Everything You Need to Know About Circle’s Layer 1

Arc Blockchain Explained: Everything You Need to Know About Circle’s Layer 1

A complete guide to Arc, Circle’s stablecoin-native Layer 1 blockchain, covering its architecture, USDC gas model, ecosystem, use cases and competition.
ByGeorge Georgiev

Arc is a purpose-built, EVM-compatible Layer 1 blockchain being built by Circle, the company that’s behind the second-largest stablecoin in the industry, USDC. It’s designed specifically for stablecoin finance.

The protocol was first announced in August 2025, and its public testnet went live in October of that year. Arc has received the backing of major Wall Street heavyweights like BlackRock, Visa, MasterCard, and more.

It was created to provide blockchain infrastructure that’s specifically tailored to payments, foreign exchange, tokenized assets, capital markets, and other forms of on-chain financial activity.

If you’re wondering what the difference is between an EVM-compatible Layer 1 blockchain and an Ethereum layer-two like Robinhood Chain, it’s that Arc is a dedicated, standalone blockchain that settles its own transactions and implements its own security protocols. Layer-two blockchains, by contrast, rely on Ethereum for settlement, finality, and security. That said, EVM compatibility also means that developers can use familiar tools and Solidity-based smart contracts. Its design tackles several friction points that Circle sees in existing blockchain infrastructure, including volatile gas costs, unpredictable settlement times, and the lack of privacy that’s actually required for many conventional financial transactions.

Arc, therefore, combines USDC-denominated gas, predictable transaction fees, deterministic sub-second finality, and a permissioned validator network.

For a complete technical overview, review the project’s whitepaper or litepaper.

Main Takeaways

• Arc is an independent Layer 1 blockchain built by Circle, first announced in August 2025.
• It is built specifically for stablecoin finance, with payments, FX, tokenized assets, and capital markets touted as main use cases.
• USDC is used to pay gas fees, giving users a dollar-denominated transaction cost rather than a volatile crypto asset.
• It offers deterministic sub-second finality, making settlement predictable and fast.
• Arc is EVM-compatible. This means that developers can use existing Ethereum-first tooling and Solidity-based smart contracts.
• Privacy is a core part of Arc’s architecture.

Arc’s Role in Circle’s Strategy

Arc represents a major expansion effort in Circle’s startegy when it comes to the stablecoin economy. The company is best known as the issuer of USDC – the second-largest stablecoin in circulation. However, it has also built infrastructure for moving and using stablecoins across blockchain networks, including products such as Circle Mint, CCTP, Gateway, and more. With Arc, the firm is moving further down this road by delivering the underlying blockchain and settlement infrastructure on which financial applications can properly operate.

The move also reflects the company’s position that stablecoins have outgrown some of the infrastructure that they used to rely on. According to Arc’s litepaper document, existing public blockchains can create problems when it comes to institutional financial activity through volatile costs of gas, uncertain settlement finality, limited transaction privacy, as well as fragmented liquidity across the various protocols. Arc, therefore, comes into the picture specifically to address those shortcomings rather than attempting to compete primarily for existing crypto activity.

This makes the blockchain complementary to Circle’s existing products as opposed to being a replacement for them. The network is designed specifically to connect with Circle’s wider platform, other blockchains, traditional fiat rails, as well as the broader ecosystem of tokenized assets and stablecoins.

How Arc is Built

The first and foremost concept that you need to understand about Arc is that it’s an independent Layer 1 blockchain. This means that it has its very own consensus system and validator network. It does not rely on settling transactions through Ethereum. At the same time, though, it is EVM-compatible. This means that developers are able to use existing and familiar Ethereum-oriented tooling and write smart contracts in Solidity without having to learn an entirely new programming environment.

At the core of the network is Malachite – this is a high-performance consensus engine that’s based on Tendermint. Arc uses a permissioned group of validators to agree on the order and validity of transactions. In simple terms, these validators are responsible for keeping the network synchronized and confirming which transactions become a valid part of the blockchain.

One of the main design goals behind the protocol is fast and predictable settlement. Its consensus system is designed to provide deterministic finality in under one second. What this means is that once a transaction is finalized, users won’t have to wait for several additional blocks to gain confidence that it will not be reversed.

Arc is also built around financial applications specifically. Its architecture supports stablecoins and tokenized assets. It also connects with different products already launched by Circle, as mentioned above, including Mint, CCTP, and Gateway.

The Stablecoin-Native Model: USDC Gas, Fees and Network Economics

One of the most distinctive features of Arc is that USDC is being used as the native asset for transaction fees. Now, as you may know, on many other blockchains, users have to hold a separate cryptocurrency (such as ETH or SOL) to pay for gas. This means that the dollar cost of a transaction can change not only because the network becomes busier, but also because the price of the gas token itself moves. Arc removes that second

The goal is to make blockchain costs easier for businesses to understand and, by extension, to budget for. Because USDC is a stablecoin pegged 1:1 to the US dollar, Arc can manage its fee market directly in a stable unit of account. In simple and practical terms, the asset being transferred and the asset used to pay for the transaction itself can both be denominated in USD.

Arc’s fee system takes inspiration from a very popular Ethereum Improvement Proposal (EIP) number 1559, but it also adds a smoothing mechanism. Instead of charging the base fee sharply from one block to the next, Arc uses an exponentially weighted moving average of network utilization together with a bounded base fee. The goal here is to reduce short-term fee spikes and keep transaction costs a lot more predictable.

USDC, however, is not intended to be the only way users can cover fees forever. Arc’s design also supports other local stablecoins and tokenized fiat currencies through a paymaster infrastructure, which allows applications to abstract gas payments away from users. The fees that are collected by the network are being directed to an on-chain Arc Treasury. According to the litepaper, this will be used to support the long-term growth of the network.

Arc’s Core Product Stack: Payments, FX, Privacy and Interoperability

At this point, it should have become clear that Arc is designed to be more than just a blockchain to facilitate USDC transfers. Its broader aim is to provide the infrastructure that’s needed for programmable financial applications, with payments, FX, privacy, and connectivity to other financial systems forming some very important parts of its ecosystem.

Let’s break these down.

Payments

Arc is optimized for stablecoin-based payments. Fast finality and predictable fees can make settlement a lot easier to manage. Circle positions use cases such as global and cross-border payments as a core application of the network.

Foreign Exchange

The blockchain is also built to support programmable foreign exchange. This would allow stablecoins representing different currencies to be exchanged and settled on-chain. The Arc website specifically highlights. the potential for 24/7 on-chain forex markets.

Privacy

The team is building something called Arc Privacy Sector (APS). It’s designed to add confidential smart-contract execution alongside the blockchain’s public environment. This could allow certain sensitive information, including balances, transaction details, and contract state, to essentially remain private while applications continue to execute on-chain. The privacy whitepaper highlights potential applications such as payroll, lending, asset issuance, and repo markets.

Interoperability

Last but not least, Arc is not intended to operate as an isolated protocol. Its architecture connects the network with traditional fiat rails, other applications, blockchains, as well as existing protocols built by Circle as we explained above.

What Will Actually Be Built on Arc?

There isn’t a limit on the type of applications that can be built on top of Arc’s blockchain, but it has to have become obvious by now that it’s designed around financial applications, rather than a single flagship use case. Its architecture is specifically intended to support products that move, exchange, and program stablecoins and real-world asset tokenization. As you can see, these are all segments where predictable fees, privacy, quick finality and settlement matter.

Some of the main use cases that are highlighted across various materials that Arc’s team has published include:

• Global and cross-border payments
• Foreign exchange
• Tokenized assets
• Treasury and liquidity management
• Lending and credit
• Institutional markets

That isn’t to say that we won’t see meme coins running on Arc. In fact, since its public launch on September 16th, the network has already seen its fair share of meme coins being built through various launchpads. But as you can see, all the above applications are very closely related. A business, for example, that receives a stablecoin payment, might immediately exchange it into another currency, use it as collateral, or move it to another blockchain – all through programmable infrastructure.

That interconnected model is very central to the protocol’s value proposition. Rather than functioning simply as a faster network for USDC transfers, Arc is intended to become a financial settlement environment where various applications can operate on the same underlying infrastructure stack.

The Arc Ecosystem at Launch

With all of the above in mind, Arc launched with an ecosystem that spans financial institutions, payment companies, stablecoin issuers, DeFi protocols, custody providers, infrastructure firms, and developer tools. That depth is important to Circle’s strategy – rather than launching the network first and trying to attract liquidity and applications later, Arc is intended to kick it off with many of the building blocks already connected.

At the network level, Arc’s founding validators include institutions such as BlackRock, DTCC, Galaxy, ICE, Mastercard, MoneyGram, SBI Group, Sumitomo Corporation, Visa, Standard Chartered, and more. These organizations don’t just participate as application partners but also operate and secure the network itself.

Beyond that, the official release also listed multiple custody providers, including Anchorage, BitGo, Copper, Fireblocks, and Zodia Custody. The release also mentioned compliance-oriented and security providers such as TRM Labs, Elliptic, and Chainalysis, as well as cross-chain protocols such as LayerZero, Stargate, and more.

The result is a developed ecosystem that’s designed for immediate utility.

Arc vs. the Competition

Arc is entering a crowded market – there’s no denying that. Countless Layer 1 and Layer 2 blockchains exist, but Circle’s initiative is deliberately different. Rather than competing for general-purpose crypto activity alone, Arc is designed around stablecoin payments and institutional settlement. In fact, even the litepaper says that the goal is not just to capture transactions from existing networks, but to bring more financial activity on-chain.

That said, the main differences really come down to a handful of design and approach choices.

• Stablecoin-native gas payments: As we outlined above, many blockchains require users to pay fees in a volatile native token. Arc, instead, uses USDC for gas. This means that transaction costs are denominated in a relatively stable unit of account. Arc also uses a fee-smoothing mechanism that’s intended to reduce short-term fluctuations in network fees.
• Deterministic finality: Arc uses Malachite, which is a Tendermint-based BFT consensus engine. Once more than two-thirds of validators commit a block, transactions become final rather than passing through a longer period of probabilistic or economic finality. Arc contrasts this with the finality models that are used by networks such as Ethereum and various Ethereum L2s.
• Finance-specific infrastructure: Arc combines its base layer with existing Circle infrastructure and is designed around payments, FX, tokenized assets, and opt-in privacy (eventually).
• A permissioned validator model: Unlike permissionless networks where anyone who meets the protocol’s set of requirements can potentially become a validator, Arc relies on a limited set of known institutions.

Ultimately, Arc makes different trade-offs than many general-purpose chains: it emphasizes stable costs, settlement certainty, and infrastructure tailored to regulated financial activity over permissionless validation.

Frequently Asked Questions

When was Arc mainnet launched?

Arc’s public mainnet was launched on September 16. It is an independent Layer 1 blockchain with its own validator network and consensus system. It is EVM-compatible, which means developers can still use Solidity and familiar Ethereum tools.

Does Arc have a native token?

Yes. The protocol has minted the entire supply of ARC, but it is not in circulation at the time of this writing in September 2026. However, the fees are denominated in USDC.

Why does Arc use USDC for gas?

Using USDC allows transaction fees to be denominated in a stable dollar-based asset rather than a cryptocurrency whose market price can fluctuate significantly.

How fast is Arc?

Arc is designed to provide what is known as “deterministic finality” in under one second. Once the transaction is finalized by the network, users don’t need to wait for multiple additional blocks for settlement certainty.

Is Arc permissionless?

No. Applications and smart contracts can be built on Arc, but its validator network uses a permissioned model. Validators are selected institutions rather than an unrestricted group that anyone can join.

Does Arc support meme coins?

Yes, meme coins exist on the Arc blockchain. They have become a landmark for the entire cryptocurrency industry, and the fact that Arc is EVM-compatible means that developers can build launchpads and meme coins using existing and familiar tooling.

Does Arc support private transactions?

Arc’s Privacy Sector is designed to support confidential smart-contract execution alongside the public blockchain. This can allow sensitive transaction data and contract state to remain private, while still benefiting from blockchain-based settlement.

What can be built on Arc?

While Arc is designed primarily for financial applications, there isn’t a limit on what developers can build on the network. It can be used as a general-purpose L1.

How is Arc different from Ethereum?

Arc’s main differentiation is that it’s permissioned, fees are paid in USDC, its finality is a lot quicker, and more.

About the author

Georgi Georgiev is CryptoPotato’s editor-in-chief and a seasoned writer with over 8 years of experience writing about blockchain and cryptocurrencies. Georgi’s passion for Bitcoin and cryptocurrencies bloomed in late 2016 and he hasn’t looked back since. Crypto’s technological and economic implications are what interest him most, and he has one eye turned to the market whenever he’s not sleeping.

Source: cryptopotato.com