What Is Arc Blockchain? Circle's Layer-1 Network for Stablecoin Finance

The blockchain industry has produced hundreds of networks, yet most were designed for general-purpose computing rather than the specific demands of stablecoin finance. Circle, the company behind USDC, launched Arc in August 2025 to address this gap—a purpose-built Layer-1 blockchain that treats stablecoins as first-class citizens rather than afterthoughts.

Arc is an open Layer-1 blockchain designed specifically for stablecoin-native applications, distinguishing itself from general-purpose chains like Ethereum or Solana. Rather than forcing stablecoin use cases into infrastructure built for other purposes, Arc optimizes every layer of its design for financial applications that require predictability, compliance, and institutional-grade performance.

The platform addresses complaints Circle heard consistently from enterprise partners: volatile gas fees make treasury planning impossible, holding crypto assets for transaction fees creates regulatory complications, and moving sensitive payment data on public rails raises compliance concerns. These limitations have kept many financial institutions from fully embracing blockchain settlement infrastructure despite stablecoins themselves proving viable.

Arc solves these challenges through architectural decisions that prioritize financial use cases. USDC serves as the native gas token, eliminating exposure to volatile cryptocurrencies and providing dollar-denominated transaction costs that enterprise treasury teams can budget around. This approach represents a departure from traditional blockchain economics, where native tokens fluctuate based on speculation and network activity.

Transaction finality represents one of blockchain's most important characteristics for financial applications. Most networks use probabilistic finality, meaning users must wait for multiple block confirmations before considering a transaction irreversible. Arc implements deterministic finality through its Malachite consensus engine.

Malachite is a Byzantine Fault Tolerant engine based on the Tendermint algorithm, delivering finality in under one second with no risk of transaction reversals. Circle acquired both the Malachite technology and development team from Informal Systems in August 2025, securing control over this critical infrastructure component rather than relying on third-party consensus mechanisms.

The performance characteristics demonstrate Malachite's capabilities: with 20 geographically distributed validators, Arc achieves transaction throughput of 3,000 transactions per second with finality in 350 milliseconds. This configuration balances decentralization with the performance requirements of institutional settlement networks where delays of even seconds can cascade into significant costs.

Similar to how cross-chain stablecoin infrastructure evolved to meet liquidity demands, Arc's consensus layer addresses the settlement guarantees that financial applications require. Traditional payment networks operate on finality measured in days or weeks through clearing houses—Arc compresses this to sub-second settlement while maintaining cryptographic guarantees.

Arc maintains compatibility with the Ethereum Virtual Machine despite its specialized focus. Developers can deploy and interact with smart contracts using Solidity, Foundry, Hardhat, and other Ethereum tooling they already know, reducing the learning curve for teams building financial applications.

However, Arc introduces key differences from standard EVM chains. All fees and balances denominate in USDC rather than ETH. Blocks timestamp by real time instead of epochs or slots. The network uses a stable fee model where gas prices smooth for predictability rather than spiking during congestion. These modifications make Arc more suitable for enterprise budgeting while preserving the developer experience that made Ethereum successful.

The platform targets the Prague EVM hard fork with minor differences in execution behavior. Most existing Ethereum contracts port to Arc without modification, though developers should account for USDC denomination and the enforcement of Circle's blocklist both pre-execution (rejecting transactions before mempool entry) and post-execution (reverting transactions that attempt transfers to blocklisted addresses).

This compatibility strategy mirrors successful patterns in blockchain infrastructure. Just as programmable stablecoin transfers benefit from standard interfaces across multiple networks, Arc's EVM compatibility allows financial applications to leverage existing code libraries and security audits while gaining the benefits of purpose-built infrastructure.

Traditional cross-currency payments involve multiple intermediaries, settlement delays measured in days, and opaque fee structures. Arc integrates an institutional-grade FX engine directly into its protocol layer, enabling 24/7 peer-to-peer settlement between different stablecoins.

The FX mechanism uses a request-for-quote system where market makers compete to fill currency conversion orders onchain. This approach provides transparent price discovery while maintaining the liquidity depth needed for large institutional transactions. Unlike traditional FX markets that operate during specific hours with business-day settlement, Arc's engine runs continuously with instant settlement finality.

For organizations moving money globally, this creates operational efficiency similar to how email replaced fax machines. A business can convert USDC to EURC and settle the transaction in under a second with full transparency on exchange rates and fees, eliminating the correspondent banking relationships and settlement timing that complicate international treasury operations.

The built-in FX capability positions Arc as infrastructure for applications beyond simple payments. Automated treasury management, multi-currency invoicing, and programmatic hedging become feasible when currency conversion operates as a native protocol feature rather than requiring integration with external services.

Financial institutions face competing demands: regulatory requirements for transaction transparency and business needs to protect confidential information. Arc addresses this through opt-in privacy features that allow selective disclosure.

The initial privacy implementation focuses on confidential transfers where transaction amounts remain encrypted while addresses stay visible. This design lets businesses protect sensitive commercial information—preventing competitors from analyzing payment flows—while maintaining the transparency regulators and auditors need to trace funds and ensure compliance.

Future roadmap items include privacy states and confidential computing capabilities that would enable more sophisticated use cases. A lending platform could verify a borrower's collateral position without revealing the specific assets held. A supply chain finance system could confirm payment obligations without exposing pricing terms to all network participants.

This graduated approach to privacy reflects the regulatory realities of institutional finance. Unlike fully private chains that obscure all transaction details, or fully public chains that expose all information, Arc provides tooling that lets each application calibrate disclosure to match its specific compliance obligations and business requirements.

Similar to how stablecoin liquidity infrastructure adapts to different regulatory environments, Arc's privacy features acknowledge that financial applications serve diverse jurisdictions with varying transparency requirements.

Arc integrates deeply with Circle's existing infrastructure for moving value between traditional finance and blockchain rails. This integration includes several key components:

Circle Mint enables direct conversion between fiat and USDC on Arc, allowing businesses to onramp funds without first acquiring cryptocurrency on exchanges. Treasury teams can move dollars into Arc-based applications using familiar wire transfer processes.

Cross-Chain Transfer Protocol burns USDC on one blockchain and remints it on another, enabling movement between Arc and the dozens of other networks where USDC operates. This prevents the fragmentation that occurs when each chain operates in isolation.

Gateway provides chain-agnostic USDC balances with automatic liquidity rebalancing. Applications can present users with a single USDC balance that works across multiple blockchains, with the infrastructure handling routing and settlement behind the scenes.

Paymaster allows transaction fees to be paid with stablecoins other than USDC, supporting localized payment options. A business operating in Europe could pay Arc transaction fees with EURC while maintaining USDC balances for international settlements.

These integrations matter because financial infrastructure succeeds through network effects. The more accessible stablecoin settlement becomes, the more applications will build on it, which increases its utility and further accelerates adoption. Just as intent-based bridging protocols improved cross-chain liquidity, Circle's integrated tooling reduces friction in moving between traditional and blockchain-based settlement.

Arc entered public testnet in October 2025 with over 100 participating organizations. Launch partners include BlackRock, Visa, Goldman Sachs, Mastercard, Standard Chartered, Amazon Web Services, and Coinbase, representing diverse segments of the financial ecosystem from asset managers to payment processors to infrastructure providers.

The testnet phase allows experimentation with Arc's features using test assets before real value moves through the network. Organizations can build applications, test integration patterns, and provide feedback on architecture decisions while Circle refines the platform based on real-world usage patterns.

Developer tooling participants include Alchemy, Chainlink, Dynamic, LayerZero, Pimlico, and Thirdweb for frameworks and software kits. Wallet providers like MetaMask, Ledger, Rainbow, and Fireblocks enable user interfaces. Infrastructure companies like Blockdaemon, Quicknode, and Tenderly provide nodes, block explorers, and development environments.

Circle plans mainnet beta launch in 2026, though specific timing depends on testnet results and regulatory considerations. The phased approach—private testnet, public testnet, mainnet beta, full mainnet—follows industry best practices for launching financial infrastructure where bugs or security issues carry meaningful consequences.

The broad partnership roster suggests institutional interest extends beyond cryptocurrency-native companies. Traditional financial institutions participating in testnet indicates they view blockchain settlement as infrastructure worth evaluating rather than dismissing as speculative technology.

Arc enters a market with multiple approaches to blockchain-based payments and stablecoin infrastructure. Understanding how it compares to alternatives clarifies its positioning:

Ethereum Layer-2 networks like Arbitrum, Optimism, and Base inherit Ethereum's security model while reducing transaction costs. These networks excel at scaling existing Ethereum applications but use ETH for gas fees and inherit Ethereum's probabilistic finality model. Arc trades some decentralization for deterministic finality and dollar-denominated costs.

Alternative Layer-1 blockchains like Solana offer high throughput and low fees but require volatile native tokens for transaction payments and serve general-purpose computing rather than specifically financial use cases. Arc sacrifices generality for optimization around stablecoin finance.

Competitor stablecoin chains like Tether's Stable and Plasma projects represent similar strategies by other issuers. The market appears to be fragmenting as major stablecoin providers recognize advantages in controlling their own settlement infrastructure rather than depending on general-purpose chains. Arc's differentiation comes from Circle's regulatory positioning and existing USDC distribution.

The competitive dynamic resembles how stablecoin infrastructure markets evolved across multiple chains rather than consolidating on a single platform. Different use cases favor different tradeoffs, and interoperability through protocols like Circle's CCTP matters more than winner-take-all competition.

Arc uses permissioned validators selected based on operational resilience, geographic distribution, and regulatory compliance. This design choice trades some decentralization for performance and institutional acceptability but raises questions about centralization risks.

Circle maintains that permissioned validation suits Arc's target market of regulated financial institutions that need identifiable validators for compliance purposes. The Byzantine Fault Tolerant consensus model tolerates up to one-third of validators being compromised or malicious while maintaining network integrity.

The long-term roadmap includes transitioning to proof-of-stake with broader validator participation, though details remain unclear. This progression—launching permissioned then gradually decentralizing—follows patterns established by earlier enterprise blockchain projects that needed to balance performance with credible neutrality.

Industry observers have questioned whether Arc represents true blockchain innovation or simply a consortium database with blockchain aesthetics. The criticism has merit—Arc's validator set looks more like a private network than a public blockchain despite being technically accessible to all developers.

Circle's counterargument emphasizes solving actual enterprise problems rather than maximizing decentralization for ideological reasons. If deterministic finality, predictable costs, and compliance features drive institutional stablecoin adoption, the validator model matters less than the infrastructure's utility.

Arc's design enables several categories of financial applications:

Cross-border payments benefit from instant settlement and built-in currency conversion. A business can receive payment in USDC, convert to EURC through the FX engine, and settle to a European counterparty in under two seconds with full transaction transparency.

Programmable payroll becomes feasible with deterministic finality. Employers can automate salary disbursements across multiple countries and currencies, with each payment settling irreversibly rather than remaining pending through traditional payment rails.

Tokenized securities require compliance features and settlement guarantees that general-purpose blockchains struggle to provide. Arc's opt-in privacy and integration with Circle's regulatory framework better suit tokenization of traditional financial instruments.

Stablecoin liquidity pools can operate more efficiently with sub-second finality and USDC-denominated fees. Market makers providing liquidity face less operational complexity when transaction costs denominate in the same stablecoin being traded.

AI-powered payment agents represent an emerging category where deterministic finality matters significantly. Autonomous systems making financial decisions require absolute settlement certainty rather than probabilistic confirmation that might reverse.

The common thread across these use cases involves applications where predictability, compliance, and institutional integration outweigh needs for maximal decentralization or general-purpose computing capabilities.

Despite its purpose-built design, Arc faces several challenges:

Regulatory uncertainty remains despite the GENIUS Act establishing federal stablecoin oversight. How regulators treat blockchain-based settlement—particularly regarding securities laws, payment system regulations, and cross-border flows—will significantly impact Arc's viability for its target market.

Network effects matter in payment infrastructure. Existing blockchain networks benefit from established developer communities, liquidity, and user adoption. Arc must overcome these incumbency advantages to attract meaningful activity beyond Circle's existing partnerships.

Centralization concerns about permissioned validators could limit appeal to applications requiring credible neutrality. DeFi protocols and other crypto-native use cases may prefer more decentralized alternatives even if they offer inferior performance for enterprise use cases.

Competition from stablecoin issuers means Arc doesn't monopolize the stablecoin-specific blockchain category. Tether's involvement with Stable and Plasma, plus potential projects from other issuers, creates a fragmented landscape where interoperability determines success more than individual network performance.

Technology risk exists in any new consensus mechanism. While Malachite builds on battle-tested Tendermint, Arc's specific implementation and the integration of privacy features, FX engines, and other novel components create surfaces for bugs or security issues.

These challenges don't make Arc unviable, but they contextualize the difficulty of launching new financial infrastructure even with Circle's resources and partnerships.

Developers interested in building on Arc can access testnet through standard Ethereum development workflows:

The network exposes standard JSON-RPC endpoints compatible with tools like Hardhat, Foundry, Wagmi, and Viem. Developers can deploy Solidity contracts to Arc using the same commands they use for Ethereum, with configuration changes to point to Arc's testnet RPC URLs.

Circle provides documentation covering network parameters, differences from Ethereum mainnet, and integration patterns for Circle's platform services. Infrastructure providers like Quicknode and Alchemy offer managed node services for teams that don't want to run their own infrastructure.

For applications requiring Circle integration—minting USDC, using CCTP for cross-chain transfers, or implementing Paymaster for multi-stablecoin fee payments—developers can access Circle's APIs through their existing developer portal.

The mainnet beta launch in 2026 will require developers to manage mainnet USDC for transaction fees rather than testnet tokens, so planning around treasury management and gas fee estimation becomes relevant for production deployments.

What makes Arc different from Ethereum Layer-2 networks?

Arc is a sovereign Layer-1 blockchain rather than a Layer-2 that inherits Ethereum's security. It uses USDC as native gas instead of ETH, provides deterministic sub-second finality instead of probabilistic confirmation, and integrates financial infrastructure like FX engines directly into the protocol. Ethereum Layer-2s optimize for scaling existing Ethereum applications while Arc optimizes specifically for stablecoin finance.

Can anyone run an Arc validator?

Currently, Arc uses permissioned validators selected by Circle based on operational and regulatory criteria. The long-term roadmap includes transitioning to broader validator participation through proof-of-stake, though timing and specific implementation details have not been announced.

How does Arc handle USDC Circle blocklists?

Arc enforces Circle's USDC blocklists at multiple points: pre-mempool checks reject transactions from blocklisted senders before they enter the network, runtime checks revert transactions attempting to transfer to blocklisted addresses while still collecting fees, and post-mempool checks revert transactions if addresses become blocklisted between acceptance and execution.

What programming languages does Arc support?

Arc supports Solidity and other EVM-compatible languages. Developers can use existing Ethereum smart contracts with minimal modifications, primarily accounting for USDC denomination instead of ETH and Arc's deterministic finality model.

How does Arc's FX engine work?

Arc includes an institutional-grade request-for-quote system where users submit currency conversion requests and market makers compete to fill orders. The system operates 24/7 with onchain price discovery and instant settlement, eliminating the intermediaries and business-day settlement constraints of traditional FX markets.

Does Arc support stablecoins other than USDC?

While USDC serves as the native gas token, Arc's architecture supports other stablecoins through its FX engine and Paymaster functionality. The network is designed as infrastructure for all stablecoin issuers, not exclusively for Circle's products. Circle is actively engaging with other stablecoin projects to bring their assets onto Arc.