Who will be the "digital central bank"? Circle submitted the application with Arc

Author: David, Shenchao TechFlow

Compilation: @mangojay09, Yujian Web3

August 12, the same day as the release of the first financial report after listing , Circle dropped a bombshell: @arc, an L1 blockchain built for stablecoin finance.

If you just look at the news headlines, you might think this is another ordinary public chain story.

But when you put it in Circle's trajectory over the past seven years, you will find that

this is not a public chain, this is a territorial declaration about a "digital central bank".

Traditionally, central banks have three major functions: issuing currency, managing payment and clearing systems, and formulating monetary policy.

Circle is completing the digital version of the replica step by step - first using USDC to win the "minting rights", and then using Arc to build a clearing system, the next step may be the formulation of digital currency policy.

It's not just about one company, but about the redistribution of monetary power in the digital age.

In September 2018, when Circle and Coinbase jointly launched USDC, the stablecoin market was still Tether's world.

Circle chose a path that seemed "clumsy" at the time: extreme compliance.

First, it took the initiative to face the most stringent regulatory hurdles and became one of the first companies to obtain a BitLicense in New York State. This is called "the world's most difficult crypto license" in the industry, and the cumbersome application process has deterred many companies.

Second, it did not choose to fight alone, but joined hands with Coinbase to form the Centre Alliance - which can not only share regulatory risks, but also have one-time access to Coinbase's huge user base, allowing USDC to stand on the shoulders of giants from birth.

Third, it takes reserve transparency to the extreme: it publishes a reserve audit report issued by an accounting firm every month, ensuring that it is 100% composed of cash and short-term U.S. Treasury bonds, without touching any commercial paperor high-risk assets. This "honor student" style of play was very unflattering in the early days - in the era of barbaric growth from 2018 to 2020, USDC was disliked as "too centralized" and grew slowly.

turning point came in 2020.

The outbreak 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 market, and USDC's compliance advantages have finally emerged.

From $1 billion in circulation, to $42 billion, and now to $65 billion, USDC's growth curve is almost steep upward.

In March 2023, Silicon Valley Bank collapsed, Circle had $3.3 billion in reserves in the bank, and USDC was once unanchored to $0.87, and panic spread rapidly.

As a result of this "stress test", the U.S. government finally provided full guarantees to all Silicon Valley Bank depositors out of systematic risk prevention and control.

Although it was not specifically for Circle, this incident made Circle realize that being a publisher is not enough, and that it must control more infrastructure to truly control its own destiny.

What really aroused this sense of control was the dissolution of the Centre Alliance. This incident exposed Circle's "migrant worker" dilemma.

In August 2023, Circle and Coinbase announced the dissolution of the Centre Alliance, with Circle taking over control of USDC completely. On the surface, this is Circle's independence; But the price is heavy, and Coinbase has received a 50% share of USDC reserve revenue.

What does this mean? In 2024, Coinbase generated $910 million in revenue from USDC, a year-over-year increase of 33%. Circle paid more than $1 billion in distribution costs in the same year, most of which went to Coinbase.

In other words, Circle's hard work to make USDC bigger, half of the profits will be shared with Coinbase. It's like a central bank printing money, but giving half of the seigniorage to commercial banks.

In addition, the rise of TRON has allowed Circle to see a new profit model.

In 2024, TRON processed $5.46 trillion in USDT transactions, processing an average of over 2 million transfers per day, and generated generous fee income just by providing transfer infrastructure, which is a more upstream and stable profit model than issuing stablecoins.

Especially under the expectation of the Federal Reserve cutting interest rates, 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.

Therefore, Circle began the transformation of infrastructure construction, and the layout blossomed in multiple points:

• Circle Mint allows enterprise customers to directly mint and redeem USDC;

• CCTP (Cross-Chain Transfer Protocol) enables the native transfer of USDC on different blockchains.

• Circle APIs provide a comprehensive suite of stablecoin integration solutions for businesses.

By 2024, Circle's revenue will reach $1.68 billion, and its revenue structure will begin to shift - in addition to traditional reserve interest, more and more from API call fees, cross-chain service fees, and enterprise service fees.

This shift is confirmed in Circle's recent 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 (the majority is still interest on USDC reserves). However, it increased rapidly by 252% year-on-year.

a business that collects interest from a single printing of money , transformed into a diversified "rent-collecting" business, and the business model is more controllable.

The debut of Arc is the highlight of this transformation.

USDC, as the native gas, does not need to hold ETH or other volatile tokens; Institutional-level quotation request system, supporting 24×7 hours on-chain settlement; Transaction confirmation takes less than 1 second, providing enterprises with balance and transaction privacy options to meet compliance needs.

These functions are more like using technology to declare monetary sovereignty. Arc is open to all developers, but the rules are set by Circle.

So far, from Centre to Arc, Circle has completed a triple jump:

from private banks issuing banknotes, to monopolizing currency issuance, to taking control of the entire financial system - but Circle is faster.

And this "digital central bank dream" is not the only dreamer.

In the stablecoin war situation in 2025, several giants have a "central bank dream", but the paths are different.

Circle chose the most difficult but probably the most rewarding path: USDC → Arc blockchain → complete financial ecosystem.

Circle is not content to be just a stablecoin issuer, but to control the entire value chain - from currency issuance to clearing systems, from payment rails to financial applications.

Arc is designed with "central bank thinking" everywhere:

The first is a monetary policy tool, USDC, as the native gas, allows Circle to have a regulatory capability similar to the "benchmark interest rate"; The second is the liquidation monopoly, with a built-in institutional-grade RFQ foreign exchange engine, which allows on-chain foreign exchange settlement to go through its mechanism; Finally, there is the right to make rules, where Circle retains control over protocol upgrades and can decide which features are live and which actions are allowed.

The hardest one here , is an ecological migration - how to persuade users and developers to leave Ethereum?

Circle's answer is not to migrate, but to supplement. Arc is not intended to replace USDC on Ethereum, but to provide solutions for those use cases that existing public chains cannot meet. For example, enterprise payments that require privacy, foreign exchange transactions that require instant settlement, and on-chain applications that require predictable costs.

It's a big gamble. If successful, Circle will become the "Federal Reserve" of digital finance; If it fails, billions of dollars could be wasted.

PayPal's approach is pragmatic and flexible.

PYUSD was first launched on Ethereum in 2023, expanded to Solana in 2024, launched on the Stellar network in 2025, and recently covered Arbitrum.

Instead of building a dedicated public chain, PayPal allows PYUSD to be flexibly deployed across multiple available ecosystems, each of which is a usable distribution channel.

In the early stages of stablecoins, distribution channels were indeed more important than building infrastructure. Why do it yourself when you have something ready to use?

First, occupy the user's mind and usage scenarios, and then consider the infrastructure issue in the future, after all, PayPal has its own merchant network of 20 million.

Tether is like the de facto "shadow central bank" of the crypto world.

It almost does not interfere with the use of USDT, and it is like cash, and how it circulates is a matter of the market. Especially in regions and use cases where regulations are ambiguous and KYC is difficult, USDT has become the only option.

Circle founder Paolo Ardoino once said in an interview that USDT mainly serves emerging markets (such as Latin America, Africa, and Southeast Asia), helping local users bypass inefficient financial infrastructure, and is more like an international stablecoin.

With 3–5 times the number of USDC trading pairs on most exchanges, Tether has formed a strong liquidity network effect.

The most interesting thing is Tether's attitude towards the new chain. It does not take the initiative to build, but it will support others to build. For example, it supports stablecoin-specific chains like Plasma and Stable. It's like betting on maintaining the presence of each ecosystem at a small cost to see which one can run out.

In 2024, Tether's profit exceeded $10 billion, surpassing many traditional banks; Instead of using these profits to build its own chain, Tether continues to buy Treasury bonds and Bitcoin.

Tether is betting that as long as sufficient reserves are maintained, as long as there is no systemic risk, inertia can maintain USDT's dominance in stablecoin circulation.

The above three models represent three different judgments on the future of stablecoins.

PayPal believes that the user is king. With 20 million merchants, the technical architecture is secondary. This is connected thinking.

Tether believes that liquidity is king. As long as USDT is still the base currency of the transaction, nothing else matters. This is exchange thinking.

And Circle believes that infrastructure is king. If you control the track, you control the future. This is central bank thinking.

The rationale for this choice may lie in a congressional testimony by Circle CEO Jeremy Allaire: "The dollar is at a crossroads, and the currency competition is now a technological competition." "

Circle sees not just the stablecoin market, but the standard-setting power of the digital dollar. If Arc is successful, it could become a "Federal Reserve System" for the digital dollar. This vision is worth the risk.

The time window is narrowing. Regulation is advancing, competition is intensifying, and when Circle announced that Arc would launch on the mainnet in 2026, the crypto community's first reaction was:

it's too slow.

In an industry that is based on the credo of "fast iteration", it took nearly a year to go from testnet to mainnet seems like a missed opportunity.

But if you understand Circle's situation, you will find that this point in time is not bad.

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 correction". As the most compliant stablecoin issuer, Circle has met almost all the requirements of the GENIUS Act.

2026 is the time for these rules to be implemented and the market to adapt to the new rules. Circle didn't want to be the first to eat crabs, but he didn't want to come too late either.

Enterprise customers value certainty above all else, and Arc provides that certainty – defined regulatory status, defined technical performance, and defined business models.

If Arc successfully goes live and attracts enough users and liquidity, Circle will establish itself as a leader in stablecoin infrastructure. This could usher in a new era – a "central bank" run by private companies becoming a reality.

If Arc performs mediocrely, or is overtaken by competitors, Circle may have to rethink its positioning. Perhaps in the end, stablecoin issuers can only be issuers, not the dominant players in the infrastructure.

But regardless of the outcome, Circle's attempt is pushing the industry to think about a fundamental question: Who should control money in the digital age?

The answer to this question may be known in early 2026.