Who will serve as 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 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 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 of “digital central banking.”

In the traditional sense, central banks have three major functions: issuing currency, managing payment clearing systems, and setting monetary policy.

Circle is completing a digital reproduction step by step—first using USDC to seize the “minting privilege,” then using Arc to build the clearing system; and the next step might be setting digital currency policy.

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

Circle’s “Evolutionary Theory” of the Central Bank

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 proactively confronted the most stringent regulatory checkpoints and became one of the earliest companies to obtain the New York State BitLicense. Widely dubbed “the hardest crypto license in the world” within the industry, the application process was so complex that many companies were deterred.

Second, it didn’t choose to go it alone—it partnered with Coinbase to form the Centre consortium. This both shared regulatory risk and enabled immediate access to Coinbase’s massive user base, so USDC was effectively born standing on the shoulders of giants.

Third, it pushed reserve transparency to the limit: every month it publicly released reserve audit reports issued by accounting firms, ensuring reserves were 100% comprised of cash and short-term U.S. Treasuries—without touching any commercial paper or high-risk assets. This “top-student” playbook was not well received early on. In the 2018–2020 era of savage growth, USDC was criticized for being “too centralized,” and its growth was slow.

The turning point came in 2020.

The explosive boom of DeFi summer drove a surge in stablecoin demand, and even more importantly, hedge funds, market makers, payment companies, and other institutions began to enter—only then did USDC’s compliance advantages really show.

From $1 billion in circulating supply to $42 billion, and now $65 billion, USDC’s growth curve has been almost a near-vertical climb.

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

The result of this “stress test” was that, for systemic risk prevention and control, the U.S. government ultimately provided full guarantees 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 to truly control its own fate.

And what truly triggered that sense of control was the dissolution of the Centre consortium. That event exposed Circle’s “working-for-others dilemma.”

In August 2023, Circle and Coinbase announced the disbanding of the Centre consortium, with Circle fully taking over control of USDC. On the surface, this was Circle gaining independence; but the price was heavy. Coinbase gained the right to receive 50% of USDC reserve income.

What does that mean? In 2024, Coinbase received $910 million in revenue from USDC, a year-over-year increase of 33%. 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 Circle worked hard to grow, half of the profit has to be shared with Coinbase. It’s like a central bank printing money—except it has to hand half of the seigniorage to commercial banks.

In addition, TRON’s rise made Circle see a new profit model even more clearly.

In 2024, TRON processed $5.46 trillion worth of USDT transactions. With an average of over 2 million transfers per day, it earned substantial fee income simply by providing transfer infrastructure—an upstream, more stable profit model than issuing stablecoins.

Especially under expectations of Fed rate cuts, traditional stablecoin interest income will face contraction, while infrastructure fees can keep growing relatively steadily.

This also served as a warning to Circle: whoever controls the infrastructure can keep collecting “tax.”

So Circle began its transformation journey toward building infrastructure, with developments on multiple fronts:

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

• CCTP (Cross-Chain Transfer Protocol) enables native USDC transfers 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. Beyond traditional reserve interest, an increasing share came from API call fees, cross-chain service fees, and enterprise service fees.

This shift is confirmed in Circle’s recently released earnings report:

The data shows that in the company’s second quarter this year, subscription and service revenue reached $24 million—about 3.6% of total revenue (the bulk still comes from interest on USDC reserves). However, it grew 252% year over year.

Turning a business that earns interest from “printing money” into a diversified “rent collection” business gives the business model more control.

Arc’s debut is the highlight of this transformation.

With USDC as the native Gas, there’s no need to hold ETH or other volatile tokens. An institutional-grade request-for-quote system supports 24/7 on-chain settlement. Transaction confirmations are under 1 second, and it can offer options for balances and transaction privacy for enterprises—meeting compliance needs.

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

At this point, from Centre to Arc, Circle has completed a three-step leap:

From issuing banknotes through private banks, to monopolizing the currency-issuance privilege, to taking control of the entire financial system—only with faster execution.

And this “digital central bank dream” isn’t the only one.

Same ambitions, different routes

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

Circle chose the hardest—yet possibly most valuable—route: USDC → Arc blockchain → a complete financial ecosystem.

Circle is not satisfied with being only 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-banking thinking” at every step:

First are the monetary policy tools. With USDC as the native Gas, Circle gains capabilities similar to setting a “benchmark rate.” Second is clearing monopoly: a built-in institutional RFQ forex engine means that on-chain forex settlement must go through its mechanism. Third is the rule-setting authority: Circle retains control over protocol upgrades, deciding which features go live and which behaviors are allowed.

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

Circle’s answer is not migration, but supplementation. 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, forex 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 go down the drain.

PayPal’s approach is pragmatic and flexible.

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

PayPal didn’t build a dedicated chain. Instead, it flexibly rolled out PYUSD across multiple usable ecosystems, and each chain became a distribution channel.

In the early stages of stablecoins, distribution channels are indeed more important than building infrastructure. When you already have an available network, why build your own?

Win user mindshare and usage scenarios first, and then tackle infrastructure later—after all, PayPal itself has a 20 million merchant network.

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

It hardly interferes with how USDT is used. Once issued, it behaves 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 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—more like an international stablecoin.

Backed by trading pairs on most exchanges, with trading volumes 3–5 times higher than USDC, Tether has formed a powerful liquidity network effect.

Most interestingly, Tether’s attitude toward new chains is passive. It doesn’t proactively build, but supports others building—for example, stablecoin-specific chains like Plasma and Stable. It’s like making a bet: maintaining visibility across ecosystems at very low cost, and seeing which one can truly take off.

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

Tether’s bet is that as long as reserves remain sufficient and no systemic risk emerges, inertia alone can 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 as the sovereign. With 20 million merchants, the technical architecture is secondary. This is an internet mindset.

Tether believes in liquidity as the sovereign. As long as USDT remains the base currency of trading, everything else is secondary. This is an exchange mindset.

And Circle believes in infrastructure as the sovereign. If you control the rails, you control 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 matter of technological competition.”

Circle is not just looking at the stablecoin market—it’s seeking the standard-setting power of the digital dollar. If Arc succeeds, it could become the digital dollar’s “Federal Reserve system.” This vision is worth taking the risk for.

2026: a critical time window

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

Too slow.

In an industry that treats “rapid iteration” as a creed, spending nearly a year moving from testnet to mainnet looks like a missed opportunity.

But if you understand Circle’s situation, you’ll find that this timing may actually be pretty good.

On June 17, the U.S. Senate passed the GENIUS Act. This is the United States’ first federal-level stablecoin regulatory framework.

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 when these details will take effect and when the market will adapt to the new rules. Circle doesn’t want to be the first one to charge in with the new playbook, but it also doesn’t want to arrive too late.

Enterprise customers care most about certainty, and Arc provides exactly that—certain regulatory standing, certain technical performance, and a clearly defined business model.

If Arc successfully launches and attracts enough users and liquidity, Circle will establish its leadership position in stablecoin infrastructure. This could usher in a new era—private companies operating as “central banks” becoming a reality.

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

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

The answer to this question may become clear in early 2026.