Circle Internet Group (NYSE: CRCL), the issuer of the USDC stablecoin, has unveiled plans to launch its own Layer1 blockchain, named Arc, which will use USDC as the native gas token for transaction fees. The announcement marks a strategic shift from passive token issuance to active infrastructure building.
USDC Circulation Surges 90% YoY
Before detailing Arc, Circle released its Q2 2025 earnings report. The company reported that USDC in circulation reached $61.3 billion at quarter-end, representing a 90% year-over-year increase. As of August 10, 2025, that figure had grown a further 6.4% to $65.2 billion, cementing USDC's position as the second-largest fiat-backed stablecoin by market capitalization ($65.23 billion). The earnings beat analyst expectations, signaling strong demand for regulated stablecoins amid regulatory clarity in major jurisdictions.
Arc: A Purpose-Built L1 for Stablecoin Finance
“Introducing Arc, an open Layer-1 blockchain purpose-built for stablecoin finance, and a defining moment in our journey for Circle to deliver a full-stack platform for the internet financial system,” Circle stated on Tuesday (August 12, 2025). The EVM-compatible network allows developers to seamlessly port existing Ethereum-based applications, but with a critical differentiator: USDC serves as the native gas token, eliminating the need for secondary assets like ETH to pay fees. This design aligns incentives and simplifies the user experience for stablecoin-centric use cases.
Arc incorporates several advanced features:
- Stablecoin FX Engine: Enables instant conversion between USDC and other fiat-pegged stablecoins, reducing friction in cross-border payments and treasury operations.
- Sub-second Settlement Finality: Optimized consensus mechanisms deliver near-instant transaction finality, essential for high-frequency trading, remittance, and point-of-sale payments.
- Opt-in Privacy Controls: Allows enterprises and individuals to selectively shield transaction details while maintaining overall network compliance — a balance rarely achieved on public blockchains.
The company emphasized that Arc will be deeply woven into Circle’s existing platform and services, including its USDC issuance and redemption infrastructure. Crucially, Arc will remain fully interoperable with the dozens of partner blockchains (Ethereum, Solana, Avalanche, etc.) that Circle already supports, ensuring users can move USDC across chains without friction.
Competitive Landscape: L1 vs L2 Strategies
Circle joins a growing list of crypto companies building proprietary chains: Kraken launched the Ink L2, Coinbase operates Base (an L2 on Optimism), Binance maintains BNB Chain (an L1), and Robinhood is developing an L2. Notably, Stripe also recently disclosed plans for an L1 chain, aligning with Circle’s architectural choice. The move to L1 rather than L2 reflects a desire for full sovereignty over block production, fee markets, and governance — critical for stablecoin issuers that may face regulatory requirements for transaction monitoring and freeze capabilities.
Circle stated that Arc’s public testnet is slated for fall 2025, with a mainnet launch expected in early 2026 subject to security audits and ecosystem development. During the testnet phase, developers will be invited to experiment with the native USDC gas mechanism and the FX engine.
Implications for the Stablecoin Ecosystem
Arc represents a paradigm shift: stablecoin issuers are transitioning from passive token providers to active blockchain operators. By controlling both the stablecoin and the underlying ledger, Circle can offer integrated financial services — payment settlements, forex, capital market applications — on a single, compliant infrastructure. For Ethereum and other L1s currently hosting USDC, Arc may pose a long-term competitive threat, as liquidity might migrate to the native chain that optimizes for stablecoin usage. However, Circle’s commitment to cross-chain interoperability suggests coexistence rather than replacement.
With USDC circulation growing at nearly 100% annually, Arc could accelerate the “stablecoin economy” vision, where digital dollars become the default medium for internet-native value exchange. The upcoming testnet will be a crucial proving ground for this ambitious thesis.