Circle Launches Arc L1 Blockchain for Regulated Finance Amid Centralization Concerns

Circle, the issuer of the USDC stablecoin, has announced the development of Arc, an enterprise-focused Layer 1 (L1) blockchain designed to support regulated financial activities such as stablecoin payments, foreign exchange (FX), and capital market applications. According to a statement released on August 12, Arc will integrate with Circle’s existing platform and maintain interoperability with multiple partner blockchains. The public testnet is expected to launch between September and December 2025 [1].

Arc is positioned as a high-performance infrastructure for financial transactions, with technical features including Ethereum Virtual Machine (EVM) compatibility and USDC as its default gas token. It also incorporates a built-in stablecoin FX engine, sub-second settlement finality, and optional privacy features. The litepaper outlines performance targets of up to 10,000 transactions per second (TPS) and under 100 milliseconds of finality under specific validator configurations. Confidential transfers and MEV (maximal extractable value) mitigation strategies, such as encrypted mempools and multi-proposer setups, are also part of the design [1].

The network will support Circle’s USYC, an interest-bearing stablecoin backed by short-term U.S. Treasury securities. It will also include fast bridging via Circle’s CCTP and Gateway, a currency trading system for approved institutions, and AI-powered treasury management tools. Beyond stablecoins, Arc is designed to host tokenized real-world assets, such as equities and institutional-grade funds, with Circle planning to partner with licensed asset issuers and custodians to ensure legal compliance and full collateralization [1].

Despite these ambitious features, Arc has drawn criticism from parts of the crypto community. Omid Malekan, an adjunct professor at Columbia Business School, argued that launching another L1 is unnecessary, particularly for stablecoins that may struggle without diverse assets or a strong DeFi ecosystem. Adam Cochran, a partner at Cinneamhain Ventures, questioned the characterization of Arc as a true L1 blockchain, suggesting it functions more like a consortium chain with pre-approved private validators. He noted that these validators can reverse transactions through dispute protocols, undermining decentralization. Furthermore, the use of USDC as the root token removes economic incentives for validators to act independently, making a decentralized L1 model unfeasible, in his view [1].

Cochran emphasized that the crypto industry was built to eliminate exploitative middlemen such as banks and transfer agents, and that the development of Arc appears to reintroduce centralized control rather than removing it [1].

Source: [1] Circle to launch L1 blockchain called Arc sparking concerns over centralization and governance (https://cryptoslate.com/circle-to-launch-l1-blockchain-called-arc-sparking-concerns-over-centralization-and-governance/)