From Money Issuance to Building Chains: Circle's 'Central Bank Dream'

On August 12, the same day Circle released its first earnings report since going public, the company made a major announcement: Arc, a Layer 1 blockchain built specifically for stablecoin-based finance.

At first glance, judging from the headlines, it might seem like just another public blockchain launch.

However, when viewed in the context of Circle's development over the past seven years, a more profound narrative begins to take shape.

Arc is more than just a blockchain; it represents a territorial claim in the realm of a "digital central bank.

Traditionally, central banks perform three core functions: issuing currency, overseeing payment and settlement systems, and setting monetary policy.

Circle is gradually reproducing these functions in the digital sphere, first by securing "minting rights" through USDC and then by developing a settlement system with Arc. The next step could be the creation of digital monetary policies.

This story is not only about one company; it reflects the broader reallocation of monetary power in the digital era.

Circle’s Evolution Toward a Central Bank Role

In September 2018, when Circle and Coinbase jointly launched USDC, the stablecoin market remained firmly under Tether’s dominance.

At the time, Circle chose a path that seemed cumbersome: a strict commitment to compliance.

First, it proactively addressed the most demanding regulatory requirements, becoming one of the earliest companies to secure New York's BitLicense. Often described as the most difficult cryptocurrency license to obtain, the application process was so complex that many firms chose to avoid it entirely.

Second, Circle did not act alone. It partnered with Coinbase to establish the Centre Consortium. This collaboration not only shared regulatory risks but also granted immediate access to Coinbase's vast user base, giving USDC a strong foundation from the outset.

Third, Circle maximized reserve transparency by publishing monthly audit reports from accounting firms to confirm that reserves consisted entirely of cash and short-term U.S. Treasury bills, with no exposure to commercial paper or other high-risk assets. Initially, this “model student” strategy met with limited enthusiasm. During the rapid expansion period from 2018 to 2020, USDC was criticized for being “too centralized,” which slowed its growth.

The turning point arrived in 2020.

The DeFi boom in the summer sparked a surge in demand for stablecoins. More significantly, institutional players such as hedge funds, market makers, and payment companies entered the market, and USDC’s compliance advantage finally became evident.

From $1 billion in circulation to $42 billion, and now $65 billion, USDC’s growth has been almost exponential.

But being just a "money printer" wasn’t enough.

In March 2023, the collapse of Silicon Valley Bank exposed vulnerabilities. Circle had $3.3 billion of reserves held at the bank, which caused USDC to briefly depeg to $0.87 and triggered widespread panic.

The result of this “stress test” was that the U.S. government, seeking to contain systemic risk, ultimately guaranteed all deposits at Silicon Valley Bank in full.

Although this was not a bailout aimed directly at Circle, the episode underscored the need for the company to control more of the financial infrastructure in order to secure its long-term position.

This realization was reinforced by the dissolution of the Centre Consortium, which exposed Circle’s “worker bee” predicament.

In August 2023, Circle and Coinbase announced the dissolution of the Centre Consortium, with Circle assuming full control of USDC. On the surface, this appeared to grant Circle independence; however, the cost was significant, as Coinbase secured 50 percent of USDC reserve revenue.

In practical terms, this meant that in 2024 Coinbase earned $910 million from USDC reserve revenue, representing a 33 percent year-over-year increase. During the same period, Circle paid more than $1 billion in distribution costs, most of which went to Coinbase.

In effect, despite Circle’s efforts to expand USDC, half of its profits were handed over to Coinbase. This is comparable to a central bank printing money but ceding half of its seigniorage to commercial banks.

Furthermore, the rise of Tron revealed a new profit model for Circle.

In 2024, Tron processed USDT transactions totaling $5.46 trillion, with an average of more than two million transfers each day. By focusing solely on transfer infrastructure, Tron generated significant fee income and established a more upstream, stable profit model compared to directly issuing stablecoins.

Amid expectations of Federal Reserve rate cuts, the interest income from traditional stablecoins is likely to shrink, whereas infrastructure-related fees can maintain steady growth.

This reality prompted Circle to realize that controlling infrastructure ensures a continuous revenue stream.

As a result, Circle started shifting its strategy toward infrastructure development and introduced several key initiatives:

• Circle Mint: Allows corporate clients to directly mint and redeem USDC.

• CCTP (Cross-Chain Transfer Protocol): Enables native USDC transfers across different blockchains.

• Circle APIs: Provides enterprises with a comprehensive suite of stablecoin integration solutions.

By 2024, Circle’s revenue reached $1.68 billion, with its income structure shifting from relying primarily on reserve interest to incorporating a growing share from API usage fees, cross-chain service fees, and enterprise service fees. The change was reflected in Circle’s latest earnings report. Data showed that subscription and service revenue rose to $24 million in Q2 this year, accounting for just 3.6% of total revenue but representing a sharp 252% increase compared to the same period last year.

From a single business model focused on earning interest on reserves, Circle has evolved into a diversified “rent-collection” model, gaining greater control over its revenue streams.

The launch of Arc marks the culmination of this transformation.

Arc is a blockchain specifically designed for stablecoins (USDC). Key features include:

• USDC serves as the native gas token, eliminating the need for ETH or other volatile tokens.

• An institutional-grade request-for-quote system supports 24/7 on-chain settlements.

• Transactions are confirmed in less than one second, offering balance and transaction privacy options to meet compliance requirements.

These capabilities reflect an assertion of monetary sovereignty through technology. While Arc is open to all developers, Circle retains authority over the rules and protocol upgrades.

From the Centre Consortium to Arc, Circle has completed a three-stage progression:

1. Securing minting rights (USDC).

2. Building financial pipelines (APIs, CCTP).

3. Establishing sovereign territory (Arc).

This trajectory mirrors the historical evolution of central banks in the digital realm, beginning with private banks issuing banknotes, followed by the monopolization of currency issuance, and ultimately overseeing entire financial systems. Circle, however, is advancing at a faster pace.

Nevertheless, Circle is not the only entity pursuing the vision of a “digital central bank.”

Ambition Aligned, Paths Diverged

In the stablecoin arena of 2025, several major players share the vision of a “central bank,” but their strategies differ significantly.

Circle has chosen the most demanding yet potentially rewarding path: USDC → Arc Blockchain → Complete Financial Ecosystem.

The company is not content with simply issuing stablecoins; it seeks to control the entire value chain, including currency issuance, settlement systems, payment rails, and financial applications.

Arc’s architecture is guided by principles reminiscent of central banking:

• Monetary Policy Tools: USDC serves as native gas, granting Circle regulatory powers akin to a "benchmark interest rate."

• Settlement Monopoly: Its built-in institutional-grade RFQ (Request-for-Quote) forex engine ensures that on-chain forex settlements must go through its mechanism.

• Rule-Making Authority: Circle retains control over protocol upgrades, deciding which features go live and which behaviors are permissible.

The most challenging aspect is ecosystem migration: how can Circle convince users and developers to move away from Ethereum?

Circle’s solution is not to force migration but to supplement existing infrastructure. Arc is not intended to replace USDC on Ethereum; instead, it provides solutions for use cases that current blockchains cannot fully support, such as corporate payments requiring privacy, forex transactions needing instant settlement, and on-chain applications demanding predictable costs.

This represents a high-stakes gamble. If successful, Circle could emerge as the “Federal Reserve” of digital finance; if it fails, billions of dollars in investment could be lost.

PayPal has taken a pragmatic and flexible approach. PYUSD debuted on Ethereum in 2023, expanded to Solana in 2024, launched on the Stellar network in 2025, and was recently extended to Arbitrum.

Rather than building its own blockchain, PayPal has allowed PYUSD to operate across multiple ecosystems, treating each blockchain as a viable distribution channel. In the early stages of stablecoins, distribution channels can be more important than infrastructure development. When ready-made solutions are available, there is little reason to build a new system from scratch.

By first capturing user mindshare and practical use cases, PayPal can consider infrastructure development later, particularly given its network of 20 million merchants.

Tether, in contrast, operates like the “shadow central bank” of the crypto world. It rarely intervenes in the use of USDT; once issued, it functions like cash, with circulation left entirely to market forces. In regions with unclear regulations and challenging KYC requirements, USDT has often become the only viable option.

Circle’s founder Paolo Ardoino has noted that USDT primarily serves emerging markets, such as Latin America, Africa, and Southeast Asia, helping local users bypass inefficient financial infrastructures and effectively functioning as an international stablecoin.

With three to five times the number of trading pairs compared to USDC on most exchanges, Tether has built a strong liquidity network effect.

Tether’s approach to new blockchains is particularly noteworthy. Rather than building its own, it supports projects that do. For example, it backs stablecoin-focused chains like Plasma and Stable. This strategy is similar to placing bets, maintaining a presence across multiple ecosystems with minimal cost while observing which platform succeeds.

In 2024, Tether’s profits exceeded $10 billion, surpassing many traditional banks. Instead of using these profits to create its own blockchain, Tether continued investing in U.S. Treasury bonds and Bitcoin. The company is betting that as long as it maintains adequate reserves and avoids systemic risks, market inertia will sustain USDT’s dominance in stablecoin circulation.

Together, the strategies of PayPal, Tether, and Circle illustrate three distinct visions for the future of stablecoins.

• PayPal emphasizes user-centricity. With a network of 20 million merchants, technical architecture is secondary. This reflects an internet-driven mindset.

• Tether prioritizes liquidity dominance. As long as USDT serves as the base currency for trading, other factors are secondary. This reflects an exchange-oriented mindset.

• Circle focuses on infrastructure supremacy. By controlling the rails, it positions itself to influence the future of digital finance. This represents a central bank-oriented mindset.

The rationale behind Circle’s choice might be found in Circle CEO Jeremy Allaire’s congressional testimony: "The dollar is at a crossroads; monetary competition is now technological competition."

Circle isn’t just eyeing the stablecoin market but the authority to set standards for the digital dollar. If Arc succeeds, it could become the "Federal Reserve System" of the digital dollar. This vision is worth the risk.

2026: A Critical Time Window

The time window is narrowing as regulation progresses and competition intensifies. When Circle announced that Arc’s mainnet would launch in 2026, the crypto community initially reacted that this timing seemed too slow.

In an industry driven by rapid iteration, taking nearly a year to move from testnet to mainnet may appear to be a missed opportunity. However, considering Circle’s position, the timing could be strategic.

On June 17, the U.S. Senate passed the GENIUS Act, establishing the country’s first federal-level stablecoin regulatory framework. For Circle, this represents a long-awaited legitimization. As one of the most compliant stablecoin issuers, Circle has already met nearly all the requirements outlined in the GENIUS Act.

The year 2026 coincides with the implementation of these regulatory details, when the market will adjust to the new rules. Circle seeks to avoid being the first to take the plunge while also ensuring it does not arrive too late.

Corporate clients value certainty above all else, and Arc is designed to deliver exactly that: certainty in regulatory compliance, technological performance, and business models.

If Arc successfully launches and attracts sufficient users and liquidity, Circle could establish itself as the leading stablecoin infrastructure provider. This might pave the way for private companies to operate similarly to central banks.

If Arc underperforms or is outpaced by competitors, Circle may need to reconsider its strategy. In the end, stablecoin issuers might remain limited to currency issuance, unable to dominate the underlying infrastructure.

Regardless of the outcome, Circle’s efforts are prompting the entire industry to confront a fundamental question: who should hold the reins of monetary control in the digital age?

The answer may begin to take shape in 2026.