"Stablecoin's First Stock" Circle announced its latest layout in the Q2 2025 financial report, introducing a public chain named Arc, which is a Layer 1 specifically designed for stablecoins. It clearly targets competitors like Tether's Plasma and Stable. Arc will launch its public testnet this fall, and let's take a look at the technical features of Circle's latest creation.

First of all, Arc is an EVM-compatible Layer-1 blockchain designed specifically for stablecoin finance and asset tokenization, providing a foundational settlement layer for programmable money on the internet, particularly suitable for scenarios such as global payments, foreign exchange (FX), and capital markets. The goal is to address the obstacles faced by existing public chains in enterprise and institutional applications, such as transaction fee volatility, settlement uncertainty, and lack of privacy. Here we know that Arc is strongly related to payments, and it is noteworthy that Arc does not seem to target consumers.

Key Technical Features of Arc

Using USDC as Native Gas and Stable Fee Mechanism

Arc uses USDC as the native asset for paying transaction fees (Gas) and adopts a fee market mechanism inspired by Ethereum's EIP-1559. However, it updates the base fee using an exponentially weighted moving average of block utilization, smoothing out short-term fluctuations to ensure that transaction costs remain consistently low.

In addition to USDC, Arc also plans to support gas fee payments for other stablecoins and tokenized fiat currencies through a dedicated "Paymaster" (a payment channel) integration.

Extremely High Performance

Arc employs a high-performance consensus engine called "Malachite," based on the Tendermint BFT protocol. This enables it to achieve deterministic settlement finality, with transactions confirmed in less than one second and being irreversible.

There are also validators; the network is secured by a limited group of well-known institutions that are geographically distributed and permissioned as validators. These validators' identities are public and must adhere to high standards of accountability and operational assurance. This easily brings to mind the former Libra.

In a test setup with 20 geographically distributed validation nodes, Arc can handle approximately 3,000 transactions per second (TPS), with finality confirmation times of less than 350 milliseconds. If using 4 validation nodes, throughput can exceed 10,000 TPS, with finality times of less than 100 milliseconds.

Optional Privacy Protection Features

Arc's privacy roadmap begins with a "Confidential Transfer" feature, which can encrypt transaction amounts so that they are not visible to the public, while the addresses of both parties remain visible. This is a very B2B feature, protecting sensitive business information.

Another aspect is entirely for regulatory purposes; Arc's privacy model allows for selective disclosure through mechanisms like "view keys," similar to Monero, as many transactions have privacy but can authorize third parties (such as auditing or regulatory bodies) to access specific transaction data. Institutions can always fully view their customers' transactions to meet regulatory requirements such as transaction monitoring and travel rules.

Privacy features are implemented through a modular backend, initially using Trusted Execution Environment (TEE) technology to handle encrypted data, with plans to integrate more advanced technologies in the future, such as Multi-Party Computation (MPC), Fully Homomorphic Encryption (FHE), and Zero-Knowledge Proofs.

MEV Mitigation Roadmap

Arc believes that not all MEV is harmful. It categorizes MEV into "constructive" (such as arbitrage activities that help with stablecoin price discovery) and "harmful" (such as sandwich attacks).

To mitigate MEV issues, Arc's roadmap includes implementing cryptographic memory pools, batch transaction processing, and multiple proposers to curb predatory trading behaviors while preserving beneficial arbitrage activities.

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