Who will serve as 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 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 headline, you might think this is just another ordinary public-chain story.

But if you read it through Circle’s trajectory over the past seven years, you’ll find:

This isn’t just 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 and clearing systems, and setting monetary policy.

Circle is gradually completing a digital version of this replication—first taking “minting rights” with USDC, then building a clearing system with Arc, and next, perhaps, setting digital currency policy.

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

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 what looked, at the time, like a “clumsy” route: extreme compliance.

First, it proactively confronted the strictest regulatory gate, becoming one of the earliest companies to obtain the 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 simply gave up.

Second, it didn’t go it alone. Instead, it teamed up with Coinbase to form the Centre consortium—helping share regulatory risk, while also gaining one-time access to Coinbase’s massive user base, so that USDC could launch from the shoulders of giants.

Third, it pushed reserve transparency to the extreme: every month it publicly released reserve audit reports issued by accounting firms, ensuring reserves were 100% composed of cash and short-term U.S. Treasuries, without touching any commercial paper or high-risk assets. This “top-student” playbook was not popular in the early days—during the wild growth from 2018 to 2020, USDC was criticized as “too centralized,” and growth was slow.

The turning point came in 2020.

The explosion of DeFi in summer sent stablecoin demand soaring, and more importantly, hedge funds, market makers, and payment companies began entering the market—finally making USDC’s compliance advantages stand out.

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

In March 2023, Silicon Valley Bank collapsed. Circle had $3.3 billion in reserves deposited there, and USDC briefly de-pegged to $0.87, with panic spreading rapidly.

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

While it wasn’t an intervention specifically for Circle, the incident made Circle realize that simply being an issuer wasn’t enough; it needed to control more infrastructure to truly shape its own fate.

What truly sparked this sense of control was the dissolution of the Centre consortium. This exposed Circle’s “employee’s dilemma.”

In August 2023, Circle and Coinbase announced the disbanding of the Centre consortium, with Circle taking full control of USDC. On the surface, it looked like Circle gained independence; but the cost was heavy—Coinbase gained a right to receive 50% of USDC reserve income.

So 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, half of the profits from the USDC that Circle worked so hard to grow must be shared with Coinbase. It’s like a central bank printing money—while handing half of seigniorage to commercial banks.

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

In 2024, TRON processed $5.46 trillion worth of USDT transactions—more than 2 million transfers per day on average. By earning substantial fees purely from providing transfer infrastructure, it demonstrated a profit model that is more upstream and more stable than issuing stablecoins.

Especially with expectations of rate cuts from the Federal Reserve, traditional stablecoin interest income faces contraction, while infrastructure fees can keep relatively stable growth.

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

So Circle began its transformation toward building infrastructure, with a multi-point layout:

• 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—besides traditional reserve interest, more and more income now comes from API call fees, cross-chain service fees, and enterprise service fees.

This shift is corroborated in Circle’s recently published financial report:

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

Turning a business that only earns interest from minting into a diversified “rent-collecting” business makes the business model more controllable.

Arc’s debut is a highlight of this transformation.

As native Gas for USDC, it doesn’t require holding 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, and enterprises can choose between balance and transaction privacy options to meet compliance needs.

These functions are more like a technological proclamation 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 through private banks, to monopolizing currency issuance rights, to taking control of the entire financial system—only, Circle is doing it faster.

And this “digital central bank dream” isn’t unique to Circle.

Same ambition, different paths

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

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

Circle is not satisfied with only being 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 full of “central-bank thinking” everywhere.

First are monetary policy tools: with USDC as native Gas, Circle gains a control capability similar to having a “benchmark interest rate.” Second is clearing monopoly: built-in enterprise-level RFQ engines for FX ensure that on-chain FX settlement must go through its mechanisms. Finally is rule-setting authority: Circle retains control over protocol upgrades, deciding which features go live and which behaviors are allowed.

The hardest part 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 provides solutions for use cases that existing public chains can’t meet—such as privacy-sensitive enterprise payments, foreign exchange trades requiring instant settlement, or on-chain applications with predictable costs.

This is a high-stakes gamble. If it succeeds, Circle becomes the “Federal Reserve” of digital finance; if it fails, the billions of dollars invested could go to waste.

PayPal’s approach is pragmatic and flexible.

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

PayPal didn’t build a dedicated chain. Instead, it flexibly deployed PYUSD across multiple available ecosystems—each chain becomes a distribution channel.

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

Take hold of users’ minds and real usage scenarios first, then deal with infrastructure later—after all, PayPal itself has a merchant network of 20 million.

Tether, on the other hand, is like the crypto world’s de facto “shadow central bank.”

It almost doesn’t interfere with how USDT is used. Once issued, it behaves like cash—the market decides how it circulates. Especially in regions and use cases where regulation is unclear and KYC is difficult, USDT becomes the only option.

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 the fact that Tether has 3–5 times as many trading pairs as USDC on most exchanges, Tether has formed a strong liquidity network effect.

What’s most interesting is Tether’s attitude toward new chains. It doesn’t actively build, but it supports others building. For example, it supports stablecoin-specific chains like Plasma and Stable. It’s like making a bet: keeping presence across ecosystems with relatively low cost, and seeing which one can actually run.

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

Tether’s bet is that as long as reserves are sufficient and systemic risks don’t appear, inertia will keep USDT’s dominant position in stablecoin circulation.

The three models above represent three different judgments about the future of stablecoins.

PayPal believes users are supreme. With 20 million merchants, the technology architecture is secondary. This is an internet mindset.

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

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

The reason for this choice may be summarized in Circle CEO Jeremy Allaire’s congressional testimony: “The dollar is at a crossroads; monetary competition is now a matter of technological competition.”

Circle sees not only the stablecoin market, but also control over 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.

In 2026, a critical time window

The time window is narrowing. Regulation is moving forward, and competition is intensifying. When Circle announced that Arc would launch on 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 going from testnet to mainnet seems like a missed opportunity.

But if you understand Circle’s situation, you’ll find this timing might actually be fairly good.

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

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

In 2026, it coincides with the time when these details take effect and the market adapts to the new rules. Circle doesn’t want to be the first to be the “first mover,” but it also doesn’t want to be too late.

Enterprise customers value certainty most, and Arc provides exactly that—clear regulatory standing, predictable technical performance, and clearly defined business models.

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

If Arc performs poorly, 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 regardless of the outcome, Circle’s attempt is pushing the entire industry to consider a fundamental question: in the digital age, who should hold control over money?

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