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, the same day Circle released its first financial report after going public, it 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 typical public-chain story.

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

This isn’t a public chain—it’s a territorial declaration for “digital central banking.”

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

Circle is step by step completing a digital “replica.” First, it takes “the right to mint” with USDC; then it builds a clearing system with Arc; and next, perhaps, it will formulate digital currency policy.

This is not only about one company—it’s about the redistribution of monetary power in the digital era.

Circle’s Central Bank Evolution

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 most stringent regulatory gate and became one of the earliest companies to obtain the New York State BitLicense. This license—known in the industry as “the hardest crypto license in the world”—has such a complex application process that many companies were deterred.

Second, it did not go it alone. Instead, it joined hands with Coinbase to form the Centre consortium—sharing regulatory risk while also gaining direct access to Coinbase’s large user base, so that USDC could stand on the shoulders of giants from day one.

Third, it pushed reserve transparency to the extreme: every month, it publicly released reserve audit reports issued by accounting firms, ensuring 100% backing by cash and short-term U.S. Treasury bills, without touching any commercial paper or high-risk assets. This “top student” playbook wasn’t popular early on. During the wild growth years from 2018 to 2020, USDC was criticized for being “too centralized,” and its growth was slow.

The turning point came in 2020.

The explosion of DeFi summer drove a surge in stablecoin demand, and more importantly, hedge funds, market makers, payment companies, and other institutions began entering the market—finally making USDC’s compliance advantages visible.

From $1 billion circulating to $42 billion, and now to $65 billion, USDC’s growth curve has been almost steeply upward.

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

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

Although it was not a rescue specifically for Circle, this event made Circle realize that merely being an issuer was not enough. To truly control its own destiny, it had to master more infrastructure.

What truly sparked that sense of control was the dissolution of the Centre consortium. This exposed Circle’s “working-for-a-boss” dilemma.

In August 2023, Circle and Coinbase announced the dissolution of the Centre consortium, with Circle taking full control of USDC. On the surface, this was Circle gaining independence; but the cost was heavy: Coinbase gained a 50% share of USDC reserve income.

What does that mean? In 2024, Coinbase earned $910 million in revenue 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 Circle worked hard to grow USDC, half of the profits had to be shared with Coinbase. It’s like a central bank printing money—but having to hand half of the seigniorage to commercial banks.

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

In 2024, TRON processed $5.46 trillion worth of USDT transactions, with more than 2 million transfers per day on average. By providing transfer infrastructure alone, it earned substantial fee revenue—an upstream and more stable profit model than issuing stablecoins.

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

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

So Circle began its transition toward building infrastructure, laying out multiple initiatives across different 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—more and more revenue coming not only from traditional reserve interest, but also from API call fees, cross-chain service fees, and enterprise service fees.

This shift has been confirmed in Circle’s recently published financial reports:

The data shows that in this year’s second quarter, Circle’s subscription and service revenue reached $24 million. Although that is only around 3.6% of total revenue (with the bulk still coming from USDC reserve interest), it grew 252% year over year.

From a single “printing money and collecting interest” business to a diversified “rent-collection” business—its business model has stronger control.

The launch of Arc is a highlight of this transformation.

With USDC as native Gas, there’s no need to hold ETH or other volatile tokens. An institutional-grade request-for-quote (RFQ) system supports 24/7 on-chain settlement. Transaction confirmations are under 1 second, and enterprise users can choose between balance and transaction privacy options to meet compliance needs.

These capabilities are more like a technological declaration of monetary sovereignty. Arc is open to all developers, but the rules are set by Circle.

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

From issuing banknotes via private banks, to monopolizing the right to issue currency, to taking control of the entire financial system—only, Circle has done it faster.

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

Same ambitions, different paths

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

Circle chose the most difficult—but potentially most valuable—path: USDC → Arc blockchain → a full financial ecosystem.

Circle is not satisfied with being only a stablecoin issuer. It wants to control the entire value chain—from currency issuance to settlement systems, from payment rails to financial applications.

Arc’s design is filled with “central bank thinking”:

First is monetary policy tools. With USDC as native Gas, Circle gains adjustment capabilities similar to a “benchmark interest rate.” Second is clearing monopoly. The built-in institutional RFQ forex engine means on-chain forex settlement must go 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 migration, but supplementation. Arc is not meant to replace USDC on Ethereum; it’s meant to provide solutions for use cases that existing public chains can’t satisfy—for example, enterprise payments that require privacy, forex trades that require instant settlement, and on-chain applications with predictable costs.

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

PayPal’s playbook is pragmatic and flexible.

PYUSD launched on Ethereum in 2023, expanded to Solana in 2024, went live on Stellar in 2025, and has recently extended coverage to Arbitrum.

PayPal didn’t build a dedicated blockchain. Instead, it flexibly deployed PYUSD across multiple available ecosystems, with each chain serving as a distribution channel.

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

First capture users’ attention and usage scenarios, 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 never interferes with the use of USDT. Once it’s issued, it’s 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 a strong liquidity network effect, Tether has trading pairs on most exchanges that are 3–5 times the number of USDC pairs.

Most interestingly, Tether’s attitude toward new chains is passive. It doesn’t actively build, but supports others that build. For example, it supports stablecoin-specific chains like Plasma and Stable. This is like placing bets—keeping a presence across ecosystems at low cost and waiting to see which one can really run.

In 2024, Tether’s profit exceeded $10 billion, surpassing many traditional banks. But Tether did not use these profits to build its own chain. Instead, it continued buying Treasuries and Bitcoin.

Tether’s bet is that as long as reserves remain sufficient and systemic risks do not arise, inertia will sustain USDT’s dominance in stablecoin circulation.

These three models represent three different judgments about the future of stablecoins.

PayPal believes in user sovereignty. With 20 million merchants, technology architecture is secondary. This is an internet mindset.

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

And Circle believes in infrastructure. Control the rails, and you control the future. This is a central bank mindset.

The rationale for this choice may be reflected in a congressional testimony by Circle CEO Jeremy Allaire: “The dollar is at a crossroads, and monetary competition is now a matter of technological competition.”

Circle is seeing more than just the stablecoin market—it is seeing the power to set the standards for the digital dollar. If Arc succeeds, it could become the digital dollar’s “Federal Reserve System.” This vision is worth the risk.

2026, a Critical Time Window

The time window is narrowing. Regulation is moving forward, and competition is intensifying. When Circle announced that Arc would go live on mainnet in 2026, the first reaction from the crypto community 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 America’s first federal stablecoin regulatory framework.

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

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

Enterprise customers value certainty most, and Arc provides exactly that—clear regulatory status, predictable technical performance, and a defined business model.

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

If Arc performs poorly, 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 controllers of infrastructure.

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

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