Circle, the company behind the widely used USD Coin (USDC) stablecoin, has unveiled a new blockchain called Arc. This isn’t a simple rollup solution, but a complete Layer 1 (L1) network. This strategic move aims to establish a fully integrated and independent infrastructure specifically tailored for payments and stablecoin transactions. Arc will be compatible with the Ethereum Virtual Machine (EVM), ensuring smooth integration with existing Ethereum-based tools and decentralized applications (dApps). Uniquely, Arc will utilize USDC itself as the “gas” for transaction fees, differentiating it from other L1 blockchains that rely on their own native cryptocurrencies. The blockchain promises deterministic finality, ensuring that transactions are either pending or irreversibly confirmed, a crucial attribute for high-volume payment systems and financial applications [1].
The announcement has sparked lively discussion within the cryptocurrency community, particularly on social media platforms. Some analysts suggest this could weaken Ethereum’s dominance as the primary settlement layer for stablecoins. Others contend that Arc could actually strengthen Ethereum’s overall network by fostering interoperability and cross-chain communication. The key question is whether Arc will become a centralized hub for stablecoin issuance and settlement, or whether it will function as a spoke in a larger ecosystem, driving liquidity and activity back to the broader EVM landscape through bridging technologies such as the Cross-Chain Transfer Protocol (CCTP) [2].
Technically, Arc is powered by Malachite, a high-performance Byzantine Fault Tolerance (BFT) consensus engine developed by Informal Systems. Circle has onboarded the core development team behind Malachite; however, the engine remains open-source and is being implemented in other blockchain projects, including Starknet. Ethan Buchman, a co-founder of Informal Systems, compares the adoption of Malachite to the widespread use of the Rust programming language, emphasizing its potential for broad application. Buchman believes Circle’s decision to create its own blockchain doesn’t represent a rejection of Ethereum, but rather a common business strategy for companies with the resources to prioritize control, predictability, and independence [3].
The cost comparison between independent L1 blockchains and rollups is another relevant aspect. While rollups essentially “rent” Ethereum’s finality and data availability, sovereign L1s like Arc enable complete customization of the entire technology stack. This includes the choice of gas denomination, KYC (Know Your Customer) integration, and dispute resolution mechanisms. Barry Plunkett from Interchain Labs points out that while L2 solutions may initially appear less expensive, the costs become more comparable when considering data availability requirements. The final choice depends on strategic objectives: either the sovereignty required for settlement economics and capital efficiency, or the faster development time and composability offered to application developers [4].
Circle’s strategic move occurs within the context of a rapidly expanding stablecoin market. A report by Keyrock/Bitso indicates that stablecoin payment volumes have experienced significant growth, surpassing $6.3 billion per month by February 2025. Business-to-business (B2B) transactions, in particular, have witnessed a sharp increase, jumping from $120 million to $2.7 billion in just two years. Card-based transactions have also exceeded $1 billion per month. These statistics illustrate the increasing significance of stablecoins in global payments and underscore the competitive pressures on companies like Circle to secure a leading position in the settlement infrastructure arena [5].
Guillaume Poncin, CTO of Alchemy and a former Stripe employee, emphasizes that controlling the settlement layer presents a revenue model that significantly surpasses traditional payment processing. He portrays the L1 versus L2 debate as a trade-off between control and speed. L1 blockchains offer full customization but require more development time and resources. However, EVM compatibility is seen as a positive factor, lowering the entry barrier for both developers and end-users [6].
Some critics have voiced concerns about the potential fragmentation of the Ethereum ecosystem and the possibility that Arc could diminish Ethereum’s long-term market dominance. However, Ethan Buchman maintains that Ethereum’s neutrality, conservatism, and central role in the digital economy will guarantee its long-term viability. Even if stablecoin issuance and foreign exchange (FX) trading migrate to Arc, Ethereum can continue to function as a core hub for stablecoin flows. The crucial challenge lies in ensuring that Arc adheres to open principles, particularly concerning privacy, censorship resistance, and regulatory compliance – areas where Circle’s disclosures have been somewhat unclear [7].
Ultimately, the success of Arc will hinge on its ability to balance sovereignty with openness, and whether it can attract application developers and liquidity while maintaining interoperability with the broader EVM ecosystem. As Buchman suggests, the debate between L1 and L2 solutions may continue to fluctuate, similar to the historical shift between on-premise and cloud computing. Each model offers unique advantages depending on the specific use case and prevailing market conditions [8].
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[1] Blockworks. “Circle is building its own blockchain — and it’s not a rollup, but a layer-1.” https://blockworks.co/news/circle-l1-impact-ethereum