CircleがArc Networkホワイトペーパーを公開、新たな経済メカニズムは機関級ステーブルコイン決済の「清算調整レイヤー」となるか？

Original Author: ShirleyLi, Researcher at Web3Caff Research

How can you easily grasp the market hotspots, technological trends, ecosystem developments, and governance dynamics currently unfolding in the Web3 industry? The "Market Pulse Analysis" column by Web3Caff Research delves deep into the frontlines to explore and filter current hot events, providing value interpretation, commentary, and principle analysis. See through the surface to understand the essence. Follow us immediately to quickly capture the pulse of the Web3 market.

Compliance Note: Stablecoins are virtual currencies (Tokens). Please be aware that issuing or participating in the investment of Tokens is subject to varying degrees of strict regulatory requirements and restrictions in different countries and regions. In particular, issuing Tokens in Mainland China may constitute "illegal issuance of securities," and activities related to cryptocurrency trading, such as providing Token trading matching services, are also considered "illegal financial activities." (Readers in Mainland China are strongly advised to read the "Summary and Key Points of Laws and Regulations Related to Blockchain and Virtual Currencies in Mainland China".) The following content is solely an objective analysis of Arc Network's progress and market feasibility strategies, intended to explore and analyze how blockchain-based application scenarios are developing responsibly within the global regulatory environment. Therefore, please do not use this information for relevant decision-making, and strictly adhere to the laws and regulations of your country or region, refraining from participating in any illegal financial activities.

Stablecoins have long been a crucial component of the on-chain financial ecosystem. Recently, with the rapid development of scenarios like RWA and cross-border payments, their role is evolving from a simple on-chain transaction medium to an important value carrier connecting traditional finance with the on-chain economy in parts of the globe. Stablecoin payments are thus becoming a new form of financial infrastructure.

In May of last year, Circle announced the launch of Arc, a Layer 1 public chain specifically designed for payment stablecoins and their underlying ecosystem, aiming to provide enterprises with a high-performance, predictable, and compliant institutional-grade stablecoin gateway. The emergence of Arc could also transform Circle's native stablecoin, USDC, from a single-function payment token into a utility token for the public chain. Previously, Circle released the Arc Litepaper, introducing the operational logic of this blockchain at the product level, which Web3Caff Research also analyzed in detail:

As an L1 public chain, Arc has made the following innovations primarily targeting enterprise-level users:

• USDC as Native Gas Token: Arc first introduces USDC as the native Gas Token of the public chain to eliminate the impact of token price volatility, making the prediction of interaction costs directly related to the base fee per unit of Gas. To further reduce volatility, Arc dynamically adjusts the current base fee using an Exponentially Weighted Moving Average (EWMA) of historical block utilization, preventing sudden sharp increases in fees due to network congestion. Additionally, when users pay with other stablecoins, Arc automatically uses its native stablecoin via Circle Paymaster to cover interaction fees and deducts the equivalent value in other stablecoins from the user's account. This provides flexibility for multinational corporations and users in non-USD regions, potentially making Arc a global multi-currency financial settlement public chain.
• High-Performance Consensus Design: In an on-chain context, since transaction finality requires time, enterprises cannot immediately initiate order processing because there's a possibility that subsequent automated processing in financial/operational systems might need to be reversed. Therefore, each enterprise transaction may incur additional processing costs, which is unacceptable in actual business operations. To address this, Arc adopts the Malachite consensus mechanism (a Tendermint Byzantine Fault Tolerance mechanism). Under this mechanism, once a payment is confirmed and committed by two-thirds of the validators, it is immediately finalized and irreversible. Furthermore, Arc's validators are not anonymous staking nodes but a curated set of reputable institutions capable of meeting compliance requirements across different global regulatory systems. In the future, Arc will also introduce Multi-proposer, allowing multiple validators to generate block proposals in parallel within the same time window, aggregated into a single block during the consensus phase. This can further enhance the payment system's throughput and reduce latency in financial processing.
• Enterprise-Grade Privacy: To ensure the confidentiality of core corporate information, Arc provides optional privacy capabilities for enterprises, implemented in phases. As secure technologies like multi-party computation and homomorphic encryption mature, Arc plans to introduce more complex privacy settings on-chain, such as private order books and confidential financial strategies, running automatically via private on-chain contracts.

To further understand the operational logic of the Arc blockchain, we recommend reading: "Market Pulse Analysis: Circle Enters the Public Chain Track – Can Its L1 Network Arc Become the First Compliant Chain for Payment Stablecoins?"

Fast forward to May of this year, six months after the Arc testnet launch, Circle released the Arc blockchain whitepaper. It further elaborates on the design logic of the ARC Token as the native coordination asset of the Arc network and hints that the Arc mainnet is expected to launch this summer.

As mentioned earlier, the Arc network currently uses the PoA (Proof of Authority) mechanism, where a selected group of reputable institutional nodes is responsible for network validation and block production. However, this model carries some centralization risk and is more suitable for the early launch phase of the project. As network adoption scales, the Arc network is likely to transition to a PoS mechanism. However, USDC, being a stablecoin, is not suitable for staking. Therefore, Circle is considering introducing a new token system – the ARC Token – as the native coordination asset for the Arc network, responsible for aligning the interests and behaviors of various participants (validators, developers, users, institutions, etc.).

According to the whitepaper's design, ARC holders can participate in network governance voting based on their staked weight, jointly deciding on network fee rates, inflation rates, and burning logic. Additionally, they could gain certain protocol access and interaction rights in the future. However, the whitepaper also clearly states that the governance model for the Arc network is not entirely a DAO model and will retain institutional coordination mechanisms. For highly sensitive matters involving security responses, compliance, validator entry, and protocol upgrades, Circle and designated institutions will primarily be responsible in the network's early stages.

Meanwhile, transaction fees paid by users using stablecoins on the Arc network will be automatically converted into ARC Tokens. A portion will be distributed as rewards to validators and stakers, while another portion will be burned. Compared to traditional public chains requiring users to directly hold the native Gas Token, this design may be more aligned with the usage habits of institutions and enterprises.

For the Arc network, the application scope of the ARC Token may expand further in the future. For example, it could be used to build dedicated transaction channels, coordinate and manage asset flows and data interoperability between different blockchains, and support the multi-asset Gas scenarios of Circle Paymaster, allowing users to pay network fees with various stablecoins.

Source: ARC: The Native Asset of the Economic OS

However, it's important to note that the ARC Token system is currently in the discussion and design phase and may undergo significant changes. Furthermore, Circle has repeatedly emphasized that ARC itself is neither a security nor an investment product and does not represent any equity or profit rights.

On specialized blockchains like Arc Network, centered around stablecoin payments, large-scale economic activity often originates from banks, payment institutions, corporate users, and capital markets. As legal and regulatory frameworks regarding stablecoins, on-chain assets, and on-chain financial activities are established and refined globally, the path for these institutions to participate in on-chain infrastructure construction is becoming clearer. This trend is also reshaping the competitive logic of Web3 infrastructure. The simple competition over network performance and transaction fees is becoming a thing of the past. Network liquidity, compliance, stability, sustainability, and ecosystem scalability are emerging as the new focal points of competition.

Of course, this shift won't happen overnight, and the future development of the Arc network still faces several potential challenges.

For instance, the current overall architecture of the Arc network retains a strong centralized flavor. While Circle attempts to establish a longer-term economic coordination and governance mechanism through the introduction of the ARC Token and gradually steer the network towards PoS, this system is still in the discussion phase and not yet implemented. Its specific governance structure and economic model therefore carry significant uncertainty. Simultaneously, the ARC Token mechanism itself introduces some additional governance and security risks to the Arc network. For example, can the economic model design match the actual network demand? Could large node concentration lead to governance centralization again? These issues await further official discussion and optimization.

Moreover, while the regulatory framework for stablecoins is gradually improving, significant differences exist across countries and regions regarding specific regulatory structures. This means Arc Network will need to continuously adapt to evolving compliance requirements in the future.

Currently, traditional public chains like Ethereum, Base, and Solana are actively expanding towards on-chain financial infrastructure, stablecoin payments, and institutional-grade applications. This can be unequivocally seen as a signal of change from leading Web3 institutions, including Circle. However, it remains to be seen who will ultimately succeed in building the next generation of global on-chain financial infrastructure.

Key Points Structure Diagram:

References:

[1] Introducing the ARC Whitepaper: Exploring Arc’s Native Coordination Asset

Disclaimer: This report is prepared by Web3Caff Research and is for informational purposes only. It does not constitute any prediction, investment advice, recommendation, or solicitation. Investors should not rely on such information to buy or sell any securities, cryptocurrencies, or adopt any investment strategies. The terminology used and the opinions expressed are intended to help understand industry trends and promote the responsible development of the Web3 and blockchain industry. They should not be interpreted as definitive legal views or the opinions of Web3Caff Research. The views in this report reflect only the personal opinions of the author as of the stated date and may change with subsequent circumstances. The information and opinions contained in this report are derived from proprietary and non-proprietary sources deemed reliable by Web3Caff Research but do not necessarily encompass all data, and their accuracy is not guaranteed. Therefore, Web3Caff Research makes no guarantees regarding their accuracy or reliability and assumes no responsibility for errors or omissions arising in any other way (including liability to any person due to negligence). This report may contain "forward-looking" information, which may include predictions and forecasts. This document does not constitute a guarantee of any forecast. Whether to rely on the information contained in this report is entirely at the reader's own discretion. This report is for reference only and does not constitute investment advice, recommendation, or solicitation to buy or sell any securities, cryptocurrencies, or adopt any investment strategy. Please strictly adhere to the relevant laws and regulations of your country or region.