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 12th, the same day as releasing its first financial report after going public, Circle dropped a heavy bomb: @arc, a Layer 1 blockchain built specifically for stablecoin finance.

If you only look at the news headlines, you might think this is just another ordinary public chain story.

But when you interpret it within Circle’s seven-year trajectory, you’ll find:

This is not just a public chain; it’s a territorial declaration about “digital central banks.”

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

Circle is gradually creating a digital replica—first taking control of “minting rights” with USDC, then building a settlement system with Arc, and next, perhaps, crafting digital monetary policies.

This is not just about a company; it’s a reallocation 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 a path that seemed “clumsy” at the time: extreme compliance.

First, it proactively challenged the strictest regulatory hurdles, becoming one of the earliest companies to obtain the New York State BitLicense. Known as “the hardest crypto license to get worldwide,” the application process was so cumbersome that many companies gave up.

Second, it didn’t go it alone but partnered with Coinbase to form the Centre Consortium—sharing regulatory risks and simultaneously accessing Coinbase’s massive user base, allowing USDC to stand on the shoulders of giants from day one.

Third, it pushed transparency on reserves to the extreme: monthly public audits by accounting firms, ensuring reserves are 100% composed of cash and short-term US Treasuries, avoiding commercial paper or high-risk assets. This “top student” approach was unpopular early on—in the wild-growth years of 2018 to 2020, USDC was criticized for being “too centralized,” and growth was slow.

The turning point came in 2020.

The DeFi summer explosion caused a surge in stablecoin demand, and more importantly, hedge funds, market makers, and payment companies started entering the space, revealing USDC’s compliance advantages.

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

In March 2023, Silicon Valley Bank collapsed. Circle had $3.3 billion in reserves stored there, causing USDC to briefly depeg to $0.87, and panic spread quickly.

The result of this “stress test”: the U.S. government, for systemic risk control, ultimately guaranteed full deposits for all Silicon Valley Bank customers.

Although not a bailout specifically for Circle, this event made Circle realize that merely being an issuer is not enough; it must control more infrastructure to truly master its destiny.

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

In August 2023, Circle and Coinbase announced the disbandment of the Centre Consortium, with Circle taking full control of USDC. On the surface, this was a move toward independence for Circle; but at a heavy cost—Coinbase gained a 50% share of USDC reserve income.

What does this mean? In 2024, Coinbase earned $910 million from USDC, up 33% year-over-year. Meanwhile, Circle paid over $1 billion in distribution costs, most of which went to Coinbase.

In other words, Circle, which worked hard to grow USDC, has to share half of its profits with Coinbase. It’s like a central bank printing money but handing half of the seigniorage to commercial banks.

Additionally, the rise of Tron has shown Circle a new profit model.

In 2024, Tron processed $5.46 trillion in USDT transactions, with over 2 million transfers daily, earning substantial fees just from providing transfer infrastructure—an upstream, more stable profit model than issuing stablecoins.

Especially with the Fed’s rate cut expectations, traditional stablecoin interest income will shrink, while infrastructure fees can maintain relatively stable growth.

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

Thus, Circle has begun transforming into an infrastructure builder, deploying multiple initiatives:

• Circle Mint allows enterprise clients to directly mint and redeem USDC;

• CCTP (Cross-Chain Transfer Protocol) enables native USDC transfers across different blockchains;

• Circle APIs provide a comprehensive stablecoin integration solution for enterprises.

By 2024, Circle’s revenue reached $1.68 billion, with a shifting revenue structure—beyond reserve interest, more income now comes from API calls, cross-chain services, and enterprise solutions.

This shift is confirmed in Circle’s latest financial report:

Data shows that in Q2 this year, subscription and service revenue hit $24 million, about 3.6% of total revenue (mainly from USDC reserve interest), but grew 252% year-over-year.

From a business of simply earning interest on issuance, to a diversified “rental” business, the business model gains more control.

The debut of Arc is the highlight of this transformation.

USDC as native gas doesn’t require holding ETH or other volatile tokens; institutional-grade quote request systems support 24/7 on-chain settlement; transaction confirmation takes less than a second, with options for balance and transaction privacy to meet compliance.

These features are more like a declaration of monetary sovereignty through technology. Arc is open to all developers, but rules are set by Circle.

At this point, from Centre to Arc, Circle has made a triple jump:

From issuing banknotes via private banks, to monopolizing currency issuance rights, to controlling the entire financial system—only faster.

And this “digital central bank dream” is not unique to Circle.

Same ambitions, different paths

By 2025, the stablecoin battlefield features several giants with a “central bank dream,” but each with different approaches.

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

Circle aims not just to be a stablecoin issuer but to control the entire value chain—from currency issuance to settlement, from payment rails to financial applications.

Arc’s design is full of “central bank thinking”:

First, as a monetary policy tool, USDC as native gas gives Circle a “benchmark interest rate” style control; second, as a settlement monopoly, built-in institutional RFQ forex engine ensures on-chain forex settlement must go through its mechanism; third, as rule-maker, Circle retains control over protocol upgrades, deciding which features go live and what behaviors are permitted.

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 meant to replace USDC on Ethereum but to provide solutions for use cases that existing public chains can’t meet—such as enterprise payments requiring privacy, real-time forex settlement, or predictable on-chain costs.

It’s a high-stakes gamble. If successful, Circle could become the “Federal Reserve” of digital finance; if it fails, billions of dollars invested might go to waste.

PayPal’s approach is pragmatic and flexible.

In 2023, PYUSD launched on Ethereum; in 2024, it expanded to Solana; in 2025, it went live on Stellar; recently, it also covered Arbitrum.

PayPal didn’t build its own chain but instead made PYUSD available across multiple ecosystems, each serving as a distribution channel.

In the early stages of stablecoins, distribution channels matter more than infrastructure. When you already have a ready-made network, why build your own?

Capture user mindshare and use cases first, then consider infrastructure—after all, PayPal has 20 million merchants.

Tether, on the other hand, is the de facto “shadow central bank” in crypto.

It rarely intervenes in USDT’s use; once issued, it’s like cash—market determines circulation. Especially in regions and use cases with loose regulation and difficult KYC, USDT becomes the only option.

Circle founder Paolo Ardoino once said in an interview that USDT mainly serves emerging markets (like Latin America, Africa, Southeast Asia), helping local users bypass inefficient financial infrastructure—more like an international stablecoin.

With trading pairs on most exchanges 3–5 times more numerous than USDC, Tether has built a powerful liquidity network effect.

What’s most interesting is Tether’s attitude toward new chains. It doesn’t actively build but supports others’ development—like Plasma and Stable, dedicated stablecoin chains. It’s a low-cost bet to maintain presence across ecosystems, watching which can succeed.

In 2024, Tether’s profit exceeded $10 billion, surpassing many traditional banks; it doesn’t reinvest these profits into its own chain but continues buying government bonds and Bitcoin.

Tether’s gamble is that as long as reserves are sufficient and systemic risks are avoided, inertia will keep USDT’s dominant role in stablecoin circulation.

The three models above represent different visions for the future of stablecoins.

PayPal believes in user dominance. With 20 million merchants, technology architecture is secondary. That’s the internet mindset.

Tether believes in liquidity dominance. As long as USDT remains the primary trading currency, everything else is secondary. That’s the exchange mindset.

Circle believes in infrastructure dominance. Control the rails, and you control the future. That’s the central bank mindset.

The reason for this choice may be summed up 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 more than just the stablecoin market—it aims to shape the standard for the digital dollar. If Arc succeeds, it could become the “Federal Reserve System” of digital dollars. That’s a risk worth taking.

2026, the critical time window

The window is closing. Regulations are advancing, competition is intensifying. When Circle announced Arc would launch on mainnet in 2026, the crypto community’s first reaction was:

Too slow.

In an industry that champions “rapid iteration,” taking nearly a year from testnet to mainnet seems like a missed opportunity.

But if you understand Circle’s situation, you’ll see that this timing isn’t bad.

On June 17th, the U.S. Senate passed the GENIUS Act. It’s the first federal-level stablecoin regulation framework in the U.S.

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

2026 is precisely when these regulations will be implemented and the market will adapt to new rules. Circle doesn’t want to be the first to take the plunge but also doesn’t want to be too late.

Enterprise clients value certainty most, and Arc offers exactly that—clear regulatory status, predictable technical performance, and defined business models.

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

If Arc performs poorly or is surpassed by competitors, Circle may have to reconsider its positioning. Perhaps, in the end, stablecoin issuers will only be issuers, not infrastructure dominators.

But regardless of the outcome, Circle’s efforts are pushing the entire industry to confront a fundamental question: in the digital age, who should hold the control over money?

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