From issuers to infrastructure owners: Circle's Arc strategy and the deadly gap in the GENIUS Act

Writing by: Zennon Kapron

Translation by: AididiaoJP, Foresight News

Circle raises $222 million for its proprietary Layer-1 blockchain Arc. A stablecoin issuer also owns the infrastructure that its USDC settlement relies on, which is precisely the conflict of interest the GENIUS Act has never addressed.

Over the past two years, Circle has positioned itself as a responsible stablecoin issuer—actively seeking regulation, welcoming rules, and preferring to be a dull but fully reserved dollar issuer rather than a crypto speculative project. This positioning was reasonable when Circle was just an issuer. But now, the company is shifting to a new role that reactivates conflicts of interest that financial regulation typically seeks to avoid.

Arc Turns Issuers into Infrastructure Owners

On May 11, 2026, Circle announced it had completed a $222 million token presale for its own Layer-1 blockchain Arc, with a fully diluted network valuation of about $3 billion. The lead investor was Andreessen Horowitz (a16z), with BlackRock, Apollo, and Intercontinental Exchange (the parent company of the New York Stock Exchange) participating. A publicly listed company conducting a token presale is itself a first, and the scale of the funding shows how much Circle values this project.

Arc is Circle’s core bet. Launched in 2025, it is positioned as a native stablecoin blockchain, with USDC as the native asset for paying transaction fees. The public testnet has already been completed. Circle’s CEO said the company is exploring issuing a native Arc token and moving toward a proof-of-stake (PoS) consensus mechanism.

Circle is no longer content with just issuing dollars; it wants to own the blockchain where dollars operate, rather than letting its dollars flow on infrastructure controlled by others.

Why Is It a Problem for Issuers to Own the “Rails”?

Traditional finance strictly separates the issuer of financial instruments from the clearing and settlement infrastructure. Clearing systems must remain neutral and fair in ordering all participants’ transactions, applying the same rules to issuers and their competitors.

When an issuer also owns the settlement layer, this neutrality becomes just a promise—no structure can enforce it. Arc gives Circle control over transaction ordering, validation, and rule-making on the network where its product competes.

If a competitor’s stablecoin wants to settle on Arc, it must run on infrastructure directly controlled by its rival. Circle can set fees, prioritize transactions, define technical standards, and adjust network rules to favor USDC, and owning the chain itself does not force it to restrain itself.

The issue isn’t whether Circle will abuse this power; it’s that such power should never be granted to a stablecoin issuer in the first place, because the temptation it creates is structural and permanent.

GENIUS Law Only Regulates “Coins,” Not “Rails”

This is the legal gap. The GENIUS Act, signed in July 2025, aims to make stablecoins safer as payment tools. It specifies detailed requirements for reserves, disclosures, issuer oversight, and holder protections. As a regulation for issuers, it is meticulous and cautious within its scope.

But at the market structure level, it is almost silent. The drafters focused on the “coin” itself—whether the dollar token is truly worth one dollar and redeemable. They did not consider that an issuer might also own and operate its underlying settlement network, because as of 2025, no major issuer was doing this.

Circle is now entering the legal gray area. The GENIUS Act governs the dollars in user wallets but says nothing about a company that owns wallets, rails, and dollars simultaneously.

Institutional backing reveals Arc’s true purpose

Look at the list of investors in Arc’s funding: BlackRock is the world’s largest asset manager and manages USDC reserves; Apollo is a major private credit firm; Intercontinental Exchange owns the NYSE. These institutions are builders and operators of market infrastructure, and their investment is not for speculation on token prices.

They are investing in infrastructure that will become a core financial pipeline—a settlement network for tokenized dollars, which will eventually expand to tokenized funds and securities. Arc is being built and capitalized as infrastructure, and the company controlling this space is exactly the one whose stablecoin should serve as a neutral currency flowing on it.

Why does Circle have no choice?

This strategy has clear defensive logic. USDC must compete with Tether USDT, which is more than twice its size, and also face increasing numbers of bank-issued and payment company-issued stablecoins.

As a pure issuer, it can only survive on reserve spreads, which are its entire business—an unstable and vulnerable position. Now, serious competitors are trying to break out of this dilemma by controlling more parts of the value chain.

Stripe is building its own chain, Tether is expanding its infrastructure and distribution channels. If Circle continues to be just an issuer, while competitors become platforms, it will be stuck in the weakest position. Arc is Circle’s move from “selling products” to “operating a platform”—the latter offers bigger and more sustainable profit margins.

The same logic explains why regulation needs rules: all major issuers have similar incentives to follow Circle and build their own “rails.”

What Would a Real Solution Look Like?

Structural conflicts require structural responses, and financial regulation has mature models for this. Exchanges are bound by fair access and non-discrimination rules; clearinghouses have governance requirements to prevent bias toward any single member. The core principle is: infrastructure used by everyone must not be controlled in a way that favors certain users.

Applied to Arc, this means the network itself must bear obligations, not just the stablecoin:

Transaction ordering must be provably neutral between USDC and competing stablecoins;

Fee schedules must be public and uniform;

Chain governance must be auditable and separated from Circle’s commercial interests in USDC market share.

These are not new demands—they are standard tools in regulated market infrastructure. The only reason they haven’t been applied is that the law was made before issuers became infrastructure providers.

Europe’s MiCA regulation offers a comparison: like the GENIUS Act, it focuses on issuers and reserves, without a dedicated market structure chapter for “issuers operating settlement networks.” Now, with Arc still in testnet before mainnet launch, adding this chapter would be the easiest and cheapest fix; once it becomes a core pipeline for tokenized dollar economies, fixing it later will be much more costly.

The entanglement of reserve managers and settlement chains

The first conflict is compounded by a second: the investor list points directly to it—BlackRock manages USDC reserves and is also an investor in Arc. Reserve managers, issuers, and settlement chains are now connected through overlapping commercial interests.

Each relationship might be justified individually, but together they describe a highly concentrated cluster of a few companies investing in each other, sitting at the center of what should be a neutral dollar infrastructure.

This concentration is precisely what market structure rules need to scrutinize. Regulators should ask not whether these institutions are reputable (they clearly are), but whether the tokenized dollar system should be centered around a small group that decides the core venue’s neutrality obligations.

The window for rulemaking is short

Regulators should be alert to timing. From announcement to testnet to funding completion, Arc took about a year. Circle has explicitly said it will launch mainnet and switch to PoS validation.

Once such infrastructure carries real value, it becomes very hard to reshape—because changing rules would transfer costs to all the institutions built on it. Settlement networks accumulate integration, liquidity, and dependency layers, and each added layer raises the cost of future interventions.

The best moment to establish the neutrality obligations for stablecoin issuers’ chains is now—while Arc is still in pre-mainnet stage, and rule changes only involve design documents, not live systems. Once Arc handles institutional transaction volumes, regulators demanding separation of chain governance from USDC’s commercial interests will be akin to ordering a rebuild of real-time infrastructure—slow, costly, and likely to face fierce resistance.

Vertical integration is both a strategy and a risk

Circle’s behavior is not irrational. Owning the full stack follows the same logic as companies like Stripe—it's the right move from a shareholder perspective because profits flow to the infrastructure controller, while a pure issuer is a thin business just riding on someone else’s rails.

The strategy serving Circle’s shareholders is exactly what regulators should now scrutinize, before it becomes entrenched. Preventing structural conflicts is low-cost now; dismantling them later is costly.

The core question is simple: can a regulated stablecoin issuer own the settlement network that competitors must use? If yes, what obligations of neutrality must that network bear?

The GENIUS Act does not answer these questions, because they weren’t needed in 2025. But in 2026, they will be—and Circle is the reason why.