Why Circle chose an L1 — and what it means for Ethereum

2025-08-14 19:03:33

Main Idea

Circle is building its own Ethereum-compatible layer-1 blockchain, Arc, which uses USDC for gas and focuses on payments, raising questions about its impact on Ethereum's role as a stablecoin settlement layer.

Key Points

1. Circle's new blockchain, Arc, is a sovereign layer-1 chain with Ethereum compatibility, sub-second finality, and USDC as gas, designed for payments.

2. The decision to build an L1 instead of an L2 has sparked debate on whether it threatens Ethereum's dominance as a stablecoin settlement layer or if EVM compatibility will keep flows within Ethereum's ecosystem.

3. Arc is built on Malachite, a high-performance BFT consensus engine, and aims for predictability and integration, though its technical details remain undisclosed due to a quiet period.

4. Stablecoin payment volumes are growing rapidly, with B2B transactions increasing significantly, driving interest in sovereign payment rails like Arc.

5. Ethereum's long-term role is seen as secure due to its neutrality and conservatism, despite Circle's move, and concerns about fragmentation are mitigated by Arc's EVM compatibility.