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

Author: David, Deep Tide TechFlow

Translation: @mangojay09, Yujian Web3

On August 12, the same day it released its first set of quarterly reports 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 interpret 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 about “digital central banking.”

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

Circle is completing a digital remake step by step—first using USDC to seize the “minting right,” then using Arc to build the clearing system, and the next step may be formulating digital currency policy.

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

Circle’s Evolution of Central Banking

In September 2018, when Circle and Coinbase jointly launched USDC, the stablecoin market was still dominated by Tether.

Circle chose a path that seemed, at the time, “clumsy”: extreme compliance.

First, it proactively took on the toughest regulatory checkpoint, becoming one of the earliest companies to obtain a New York State BitLicense. This license—referred to in the industry as “the hardest crypto license in the world”—has such a complex application process that many companies gave up.

Second, it didn’t choose to go it alone. Instead, it teamed up with Coinbase to form the Centre alliance—able to share regulatory risks while also gaining one-shot access to Coinbase’s massive user base, so USDC could launch from the shoulders of a giant.

Third, it pushed reserve transparency to the extreme: every month it publicly releases reserve audit reports issued by an accounting firm, ensuring 100% are composed of cash and short-term U.S. Treasuries—no commercial paper or any high-risk assets. This “top student” playbook wasn’t very popular in the early days. Back in the wild-growth era from 2018 to 2020, USDC was criticized for being “too centralized,” and its growth was slow.

The turning point came in 2020.

The爆发 of DeFi Summer drove a surge in stablecoin demand. Even more importantly, hedge funds, market makers, payment companies, and other institutions began entering the market, and USDC’s compliance advantage finally showed.

From $1 billion in circulating supply to $42 billion, and now $65 billion, USDC’s growth curve has been almost straight up and steep.

In March 2023, Silicon Valley Bank collapsed. Circle had $3.3 billion in reserves stored there. USDC temporarily depegged to $0.87, and panic spread quickly.

The result of this “stress test” was that, due to systemic risk controls, the U.S. government ultimately provided full deposit insurance coverage for all Silicon Valley Bank depositors.

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

What truly sparked this sense of control was the dissolution of the Centre alliance. This exposed Circle’s “working-for-others” predicament.

In August 2023, Circle and Coinbase announced the dissolution of the Centre alliance, and Circle fully took over control of USDC. On the surface, this meant Circle gained independence; but the cost was heavy—Coinbase gained a right to receive 50% of USDC reserve revenue.

So 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, after all Circle’s hard work growing USDC, half the profits have to be shared with Coinbase. It’s like a central bank printing money—except it has to hand half the seigniorage to commercial banks.

Besides, Tron’s rise made Circle see a new profit model even more clearly.

In 2024, Tron processed $5.46 trillion worth of USDT transactions—over 2 million transfers per day on average. By earning substantial fee income just by providing transfer infrastructure, it’s a profit model that’s more upstream and more stable than issuing stablecoins.

Especially with expectations of interest rate cuts by the Federal Reserve, traditional stablecoin interest revenue faces contraction, while infrastructure fees can keep growing relatively steadily.

This also served as a warning to Circle: whoever controls the infrastructure can continuously collect revenue.

So Circle began its transformation path toward building infrastructure, with multi-point deployments:

• 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 structure 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 is corroborated in the recent quarterly report Circle published:

The data shows that in this year’s second quarter, Circle’s subscription and services revenue reached $24 million. Although that’s only about 3.6% of total revenue (the bulk is still interest on USDC reserves), it grew rapidly by 252% year over year.

Turning a business that earns interest from single-purpose “printing money” into a business of diversified “rent collecting” gives the business model greater control.

Arc’s arrival is the shining moment of this transformation.

With USDC as a native Gas, there’s no need to hold ETH or other volatile tokens. An enterprise-grade Request for Quote (RFQ) system supports 24/7 on-chain settlement. Transaction confirmations are under 1 second, letting enterprises offer balance and transaction privacy options to meet compliance requirements.

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 a private bank issuing bank notes, to monopolizing the right to issue money, to overseeing the entire financial system—only Circle’s pace is faster.

And this “digital central banking dream” isn’t the only one being chased.

Same ambition, different paths

In the 2025 stablecoin battle, several major players all have an “institutional (central bank) dream,” but their paths differ.

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

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

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

First are monetary policy tools: using USDC as native Gas gives Circle capabilities similar to setting a “benchmark interest rate.” Second is clearing monopoly: the built-in enterprise-grade RFQ foreign-exchange engine forces on-chain FX settlement to go through its mechanism. Finally is rule-setting power: Circle retains control over protocol upgrades, able to decide which functions go live and which actions are allowed.

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 complement. Arc isn’t trying to replace USDC on Ethereum; it provides solutions for use cases that existing public chains can’t meet. For example, enterprise payments that require privacy, foreign-exchange trades that need instant settlement, and on-chain applications with predictable costs.

This is a high-stakes gamble. If it succeeds, Circle will become the “Federal Reserve” of digital finance; if it fails, tens of billions in investment could be wasted.

PayPal’s approach is pragmatic and flexible.

PYUSD launched on Ethereum in 2023, expanded to Solana in 2024, and上线 on the Stellar network in 2025; more recently it has also covered Arbitrum.

PayPal didn’t build a dedicated chain of its own. Instead, it flexibly rolls out PYUSD across multiple available ecosystems, with each chain acting as a distribution channel.

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

First capture user mindshare and usage scenarios, then deal with infrastructure later—after all, PayPal already has a 20 million merchant network.

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

It almost never interferes with the use of USDT—sending it out is like cash. How it circulates is a matter for the market. Especially in regions and use cases where regulation is unclear and KYC is difficult, USDT becomes the only choice.

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 the number of trading pairs on most exchanges being 3–5 times greater than USDC, Tether has formed a powerful liquidity network effect.

What’s most interesting is Tether’s attitude toward new chains. It doesn’t proactively build, but it supports others building. For example, it supports stablecoin-specific chains like Plasma and Stable. This is like placing bets—keeping presence across ecosystems at low cost, then seeing which one can run.

In 2024, Tether’s profit exceeded $10 billion, surpassing many traditional banks. Tether didn’t use these profits to build its own chain; instead, it continued buying Treasuries and Bitcoin.

Tether is betting that as long as it maintains enough reserves, and as long as systemic risk doesn’t appear, 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 users are king. With a 20 million merchant base, technical architecture is secondary. That’s an internet mindset.

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

And Circle believes infrastructure is king. If you control the rails, you control the future. That’s central-bank thinking.

The rationale for this choice may have something to do with a congressional testimony by Circle CEO Jeremy Allaire: “The dollar is at a crossroads, and currency competition is now technology competition.”

Circle sees not only the stablecoin market, but also the standard-setting power for the digital dollar. If Arc succeeds, it could become the digital dollar’s “Federal Reserve system.” This vision is worth taking the risk.

2026: a critical time window

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

Too slow.

In an industry built on “rapid iteration,” it takes nearly a year to go from testnet to mainnet, which looks like a missed opportunity.

But if you understand Circle’s situation, you’ll find this timing is still fairly good.

On June 17, the U.S. Senate passed the GENIUS Act. This is the first federally established stablecoin regulatory framework in the United States.

For Circle, this is the long-awaited “vindication.” As the most compliant stablecoin issuer, Circle is almost already meeting all the requirements of the GENIUS Act.

In 2026, it’s exactly when those details are implemented and the market adapts to the new rules. Circle doesn’t want to be the first one to eat the first crab, but it also doesn’t want to be too late.

Enterprise customers care most about certainty, and what Arc provides is exactly that certainty—certainty of regulatory status, certainty of technical performance, and certainty of the business model.

If Arc successfully launches, attracting enough users and liquidity, Circle will establish leadership in the stablecoin infrastructure space. This could kick off a new era—private-company-operated “central banking” becomes reality.

If Arc performs merely average, or if it gets overtaken by competitors, Circle may have to rethink its positioning. Perhaps in the end, stablecoin issuers can only be issuers—not the dominant party for infrastructure.

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

The answer to that question may be clear in early 2026.