. With 20 million merchants, the technical architecture is secondary. This is internet thinking.
Tether believes that liquidity is king. As long as USDT remains the base currency for trading, everything else is unimportant. This is an exchange mindset.
And Circle believes that infrastructure is king. Controlling the rails means controlling the future. This is central bank thinking.
The reason for this choice may lie in a congressional testimony by Circle CEO Jeremy Allaire: 'The dollar is at a crossroads, monetary competition is now a competition of technology.'
What Circle sees is not just the stablecoin market, but the standard-setting authority for the digital dollar. If Arc is successful, it could become the 'Federal Reserve System' of 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; when Circle announces that Arc will launch on the mainnet in 2026, the first reaction from the crypto community is:
Too slow.
In an industry that adheres to the principle of 'rapid iteration', taking nearly a year to move from testnet to mainnet seems like a missed opportunity.
But if you understand Circle's situation, you will find that this timing is not too bad.
On June 17, the US Senate passed the GENIUS Act. This is the first federal-level stablecoin regulatory framework in the United States.
For Circle, this is the long-awaited 'rebranding'. As the most compliant stablecoin issuer, Circle has nearly met all the requirements of the GENIUS Act.
In 2026, it will be the right time for these details to land and the market to adapt to new rules. Circle does not want to be the first to eat crabs, but it also does not want to be too late.
Corporate clients value certainty the most, and Arc provides exactly that certainty - certain regulatory status, certain technical performance, and certain business models.
If Arc successfully launches and attracts enough users and liquidity, Circle will establish its leadership position in the stablecoin infrastructure field. This could usher in a new era - a reality where 'central banks' operated by private companies come true.
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 prompting the entire industry to consider a fundamental question: In the digital age, who should hold the control of currency?
The answer to this question may become clear by 2026.
