Circle, the "first stock of stablecoins," revealed its latest development in its Q2 2025 financial report—a public chain named Arc, which is also a Layer1 dedicated to stablecoins. Clearly positioned against competitors like Tether’s Plasma and Stable, Arc is set to launch its public testnet this fall. Let’s take a closer look at the technical features of Circle’s latest creation.

First, Arc is an EVM-compatible Layer-1 blockchain specifically designed for stablecoin finance and asset tokenization. It provides a foundational settlement layer for programmable money on the internet, particularly suited for scenarios like global payments, foreign exchange (FX), and capital markets. The goal is to address the challenges faced by existing public chains in enterprise and institutional applications, such as fluctuating transaction fees, settlement uncertainties, and lack of privacy. Notably, Arc is heavily payment-focused and appears to be more enterprise-oriented (to B) rather than consumer-facing (to C).

Key Technical Features of Arc

1. 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 short-term fluctuations and ensuring consistently low transaction costs.
   In addition to USDC, Arc plans to integrate support for other stablecoins and tokenized fiat currencies for Gas fee payments through specialized "Paymaster" (a type of payment channel).

2. Extremely High Performance
   Arc employs a high-performance consensus engine called "Malachite," based on the Tendermint BFT protocol. This enables deterministic settlement finality, with transactions confirmed and irreversible in less than a second.
   Of course, there are validators. The network is secured by a limited, permissioned set of geographically distributed and well-known institutions serving as validators. These validators are publicly identified and held to high standards of accountability and operational reliability—reminiscent of the early days of Libra.
   In a test setup with 20 geographically distributed validator nodes, Arc can handle approximately 3,000 transactions per second (TPS) with finality confirmation times below 350 milliseconds. With 4 validator nodes, throughput exceeds 10,000 TPS, and finality times drop below 100 milliseconds.

3. Optional Privacy Protection Features
   Arc’s privacy roadmap begins with a "confidential transfer" feature, which encrypts transaction amounts to hide them from public view while keeping the addresses of transacting parties visible. This is a highly enterprise-focused (to B) feature, protecting commercially sensitive information.
   Another aspect is entirely for regulatory compliance. Arc’s privacy model allows selective disclosure through mechanisms like "view keys," similar to Monero. While many transactions are private, third parties (e.g., auditors or regulators) can be authorized to access specific transaction data. Institutions can always fully view their customers’ transactions to meet regulatory requirements such as transaction monitoring and the Travel Rule.
   Privacy features are implemented via a modular backend. Initially, Trusted Execution Environments (TEEs) will handle encrypted data, with plans to integrate more advanced technologies like Multi-Party Computation (MPC), Fully Homomorphic Encryption (FHE), and zero-knowledge proofs in the future.

4. MEV Mitigation Roadmap
   Arc believes not all MEV is harmful. It categorizes MEV into "constructive" (e.g., arbitrage that aids stablecoin price discovery) and "harmful" (e.g., sandwich attacks).
   To mitigate MEV issues, Arc’s roadmap includes implementing encrypted mempools, batch transaction processing, and multiple proposers to curb predatory trading behaviors while preserving beneficial arbitrage activities.