Who will be the "Digital Central Bank"? Circle has submitted an application using Arc.

Author: David, Deep Tide TechFlow

Translated by: @mangojay09, Yu Jian Web3

On August 12—right on the same day it released its first quarterly earnings report after going public—Circle dropped a major bombshell: @arc, an L1 blockchain built specifically for stablecoin finance.

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

But once you read it in the context of Circle’s trajectory over the past seven years, you’ll find:

This isn’t a public chain. It’s a territorial declaration for a “digital central bank.”

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

Circle is completing a digital version of that playbook step by step—first using USDC to secure “the right to mint,” then using Arc to build the clearing system. Next, perhaps it’s the formulation of digital currency monetary policy.

This isn’t just about a company—it’s about a redistribution of monetary power in the digital era.

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 looked, at the time, “clumsy”: extreme compliance.

First, it actively took on the toughest regulatory checkpoints, becoming one of the earliest companies to obtain a New York State BitLicense. This license—commonly described in the industry as “the hardest crypto license to get globally”—has such a complex application process that many companies simply gave up.

Second, it didn’t choose to fight alone. Instead, it partnered with Coinbase to form the Centre consortium—sharing regulatory risk while also gaining immediate access to Coinbase’s massive user base, so that USDC could launch already standing on the shoulders of giants.

Third, it pushed reserve transparency to the extreme: every month it publicly released reserve audit reports issued by accounting firms, ensuring that 100% was composed of cash and short-term U.S. Treasuries—no commercial paper, no risky assets. This “top-student” strategy wasn’t very appealing early on. In the wild-growth era from 2018 to 2020, USDC was criticized as “too centralized,” and its growth was slow.

The turning point came in 2020.

The explosion of DeFi summer drove stablecoin demand through the roof, and more importantly, hedge funds, market makers, payment companies, and other institutions began entering—only then did USDC’s compliance advantage finally show.

From $1 billion in circulation to $42 billion, and now $65 billion, USDC’s growth curve is almost straight up.

In March 2023, Silicon Valley Bank collapsed. Circle had $3.3 billion in reserves stored there. USDC briefly de-pegged to $0.87, and panic spread rapidly.

The result of this “stress test” was that, to manage systemic risk, the U.S. government ultimately provided full guarantees for all depositors at Silicon Valley banks.

Although it wasn’t specifically a rescue for Circle, the incident made Circle realize that simply being an issuer wasn’t enough—it had to control more infrastructure in order to truly control its own fate.

And what truly sparked this sense of control was the dissolution of the Centre consortium. This exposed Circle’s “employee dilemma.”

In August 2023, Circle and Coinbase announced the dissolution of the Centre consortium, and Circle fully took control of USDC. On the surface, this meant Circle gained independence; but the cost was heavy—Coinbase obtained a right to take a 50% share of USDC reserve income.

What does that mean? In 2024, Coinbase earned $910 million from USDC, up 33% year over year. In the same year, Circle paid more than $1 billion in distribution costs, most of which went to Coinbase.

In other words, for the USDC that Circle painstakingly grew, half of the profits must be shared with Coinbase. It’s like a central bank printing money—but having to hand half the seigniorage to commercial banks.

Moreover, the rise of TRON made Circle see an even newer profit model.

In 2024, TRON processed $5.46 trillion worth of USDT transactions. On average, it processed more than 2 million transfers per day. By earning substantial fee income simply by providing transfer infrastructure, it produced a profit model that is more upstream and more stable than issuing stablecoins.

Especially under expectations of Fed rate cuts, traditional stablecoin interest income would face contraction, while infrastructure fee revenue could maintain relatively steady growth.

This also served as a warning to Circle: whoever controls infrastructure can continue collecting fees.

So Circle began its transformation path toward building infrastructure, laying out multiple points:

• Circle Mint lets enterprise customers directly mint and redeem USDC;

• CCTP (Cross-Chain Transfer Protocol) enables native transfers of USDC across different blockchains;

• Circle APIs provide enterprises with a complete stablecoin integration solution.

By 2024, Circle’s revenue reached $1.68 billion, and its revenue mix began to shift—besides traditional reserve interest, an increasing share came from API call fees, cross-chain service fees, and enterprise service fees.

This shift was confirmed in the latest Circle financial report.

The data shows that Circle’s subscription and services revenue in the current second quarter reached $24 million, even though it accounted for only around 3.6% of total revenue (the bulk still came from USDC reserve interest). But on a year-over-year basis, it grew rapidly by 252%.

A business model that used to rely on earning interest from printing a single currency became a diversified “rent-collecting” business—one with stronger control over the business model.

Arc’s arrival was the highlight of this transformation.

As a native Gas for USDC, Arc removes the need to hold ETH or other volatile tokens. An enterprise-grade quote request system supports 24/7 on-chain settlement. Transaction confirmations are under 1 second, and Arc can offer enterprises options for balances and transaction privacy to meet compliance needs.

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

At this point, from Centre to Arc, Circle completed a triple leap:

From issuing bank notes as a private bank, to monopolizing the currency-issuing power, to taking charge of the entire financial system—except Circle’s pace is faster.

And this “digital central bank” dream is not the only one pursued.

Same Ambition, Different Paths

In the stablecoin battle landscape of 2025, all major players have a “central bank dream,” but their paths differ.

Circle chose the hardest—and potentially most valuable—path: USDC → Arc blockchain → a complete financial ecosystem.

Circle isn’t satisfied with merely being a stablecoin issuer; it wants to control the entire value chain—from currency issuance to clearing systems, from payment rails to financial applications.

Arc’s design is filled with “central bank thinking” in every corner.

First is monetary policy tooling. With USDC as the native Gas, Circle gains control capabilities similar to adjusting a “benchmark interest rate.” Second is clearing monopoly—an embedded enterprise-grade RFQ FX engine makes on-chain FX settlement possible only through its mechanism. Third is rule-setting power—Circle retains control over protocol upgrades, deciding which features go live and which behaviors are permitted.

The hardest part here is ecosystem migration—how to persuade users and developers to leave Ethereum?

Circle’s answer is not to migrate, but to supplement. Arc isn’t trying to replace USDC on Ethereum; it’s providing solutions for use cases that existing public chains can’t meet. For example, enterprise payments that require privacy, FX trades that require instant settlement, and on-chain applications with predictable costs.

This is a high-stakes bet. If it succeeds, Circle could become the digital “Federal Reserve.” If it fails, the billions invested could go to waste.

PayPal’s approach is pragmatic and flexible.

PYUSD launched on Ethereum in 2023, expanded to Solana in 2024, went live on the Stellar network in 2025, and recently expanded to Arbitrum as well.

PayPal didn’t build an exclusive chain. Instead, it let PYUSD be deployed flexibly across multiple available ecosystems—each chain becoming a distribution channel.

In the early stage of stablecoins, distribution channels were indeed more important than building infrastructure. When you already have something you can use, why build it yourself?

Win users’ minds and use cases first, and only then consider infrastructure. After all, PayPal itself has a merchant network of 20 million.

Tether is like the crypto world’s de facto “shadow central bank.”

It almost doesn’t interfere with how USDT is used. Once it’s issued, it’s like cash—how it circulates is up to the market. Especially in regions and use cases where regulation is ambiguous and KYC is difficult, USDT became the only option.

Circle founder Paolo Ardoino 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—more like an international stablecoin.

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

Most interesting is Tether’s attitude toward new chains. It doesn’t proactively build, but it will support others building—for example, supporting stablecoin-specific chains like Plasma and Stable. It’s like placing bets: with very small costs, it maintains visibility across ecosystems, and watches which one can run.

In 2024, Tether’s profit exceeded $10 billion, beating many traditional banks. But Tether didn’t use those profits to build its own chain. Instead, it continued buying Treasuries and Bitcoin.

What Tether is betting on is that as long as it keeps enough reserves, and as long as no systemic risk appears, inertia will be enough to maintain USDT’s dominant position in stablecoin circulation.

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

PayPal believes in users above all else. With 20 million merchants, the technical architecture is secondary. That’s an internet mindset.

Tether believes in liquidity above all else. As long as USDT remains the base currency for trading, everything else doesn’t matter. That’s an exchange mindset.

And Circle believes in infrastructure above all else. Control the rails, and you control the future. That’s central bank thinking.

The rationale for this choice may come from a congressional testimony by Circle CEO Jeremy Allaire: “The dollar is at a crossroads. Currency competition today is technology competition.”

Circle isn’t just seeing the stablecoin market—it sees the standard-setting power for digital dollars. If Arc succeeds, it could become the digital dollar’s “Fed system.” This vision is worth the risk.

2026: The Critical Time Window

The window of time is narrowing. Regulation is advancing, and competition is intensifying. When Circle announced that Arc would go live on the mainnet in 2026, the first reaction from the crypto community was:

Too slow.

In an industry built on “rapid iteration,” spending nearly a year going from testnet to mainnet looks like a missed opportunity.

But if you understand Circle’s situation, you’ll find this timing is actually pretty reasonable.

On June 17, the U.S. 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 “vindication.” As the most compliant stablecoin issuer, Circle has almost satisfied all the requirements of the GENIUS Act.

In 2026, it’s exactly the time when these details land and the market adapts to the new rules. Circle doesn’t want to be the first one to “be the guinea pig,” but it also doesn’t want to be too late.

Enterprise customers care most about certainty—and Arc provides precisely that certainty: a certain regulatory status, certain technical performance, and a certain business model.

If Arc successfully launches and attracts enough users and liquidity, Circle will establish its leadership position in the stablecoin infrastructure space. This could usher in a new era—private companies operating a “central bank” becomes real.

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

But no matter the outcome, Circle’s attempt is pushing the whole industry to think about a fundamental question: in the digital age, who should hold control over money?

The answer may be settled in early 2026.