Confronting Tether Head-On? An In-Depth Analysis of Circle's New Public Chain Arc and the Future Competitive Landscape

Author: 100y.eth, Four Pillars

Compiled by: Tim, PANews

Key Points Summary

On August 13, 2025, Circle officially launched its self-developed Arc public chain: a Layer 1 underlying network built specifically for the USDC stablecoin. In the context of the recent surge in stablecoin metrics, the release of Arc has attracted widespread attention and marks Circle's formal entry into the trend of issuing dedicated blockchains.

Arc is committed to enabling enterprises and institutions to seamlessly access blockchain infrastructure while complying with regulatory requirements, specifically through three core capabilities: 1) using USDC stablecoin as the Gas token; 2) providing high scalability and instant transaction confirmation based on the Malachite consensus algorithm; 3) supporting optional privacy features that users can enable themselves.

Arc adopts an operational strategy that is both similar to and distinct from blockchain solutions centered around USDT (such as Stable and Plasma supported by Tether). Its main differentiated advantages are reflected in:

The emergence of Arc has had a significant impact on the industry. This article delves into: 1) the differing development directions of Tether and Circle in the stablecoin network space; 2) whether the competition between Circle and Tether will intensify; 3) the dynamics of other networks like Codex and 1Money Network; 4) whether Arc's true competitor will be Tempo rather than Stable or Plasma.

1.Circle has just launched Arc

Source: Circle

On August 13, 2025, Circle announced the launch of its self-developed USDC native L1 blockchain Arc in its Q2 financial report, along with the release of a lightweight technical document. Notably, just a few hours earlier on the same day, the world's largest payment service provider Stripe also officially launched its L1 blockchain Tempo. The simultaneous launch of exclusive blockchains by these two fintech giants makes August 13, 2025, an important milestone in the development of the industry.

The reason why Circle's Arc has attracted such high attention is because the stablecoin sector has recently become one of the hottest topics in the crypto community. Under the leadership of Tether's CEO and the stablecoin network project Stable backed by Bitfinex, several new L1 public chains, including Codex and 1Money Network, are being specifically developed for stablecoins. In this context, the crypto community's expectations for Circle's potential related initiatives have been growing increasingly high, and now Circle has finally unveiled Arc.

So, the Arc released by Circle today is just another first-layer network specifically serving USDC, which is no different from the various stablecoin networks that have emerged recently; or does it bring a differentiated gameplay that is completely different from other projects?

What is 2.Arc?

Source: Arc

2.1 USDC Dedicated Chain

Before discussing the similarities and differences between Arc and other stablecoin networks, let's first understand Arc itself.

Arc is a blockchain designed specifically for USDC and compatible with EVM. Its goal is to allow enterprises and institutions to conduct diversified financial activities on a scalable infrastructure, enabling the use of stablecoin to pay predictable network fees while enjoying optional privacy features for users. To achieve this goal, Arc offers the following core features:

• USDC as the native GAS token: Allows users to use USDC as the default GAS token for all transactions, thereby paying low volatility and predictable fees.
• Deterministic Instant Finality: The Malachite consensus algorithm grants transactions finality in less than a second, providing highly scalable infrastructure.
• Optional Privacy Solutions: By integrating privacy protection technologies, customizable transparency options are provided. This solution is specifically designed for sensitive transaction scenarios, with the core aim of meeting compliance regulatory requirements of enterprises and regulatory agencies while effectively supporting the operation of transaction monitoring systems.

2.2 The default GAS token is USDC, and any other token can be used for payment

The Arc platform defaults to setting all transaction fees in USDC stablecoin and utilizes the EIP-1559 fee model.

Arc has made several improvements to the EIP-1559 model. The first is the introduction of the "fee smoothing mechanism": this mechanism uses an exponential weighted moving average algorithm to determine the fees for subsequent blocks by comprehensively considering past and recent block fee data (with older data weights decreasing exponentially and recent data weights increasing). The traditional EIP-1559 only references the usage of the previous block when determining the base fee for the next block, whereas the improved version from Arc significantly stabilizes the base fee's volatility by incorporating usage data from multiple historical blocks, including the previous one. The second improvement is the "base fee cap mechanism", which sets a fixed upper limit for the base fee, ensuring that even during periods of congestion on the Arc network, fees do not increase without bound.

Circle Paymaster, Source: Circle

Arc supports not only USDC but also allows the use of various stable value tokens as fee tokens, including stablecoins pegged to other national currencies, deposit tokens, and central bank digital currencies. This feature is associated with Circle's payment hosting services.

Circle Paymaster was originally a feature based on the ERC-4337 standard that allows users to pay transaction fees using USDC on other EVM blockchains without using the native token of that chain. However, since Arc defaults to using USDC as the fee token, utilizing this paymaster feature can actually enable payment of transaction fees with other tokens besides USDC.

The ERC-4337 standard is currently the most widely used account abstraction protocol. It adds functionalities such as Entrypoint, Bundler, and Paymaster without changing the underlying Ethereum protocol, significantly lowering the implementation barrier for account abstraction. In this protocol, users no longer directly sign transactions; instead, they sign independent objects called UserOps. These UserOps are stored in an independent off-chain memory pool, rather than the official Ethereum memory pool. The Bundler will validate these UserOps and package them into a single bundled transaction, which is then sent to a smart contract called Entrypoint. The Entrypoint contract completes the validation execution and gas fee settlement for all UserOps in one go, at which point the Paymaster module allows users to pay gas fees using other tokens.

As we can see, Arc's fee model allows institutional users to avoid holding highly volatile tokens like ETH and SOL for transaction fees, while significantly reducing the volatility of transaction costs. This not only enhances business predictability but also significantly simplifies the financial accounting processes for enterprises.

In the early development stages of Arc, the fees collected will be injected into the Arc chain treasury to support the long-term development of the network.

2.3 Deterministic Instant Finality Supported by Malachite

For a blockchain network to become a financial system in the real world, it must meet two main conditions: the first is high scalability to handle a large number of transactions, and the second is the finality of instant transactions that does not rely on probability. To achieve this goal, Arc has brought in developers from Informal Systems and adopted the Malachite consensus algorithm.

Informal Systems is an infrastructure company based in Canada that has been deeply involved in the construction of the Cosmos ecosystem for a long time, leading protocol design and development work. It is worth mentioning that the company’s co-founder team previously worked together at Tendermint and the Interchain Foundation, so they have a deep accumulation in the technology field based on the Tendermint BFT consensus protocol. In short, Informal Systems is the core team that continues the Tendermint technology and is currently promoting the development of its successor, CometBFT.

Malachite is a high-performance BFT consensus engine developed by Informal Systems, based on the Rust language. The Malachite team from Informal Systems has joined Circle to collaboratively build the core consensus algorithm supporting the Arc project.

Source: Informal Systems

Compared to the existing CometBFT, Malachite achieves modular simplification by removing unnecessary components and streamlining the core. As a result, the core library of Malachite is ultimately made up of three modules.

• Vote Keeper: Collect votes from network participants and track the progress of quorum.
• Round State Machine: Implements the core logic of Tendermint voting rounds
• Driver: Operate the state machine across multiple rounds

Since this library makes no assumptions about the execution environment and does not limit the types of applications that can be connected, its advantage lies in providing a highly generic consensus API interface.

Malachite not only provides a simple consensus library but also offers an engine that allows developers to easily build production nodes. This technology also includes the following features:

• Synchronization: Synchronization of block proposals and voting data during the consensus process.
• Pre-written logs: Fault recovery and data integrity assurance
• P2P & Gossip Communication: Propagation of blocks, transactions, and voting messages among nodes
• Node Discovery: Finding Other Nodes in the Network
• Function modules: Block creation and execution logic, as well as transaction memory pool

Source: Arc

Thanks to its Rust-based implementation mechanism and streamlined modular design, Malachite demonstrates outstanding performance in benchmark tests, laying the foundation for Arc's scalability. In tests with 20 geographically distributed validation nodes, Arc achieved a transaction processing capacity of 3,000 transactions per second and reached finality within 350 milliseconds. Moreover, due to the core of Malachite adopting the Tendermint BFT consensus mechanism, the system can provide instant finality guarantees.

2.4 Optional Privacy Solutions for Implementing Sensitive Information Protection and Regulatory Compliance

A privacy feature that can protect users' sensitive transaction information while allowing regulators to view account transaction information when necessary is an indispensable part of real-world financial infrastructure. To achieve this goal, Arc plans to add an optional privacy protection feature in the upgrades after the mainnet launch.

In the early privacy roadmap, Arc will introduce the "Confidential Transfer" feature. This feature will hide the transaction amount while making the addresses public, allowing regulators and analytical tools to track transactions, with the aim of maintaining compatibility with existing blockchain analysis and monitoring systems. In particular, by introducing a "view key," this mechanism allows approved third parties such as auditors and regulators to gain read-only access to specific transaction data, ensuring compliance for Arc. For institutions, this technology enables them to have a comprehensive understanding of all transaction details of their clients, thereby meeting regulatory requirements such as transaction monitoring and the "Funds Transfer Rules."

To achieve this goal, Arc will provide an EVM precompiled contract that allows smart contracts to interact with a cryptographic backend. This backend will initially adopt Trusted Execution Environment (TEE) technology to enable fast and verifiable privacy transactions, which significantly distinguishes it from many existing privacy solutions. In the future, Arc plans to integrate multiple cryptographic technologies beyond TEE, including zero-knowledge proofs, fully homomorphic encryption, and secure multi-party computation.

In the future privacy technology roadmap, Arc plans to go beyond simple encrypted transaction capabilities and upgrade to support "privacy status" and "secure computation" technologies, thereby enabling advanced privacy application scenarios, such as:

• Privacy Order Book: Maintains the order book status within the exchange but does not disclose it externally.
• Financial Transaction Agreement: Keep the terms of the trade agreement confidential
• Automated fund management: The financial management logic of enterprises is kept confidential.

3. A script that is both similar to and different from Tether

The Arc solution launched by Circle this time is very similar to the USDT-focused networks supported by Tether (such as Stable and Plasma), yet it also has its differences.

3.1 The Same Script

3.1.1 Characteristics of Stablecoins

Stable and Plasma are blockchain networks specifically designed for USDT, with core features including: support for using USDT as the default GAS token, achieving high scalability through underlying optimizations, and plans to offer optional privacy protection features. Additionally, this network implements a zero-fee policy for simple USDT transfer transactions.

For readers familiar with Stable and Plasma, the first thought that might come to mind when looking at Circle's Arc protocol is: "Wait, isn't this just applying the functions of Stable or Plasma to USDC?" This thought arises because Arc has three core features: 1) using USDC as the fee token, 2) optional privacy protection, 3) high scalability, which are almost identical to the key characteristics of the former two.

The key difference here is that Circle's Arc chain only supports USDC as the token for paying transaction fees, and there is no fee waiver policy for USDC transfer transactions.

3.1.2 Privacy is still placed in a secondary position

It is worth noting that, in addition to Circle's Arc chain, Stable and Plasma also plan to provide optional privacy features for user data protection and regulatory compliance. However, these features are still in active development and will not be supported at the initial mainnet launch. This is mainly due to the complex technical challenges of introducing privacy features immediately. It is currently uncertain which stablecoin network will be the first to implement optional privacy features, and even after achieving this functionality, the actual user experience from the perspectives of users, businesses, and regulators remains to be observed.

3.2 Arc's Own Script

Upon closer inspection, Arc seems to be just another stablecoin network supporting USDC, but it actually has a unique design that distinguishes it from existing stablecoin networks.

3.2.1 Integration of Circle Product Line

Source: Circle

Compared to other stablecoin networks, Arc's biggest advantage lies in its ability to flexibly integrate with other services provided by Circle. Among many stablecoin issuers, Circle is known for its vertically integrated comprehensive stablecoin-related services. By integrating with the following features, Arc can provide significantly optimized user experiences for USDC and EURC holders:

• USYC: A token of an institutional-grade money market fund supported by U.S. short-term Treasury bonds. The USYC token will be supported on the first day it is launched on the Arc platform, allowing users not only to stake USYC but also to earn returns using various institutional-grade yield tokens available on the Arc platform.
• Circle Payment Network: A global payment system based on stablecoins and blockchain technology, which can be simply understood as the Web3 version of the SWIFT system. After the official launch of the Arc network, institutions connected to the CPN network will be able to complete stablecoin transaction settlements on this platform.
• Circle Mint: The platform allows issuers of USDC and EURC to easily mint and redeem stablecoins. In the future, users will be able to directly mint and redeem USDC and EURC in the fastest and most efficient way through the Circle Mint feature on the Arc platform.
• Circle Wallet: Enables businesses to easily integrate Web3 wallets into their products, while assets based on the Arc chain will also be included in the integration scope.
• Circle Contracts: A smart contract platform for deploying, managing, and monitoring various stablecoin-based services. Since Arc is a network compatible with the Ethereum Virtual Machine, this functionality can be immediately utilized for practical applications.
• CCTP: A cross-chain transfer protocol that serves as a connecting infrastructure, enabling users to conveniently transfer USDC and EURC across multiple networks. Arc will be able to interact with dozens of blockchain networks and facilitate fund transfers through CCTP. With Arc's sub-second transaction confirmation feature, the speed of cross-chain transfers to other networks will be significantly enhanced.
• Circle Gateway: This service aggregates users' USDC balances distributed across different networks into a unified total balance and supports instant cross-chain calls when needed. Users can conveniently manage assets between Arc and other public chains.
• Circle Paymaster: As discussed earlier, this feature allows users to pay transaction fees using tokens other than USDC, or to use the gas fee sponsorship feature on Arc.

3.2.2 Regulatory-Friendly Solutions

Unlike USDT, the USDC issued by Circle not only complies with the U.S. GENIUS Act but also targets the U.S. market as its main focus. More importantly, by studying the abbreviated technical white paper of Arc, it can be found that Circle placed great emphasis on regulatory factors when constructing Arc.

Source: BIS

For example, the Arc technology white paper cited the report of the Bank for International Settlements (BIS) twice.

The first citation emphasizes that all transactions on Arc have instant finality, which is in line with Principle 8: Settlement Finality of the "Principles for Financial Market Infrastructures" published by the Bank for International Settlements in 2012.

The second citation points out that Arc's licensed validator set may have advantages under the "Basel Committee on Banking Supervision's framework for the prudent treatment of crypto-assets" published by the Bank for International Settlements in 2022.

It is therefore evident that the design intention of Arc is not only to serve as a Web3 network for USDC, but also that its numerous regulatory elements have been carefully considered.

3.2.3 Built-in Forex Engine

Arc's technical roadmap plans to directly integrate an institutional-level foreign exchange engine into its network. This foreign exchange engine will support efficient and secure foreign exchange settlement between trading parties around the clock across different countries.

In addition to trading based on smart contracts, the system will also integrate an off-chain Request for Quote (RFQ) mechanism, allowing institutional investors to obtain forex quotes from market makers, compare prices, and quickly execute trades. This forex engine supports a variety of forex-related services, including cross-border payments, forex hedging, automated fiat/cryptocurrency exchange channels, and stablecoin futures markets.

4. Final Thoughts

• The divergence between Tether and Circle in their stablecoin network strategies has become apparent: Tether has chosen to support external projects like Stable and Plasma to build a dedicated USDT network, while Circle is committed to creating its own USDT ecosystem. Each path has its advantages and disadvantages; Tether's model allows for rapid ecological expansion focused on USDT, avoiding excessive constraints from Tether's corporate governance, but it is difficult to fully align with Tether's strategy, which may lead to ecological fragmentation. In contrast, Circle can provide a more complete user experience through highly integrated products, but the strict adherence to corporate governance and compliance requirements may limit the speed of Arc's ecological development. The success or failure of these two models will ultimately be determined by time and the market.
• Will the competition between Circle and Tether intensify? Some may view Circle's launch of this new public chain focused on USDC as a sign of heightened competition between Circle and Tether. While this is a reasonable argument, it is somewhat one-sided. The launch of Arc is more about connecting and enhancing Circle's existing product portfolio seamlessly, rather than entering a completely new ecosystem. The competition between Circle and Tether has already been fierce, and the launch of Arc is not expected to significantly deepen this competition. Arc's true competitor may be closer to Stripe's Tempo, rather than the Stable or Plasma platforms.
• What is the future direction of Codex and 1Money Network?: Before Circle announced the launch of the Arc network, there was a lack of dedicated stablecoin networks for the independent issuance of USDC, which brought significant attention to Codex and 1Money Network. Both focus on blockchain for stablecoins, with Codex receiving strategic investment from Circle Ventures and supporting the native issuance of USDC, while 1Money Network is a Circle Alliance partner utilizing Circle Mint functionality. However, with Circle's official entry, these projects may face disadvantages in market attention within the crypto community, and it remains unclear what market entry strategies they will adopt moving forward.

• Is Arc's competitor Tempo? Chuk from Paxos provided an interesting perspective that I'd like to share here. His tweet compares Circle's Arc with Stripe's Tempo, noting that the two adopt completely different strategies and stances, with Stripe being offensive and Circle being defensive. These differences increase their respective chances of success.