Why Circle chose an L1 — and what it means for Ethereum
Does Circle’s Arc threaten Ethereum’s “stablecoin chain” moat, or does EVM gravity pull flows back anyway?
Informal co-founder Ethan Buchman | Permissionless II by Blockworks
Circle is building its own blockchain — and it’s not a rollup, but a layer-1.
In doing so, the American stablecoin issuer is betting that the shortest path between a dollar and a smart contract is the one it controls — full-stack, sovereign, and custom-built for payments.
The new chain, dubbed Arc, will be Ethereum-compatible, but use USDC for gas, and feature sub-second deterministic finality.
The big question for Ethereum is whether Arc will shift stablecoin activity or function more like a hub-and-spoke architecture, internalizing issuance and settlement while routing liquidity and flow outward to the broader EVM ecosystem via CCTP and other bridges.
The decision to build a new sovereign chain — rather than deploying on a modular layer 2 — has reignited a familiar argument on Crypto Twitter: does this mark a return to enterprise chains, or is it simply the logical architecture for a dollar-native payments platform? Does it weaken Ethereum’s long-held role as crypto’s settlement layer for stablecoins, or further entrench it through cross-chain interoperability and network effects?
The answers may hinge less on ideology than execution, and whether Circle pursues Arc as a walled garden or merely a better bank.
Vertical integration
Circle declined to comment on Arc’s technical design, citing a quiet period. But what we know from the published light paper is that the L1 is built on Malachite, a new high-performance BFT consensus engine originally developed by Informal Systems as a rewrite of Tendermint. Circle has hired the core team of nine behind Malachite, but the engine remains open-source and is already being used elsewhere, including in Starknet’s decentralization roadmap.
Informal co-founder Ethan Buchman told Blockworks he views Malachite as akin to the Rust language: “Originally developed at Mozilla, now used by everyone.”
For Buchman, Circle’s decision to launch its own chain is not a rejection of Ethereum, but a standard business choice for a team with sufficient resources. “It’s the same decision every time when people choose to build their own chain: they value vertical integration,” Buchman said.
“The kind of predictability that gives you, and how it sort of hedges uncertainty — because you have the stack, you have the team, you’re not dependent on some external team for core components,” he said.
Crypto Twitter/X is split on the net-impact. The bullish-ETH read (Ryan Sean Adams, Armani Ferrante) says EVM-first corporate chains still feed Ethereum’s network effects. The bearish-ETH camp (Jon Charbonneau) argues the marginal EVM developer now accrues close to zero to ETH if flows internalize elsewhere.
Others worry about censorship and developer gravity: Eli Ben-Sasson fired a warning shot — “Corporate L1s / L2s won’t succeed” — against more open systems, while Adam Cochran tried to disqualify Arc as “a consortium chain” rather than an L1.
The counter-narrative from operators is that deterministic finality and protocol-level controls are critical for payments and FX. Arc’s paper leans into that: “A transaction on Arc is either unconfirmed or it is 100% final and irreversible.”
This is the crux of L1 over L2 as a business decision. Rollups “rent” Ethereum’s finality and data availability; sovereign L1s own the base-layer policy surface, including gas denomination, KYC hooks, dispute/refund logic, and transaction ordering.
Circle will start with what amounts to a Cosmos chain using Proof-of-Authority, with a closed validator set. “It’s very cheap to operate,” Interchain Labs co-founder Barry Plunkett told Blockworks.
For instance, 5-10 Cosmos validator costs on the order of a few thousand dollars a month. “Maybe an L2 is a little cheaper because you don’t need as many boxes and don’t have the overhead of paying third parties to operate them for you. But you do have DA costs, so it’s probably a wash,” Plunkett said.
If your profit margin lives on settlement economics and working-capital velocity, sovereignty is attractive. If your priority is time-to-market and broad composability, a centralized-sequencer rollup may be cheaper and easier to ship.
Stablecoin boom as backdrop
A Keyrock/Bitso report out today argues stablecoins are already reshaping the payments landscape. Monthly stablecoin payments more than tripled to $6.3 billion by February 2025, with B2B volumes jumping from $120 million to $2.7 billion in two years; card-based flows crossed $1 billion/month. On their trajectory, annual stablecoin payment volume could approach $1 trillion by 2030.
That helps explain why companies with distribution are eyeing sovereign rails, according to Alchemy CTO Guillaume Poncin, formerly Stripe’s engineering head.
“We are seeing several companies race to build a stablecoin-first blockchain,” Poncin told Blockworks. “The revenue opportunity from owning the settlement layer will dwarf traditional payment processing margins.” The infrastructure costs are tiny by comparison.
Poncin similarly frames L1 vs. L2 analysis as boiling down to a question of control vs time-to-market. “Choosing between the two is a nuanced trade-off… L1s can be fully customized at every layer, [but] rollups are battle-tested and much easier to build and secure.” He’s not too concerned with fragmentation due to Arc’s EVM compatibility, because it “speeds adoption by both developers and users.”
As crypto-native builders chase composability and yield, Circle is playing a different game: infrastructure that can compete with payments giants like Visa and Stripe, or even FedNow.
Ethereum isn’t going anywhere
Critics have framed Arc as a sign that Circle, whose USDC accounts for nearly 30% of stablecoin supply on Ethereum, is pulling away from the chain that bootstrapped it.
But that overstates the case, according to Buchman.
“I think Ethereum is here for the long term, no matter what decision Circle makes today. I think it, it has achieved a kind of breakout velocity, it’s entrenched itself as a technology of fundamental import to human rights… Its longevity will be related to its neutrality and its conservatism.”
Circle will continue to have to grapple with that. Past concerns over the influence of the USDC issuer over Ethereum’s direction have been muted by the proliferation of competing stablecoin issuers, in Buchman’s view.
“This is part of Ethereum’s evolution and the idea that Ethereum only works if all compute happens on Ethereum, I think, is obscene and just it kind of misses the fundamental role Ethereum is going to have over the next 100 years or so,” Buchman said.
Ethereum’s centrality as a destination for stablecoin flows can persist even as issuance and FX trading move upstream to Arc. We don’t yet know the extent to which Circle will court DeFi apps to deploy on Arc, but in general, the application layer still wants to live where liquidity is deepest.
One legitimate concern is whether Arc’s USDC-native design introduces new vectors for censorship or exclusion, especially in sanctioned jurisdictions. If USDC is both asset and gas, what happens when the token itself is frozen?
“Technically, fallback mechanisms are possible,” Buchman said, but the baseline should be the current banking system and he thinks Arc will certainly clear that low bar.
“Is it going to be as freedom-supporting and protective of human rights as Ethereum and Bitcoin themselves? No. I don’t think anyone’s trying to kid themselves about it. But I feel like Circle is trying to go to bat for an open economy.”
There remain open questions about system-level privacy and regulatory constraints, which Circle has only lightly touched on. “We pitched them hard on privacy,” Buchman added.
“They’ve acknowledged it, but we’ll see how far they take it,” he said. “Malachite is well-suited to support privacy-preserving chains, and that’s going to be a critical next step.”
Whether it will ultimately be a handful of new chains or a Cambrian explosion, it’s clear that some enterprises still prefer building sovereign chains, even in the era of modular, shared security stacks. The tradeoffs between customization, governance, cost, and platform risk are nuanced, whether it’s Robinhood’s rollup on Arbitrum Orbit or Arc’s full L1, or whatever Stripe has in store its newly announced L1 Tempo.
“I see it a lot like cloud versus on-prem[esis],” Buchman said. “Right now there’s this whole movement to move things out of the cloud back to on-prem and it’s going to oscillate back and forth until the end of time — and I think we’ll see something similar with L1s and L2s.”
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