What Is Arc? Circle’s Own L1 Blockchain

Arc is Circle’s purpose-built Layer-1 blockchain designed to connect programmable money, tokenized assets, and institutional finance in an environment with predictable fees and deterministic settlement. According to the Arc Litepaper and Arc technical documentation, the blockchain introduces dollar-denominated gas fees, sub-second finality, and an opt-in privacy model tailored for regulated financial services. These characteristics are intended to support workflows where predictability, compliance alignment, and auditability are central requirements.

Arc’s design responds to long-standing operational frictions in public blockchains, including fee volatility, probabilistic settlement, and fully transparent ledgers that conflict with financial confidentiality. Through architectural choices and tight integration with Circle’s platform services, Arc is structured as a settlement layer for payments, FX, tokenized assets, and enterprise workflows with traceability and operational consistency.

Why Arc Was Created?

The primary motivation behind Arc’s creation is the growing disconnect between blockchain capabilities and the needs of regulated financial institutions. Most existing blockchains were not designed to support the operational, compliance, and settlement demands of banks, payment processors, fintechs, and capital markets participants. Volatile gas tokens complicate accounting, probabilistic finality introduces uncertainty in high-value settlement, and transparent public ledgers expose sensitive financial data that institutions cannot reveal.

According to Circle’s published materials, Arc’s development was anchored around three core design decisions:

1. Stablecoin-Native Operations

Arc uses USDC as its native gas asset. This reduces exposure to speculative token volatility and aligns operational costs with corporate accounting models. Based on the Fee Manager documentation, Arc is calibrated to stabilize gas pricing and reduce variability across network conditions.

2. Deterministic, Sub-Second Finality

Arc’s consensus engine, Malachite, which is documented as a high-performance implementation of Tendermint BFT, commits blocks irreversibly in under one second on the testnet. Deterministic finality is important for institutional workflows such as collateral movement, FX settlement, and treasury operations.

3. Opt-In, Compliant Privacy

Arc introduces configurable privacy features that allow institutions to shield transaction amounts while keeping counterparties visible. View keys and selective disclosure mechanisms support audit and compliance requirements, ensuring institutions can maintain regulatory visibility when needed.

Circle’s technical literature states that these design choices are intended to support an open, neutral platform that serves developers, enterprises, and financial institutions with predictable operational behavior.

Exploring the Arc Ecosystem

Arc is structured as a financial operating system rather than a general-purpose smart contract platform. The documentation describes the ecosystem as centered on stablecoin-denominated payments, FX, collateral management, tokenized assets, and enterprise-grade financial operations.

Core Use Cases in the Arc Ecosystem

Onchain Credit with Offchain Trust

Arc supports credit issuance models in which traditional underwriting or real-world collateral exists off-chain while settlement and lifecycle management occur onchain. This structure enables transparent settlement with visibility into risk positions while maintaining confidentiality for sensitive information.

Capital Markets Settlement and Tokenized Collateral

Arc’s deterministic finality allows tokenized securities, treasuries, or fund shares to serve as collateral in automated markets. Movements of collateral, redemptions, and settlement flows operate with predictable timing and execution.

Stablecoin FX and Programmable Currency Conversion

Arc includes a roadmap for a built-in FX engine capable of payment-versus-payment settlement across multiple currencies. Paired with smart contracts and off-chain RFQ systems, this engine allows institutions to automate FX trades with guaranteed execution windows.

Agentic Commerce

Developers can build autonomous financial agents that execute treasury operations, manage liquidity buffers, enforce spending policies, or perform real-time financial tasks. These agents rely on Arc’s stable fees and predictable settlement to operate reliably.

Cross-Border Payments and Payouts

Using USDC, EURC, and future currency-linked assets, Arc supports 24/7 settlement for cross-border payments. Integration with Circle’s infrastructure enables minting stablecoins directly from fiat sources and distributing them globally.

Tokenized Money and Yield-Bearing Assets

Arc’s ecosystem supports multiple categories of tokenized value:

• USDC and EURC, issued natively
• USYC, a tokenized money market fund backed by short-duration U.S. Treasuries
• Tokenized deposits and cash instruments, issued by external financial institutions
• Regulated real-world assets, including equities, credit instruments, and private funds

These instruments can be composed directly into lending markets, trading venues, automated settlements, and treasury tools.

The Arc Infrastructure and How It Works

Arc combines a deterministic consensus engine with an Ethereum-compatible execution environment, extended with features specifically for stablecoin finance.

Consensus Layer: Malachite

Based on Circle’s documentation:

• Deterministic Finality: Malachite finalizes each block in under one second under testnet conditions, providing settlement guarantees similar to traditional clearing systems.
• Irreversibility: Finalized blocks cannot be reorganized, reducing risks associated with probabilistic finality.
• Permissioned Proof-of-Authority Validators: The initial validator set consists of vetted institutions. The roadmap includes a transition to a permissioned Proof-of-Stake model with broader validator participation.

Execution Layer: Reth

Arc uses Reth, a Rust-based Ethereum execution engine. Documentation highlights:

• Ledger and State: EVM-compatible, enabling use of established Ethereum tooling.
• Fee Manager: Ensures transaction fees are denominated in USDC and mitigates volatility.
• Privacy Module: Supports confidential transfers and is designed for future private computation.
• Stablecoin Services: Enable multi-currency payments, FX operations, and programmable settlement.

These layers, when combined, form a system optimized for predictable settlement, institutional integration, and multi-currency financial workflows.

The Arc Public Testnet

Arc’s public testnet is designed to give developers, enterprises, and auditors early access to the platform’s architecture and core functions. It includes:

• Deterministic settlement, mirroring intended mainnet behavior
• USDC-denominated transaction fees for predictable testing
• EVM compatibility, allowing existing Ethereum contracts to be ported easily
• Developer tools, including faucets, documentation, and debugging resources

The testnet also serves as a proving ground for early privacy features, stablecoin services, and FX functionality as they progress through the roadmap. Developers can test how applications respond to sub-second finality and stable gas pricing, allowing for accurate performance modeling before deploying to mainnet.

The testnet explorer is live, providing real-time updates to the blockchain’s performance. As of writing, it processes up to 800K transactions daily.

What Are Arc’s Key Features?

Arc introduces a set of structural features designed to meet the operational, compliance, and settlement requirements of institutional finance. These features differentiate it from most existing Layer-1 blockchains by addressing persistent challenges, including fee volatility, probabilistic finality, limited privacy controls, and the absence of native financial primitives.

Stablecoin-Native Gas

Arc uses USDC as its native gas asset, replacing the conventional model in which networks rely on volatile, speculative tokens to pay for transactions. This design removes uncertainty from operating costs and creates a consistent framework for accounting and reconciliation. Institutions can model network fees in a familiar unit of account, reducing the administrative overhead associated with fluctuating gas markets.

The roadmap includes support for additional fiat-linked stablecoins via Paymaster integration, enabling fee payments in local-currency equivalents without introducing currency risk.

Deterministic Settlement

Arc’s settlement model offers deterministic finality within a single block. Unlike probabilistic systems, where transactions may require multiple confirmations and remain vulnerable to reorganization, Arc finalizes each block irreversibly in under one second.

This level of settlement assurance is essential for workflows such as collateral movement, FX execution, clearing, and institutional trading, where timing precision and immutability are non-negotiable. Deterministic finality enables systems built on Arc to rely on immediate state changes without requiring additional safeguards or waiting periods.

Integrated FX Engine (Roadmap)

Arc’s architecture includes a forthcoming programmable FX engine designed to support multi-currency settlement and foreign exchange operations directly onchain. The engine features payment-versus-payment (PvP) settlement between vetted counterparties, reducing counterparty risk by ensuring that both sides of a trade settle simultaneously.

Price discovery will occur through an off-chain request-for-quote (RFQ) layer, enabling institutions to obtain quotes from market makers while maintaining transparency around execution. Controlled settlement windows give participants visibility into timing and finality. Early versions of the FX engine will operate in a permissioned environment to meet regulatory requirements, with plans to expand access through a permissionless protocol in the long term.

Opt-In Privacy

Arc introduces an opt-in privacy model tailored to financial institutions that require confidentiality without sacrificing auditability. The first phase includes confidential transfers, which encrypt transaction amounts while keeping sender and recipient addresses visible. This protects commercially sensitive data while ensuring compatibility with compliance monitoring and analytics tools.

Future upgrades will enable private smart contract logic and confidential state via modular cryptographic backends, including Trusted Execution Environments (TEEs), multi-party computation (MPC), fully homomorphic encryption (FHE), and zero-knowledge systems. The approach enables institutions to maintain regulatory visibility through selective disclosure mechanisms, such as view keys for auditors and other authorized parties.

Native Support for Tokenized Assets

The Arc blockchain is built to support the complete lifecycle of tokenized financial instruments. This includes issuance, transfer, custody integration, settlement, and composability with other onchain applications. Supported assets include fiat-backed stablecoins, tokenized money market funds (e.g., USYC), tokenized deposits, and regulated real-world assets such as equities, fixed-income instruments, and private credit products.

By enabling these assets to interact with lending markets, trading venues, and payment systems, Arc provides a unified environment in which regulated financial instruments can function natively onchain.

MEV Mitigation Tools (Roadmap)

The protocol’s roadmap includes measures to mitigate miner or validator extractable value (MEV), a known risk in decentralized networks where transaction ordering can be manipulated. Planned enhancements include encrypted mempools, which prevent transaction details from being visible before block inclusion; a multi-proposer architecture to reduce the influence of individual proposers; and batch ordering mechanisms that minimize opportunities for frontrunning or insertion attacks. These tools aim to support fair transaction execution and ensure the integrity of high-value settlement flows.

Collectively, these features position Arc as a blockchain infrastructure layer designed for environments that require predictable behavior, standardized financial controls, and alignment with regulatory frameworks. They enable developers and institutions to build onchain systems with the reliability and auditability expected of traditional financial infrastructure.

What Can You Build With Arc?

According to its website and documentation, developers and institutions can build a wide range of financial applications on the Arc blockchain due to its stability, deterministic finality, and support for tokenized money. Here’s a list of products that developers can use deploy on the Arc blockchain.

Lending and Collateralization Systems

By tokenizing yield-bearing assets such as USYC, developers can build lending protocols with predictable collateral valuations and clear settlement guarantees.

FX Markets and Treasury Tools

Arc’s stable fees and settlement speed enable systems for automated hedging, real-time currency conversions, and treasury optimization.

Payment Networks and Settlement Platforms

Businesses can build invoice-linked payment systems, payroll tools, and supply chain finance applications with structured metadata and automated reconciliation.

Institutional Trading Venues

Deterministic finality ensures that asset movements for trading venues are final and traceable.

Agentic Financial Workflows

Smart treasury agents can execute programmatic spending, manage liquidity buffers, and respond to market conditions autonomously.

Tokenized Capital Markets

Developers can design infrastructure for issuing tokenized equities, debt instruments, and private fund shares in collaboration with regulated issuers.

Arc’s EVM compatibility ensures these applications can be built with familiar tools, lowering the barrier to adoption.

Arc’s Focus on Privacy

Arc incorporates a privacy model tailored to regulated finance, where confidentiality must coexist with auditability.

Phase 1: Confidential Transfers

The first privacy feature shields only transaction amounts. Addresses remain public, allowing for analytics, sanctions screening, and compliance monitoring, while protecting commercially sensitive data such as salaries, trade amounts, or liquidity movements.

Authorized auditors or regulators can access encrypted data through view keys. Institutions also retain visibility into their own customer activity, including upstream and downstream flows, which supports AML requirements and the Travel Rule.

Phase 2: Private State and Confidential Computation

Arc plans to expand beyond confidential transfers to include:

• Private order books
• Confidential trade execution
• Encrypted treasury workflows
• Private automated strategies

These functions rely on modular cryptographic backends, beginning with TEEs and expanding to MPC, FHE, and ZK-based systems as the technology matures.

Roadmap

Arc’s roadmap expands its functionality, security, and governance capabilities over multiple phases.

Mainnet Beta

The mainnet beta will introduce:

• Stable gas fee architecture
• Sub-second deterministic settlement
• Programmable FX engine foundations
• Integration with Circle products: CPN, USDC, EURC, USYC, Mint, Wallets, Contracts, CCTP, Gateway, and Paymaster

Privacy Enhancements

Upgrades will introduce confidential transfers and, later, programmable privacy, enabling private contract logic and a sealed state.

MEV Mitigation

Planned features include:

• Encrypted mempools
• Batch transaction processing
• Multi-proposer systems for fair ordering

Consensus Improvements

Malachite will incorporate a multi-proposer design and reduced latency through a two-phase Tendermint variant.

Transition to Proof-of-Stake

The shift to an institutionally permissioned PoS model, as highlighted in its Litepaper, will expand decentralization within controlled parameters, provide governance flexibility, and ensure the network can operate independently of Circle over time.

Conclusion

Circle presents Arc as a Layer-1 blockchain designed for stablecoin-native financial activity, offering predictable fees, deterministic settlement, and configurable privacy. Its architecture integrates a high-performance consensus engine with a stable unit of account for gas and a modular privacy model suited to regulated institutions.

By supporting tokenized assets, FX workflows, and enterprise financial operations, Arc positions itself as a settlement-focused blockchain aligned with regulatory and operational standards.

Sources

• Circle Blog - Introducing Arc Blockchain
• Arc Litepaper - Features, Roadmap, and Use Cases
• Arc Blog - Public Testnet Announcement
• Coindesk PR - Testnet Deployment
• Arc Documentation - Explore the Arc Blockchain
• Website - Arc Blockchain Resources