Author: Zennon Kapron
Compiled by: AididiaoJP, Foresight News
Circle has raised $222 million for its own Layer-1 blockchain, Arc. A stablecoin issuer simultaneously owning the infrastructure upon which its USDC settlement relies represents a conflict of interest the GENIUS Act never addressed.
For the past two years, Circle has portrayed itself as a responsible stablecoin issuer—proactively seeking regulation, welcoming rules, and preferring to be a boring but fully reserved dollar issuer rather than a crypto speculation project. This positioning was reasonable when Circle acted solely as an issuer. But now, the company is transitioning to a new role that reawakens the very conflicts of interest financial regulation typically strives to avoid.
Arc Turns the Issuer into an Infrastructure Owner
On May 11, 2026, Circle announced it had completed a $222 million token presale for its proprietary Layer-1 blockchain, Arc, with a fully diluted network valuation of approximately $3 billion. The round was led by Andreessen Horowitz (a16z), with participation from institutions including BlackRock, Apollo, and Intercontinental Exchange, the parent company of the New York Stock Exchange. A public company conducting a token presale is itself unprecedented, and the scale of financing demonstrates Circle's commitment to the project.
Arc is Circle's core bet. Launched in 2025, the project is positioned as a native stablecoin public chain, with USDC serving as the native asset for paying transaction fees. The public testnet is now complete. Circle's CEO stated that the company is exploring issuing a native Arc token and transitioning to a Proof-of-Stake (PoS) validation mechanism.
Circle is no longer content with just issuing dollars; it wants to own the blockchain where those dollars run, rather than letting its dollars flow on infrastructure controlled by other companies.
Why Is Issuer Ownership of the "Rails" a Problem?
Traditional finance strictly separates the issuer of a financial instrument from the clearing and settlement infrastructure. Clearing systems must remain neutral and fairly order transactions for all participants, applying exactly the same rules to the issuer and its competitors.
When the issuer also owns the settlement layer, that neutrality becomes merely a promise, with no structural mechanism to enforce it. Arc gives Circle control over transaction ordering, validation, and rule-making for the network where its products compete.
If a competing stablecoin wants to settle on Arc, it must operate on infrastructure owned by its direct competitor. Circle could set fees, prioritize transactions, define technical standards, and adjust network rules to favor USDC, and owning the chain itself does not compel restraint.
The issue here is not predicting that Circle will abuse its power, but that such power should never be granted to a stablecoin issuer in the first place, as it creates a temptation that is structural and permanent.
The GENIUS Act Regulates the "Coin," Not the "Rails"
This is the legal gap. The GENIUS Act, signed in July 2025, aims to make stablecoins safe as payment instruments. It details reserve requirements, disclosure obligations, oversight mechanisms for issuers, and holder protections for payment stablecoins. As issuer regulation, it is meticulous and cautious within its own framework.
But at the market structure level, it is almost entirely silent. The drafters focused on the "coin" itself—whether the dollar token is truly worth one dollar and genuinely redeemable. They did not consider an issuer also owning and operating its underlying settlement network because, in 2025, no major issuer was doing so.
Circle is now stepping into the space left by the law. The GENIUS Act regulates the dollar in a user's wallet but says nothing about a company that simultaneously owns the wallet, the rails, and the dollar.
Institutional Investor Endorsement Reveals Arc's True Purpose
Consider the investors in Arc's financing round: BlackRock is the world's largest asset manager and the manager of USDC's reserves; Apollo is a major private credit firm; Intercontinental Exchange owns the New York Stock Exchange. These institutions are themselves builders and operators of market infrastructure; they are not investing to bet on token prices.
They are investing in future core financial plumbing—a settlement network for tokenized dollars, and eventually tokenized funds and securities. Arc is being built and capitalized as infrastructure, and the company controlling this venue is the same company whose stablecoin is supposed to flow as neutral currency on it.
Why Does Circle Have No Other Choice?
This strategy has clear defensive logic. USDC competes with Tether's USDT, which is more than twice its size, and faces an increasing number of bank-issued and payments-company stablecoins.
Being just an issuer means surviving on reserve interest spread, and that spread is the entire business—a position both thin and vulnerable. Now, every serious competitor is trying to escape this dilemma by controlling more of the industry stack.
Stripe is building its own chain; Tether is expanding its infrastructure and distribution channels. If Circle remained a pure issuer while its rivals became platforms, it would be stuck in the weakest seat. Arc is Circle's attempt to shift from "selling a product" to "operating the venue"—where profit margins are larger and more durable.
This same logic is precisely why regulation needs to establish rules: other major issuers have the same incentive to follow Circle in building their own "rails."
What Does a Real Solution Require?
Structural conflicts require structural responses, and financial regulation has mature models. Exchanges are bound by fair access and non-discrimination rules; clearinghouses have governance requirements ensuring they do not favor any single member. The core principle: infrastructure that everyone must use cannot be controlled in a way that favors one user.
Applied to Arc, this means the network itself needs to assume obligations, not just the stablecoin:
- Transaction ordering must be provably neutral between USDC and competing stablecoins;
- Fee schedules must be public and uniform;
- The chain's governance must be demonstrably separated from Circle's commercial interests in USDC market share.
These are not novel requirements; they are standard tools in the regulated market infrastructure toolkit. The only reason they haven't been applied is that the law was written before issuers became infrastructure.
Europe's MiCA regulation also provides a comparison: like the GENIUS Act, its focus is on issuers and reserves, and it lacks a market structure chapter prepared for the scenario where "the issuer also operates the settlement network." Now, while Arc is still in its testnet phase and about to launch its mainnet, patching this chapter is cheapest; once it becomes the plumbing upon which a tokenized dollar economy relies, change becomes far more expensive.
The Tight Entanglement of Reserve Manager and Settlement Chain
Within the first conflict lies a second, directly indicated by the investor list: BlackRock both manages USDC's reserves and is an investor in Arc. Reserve manager, issuer, and settlement chain are now linked through overlapping commercial interests.
Each individual relationship might be justifiable, but together, they describe a highly concentrated cluster of a few mutually invested companies sitting at the center of what should be neutral dollar infrastructure.
This concentration is exactly what market structure rules need to examine. Regulators should ask not whether these institutions are reputable (they clearly are), but whether a tokenized dollar system should form around such a small group before anyone has decided the neutral obligations of the core venue.
The Window for Rulemaking is Short
Regulators should be alerted by the timing. From announcement to public testnet to completed financing, Arc has taken only about a year. Circle has explicitly stated it will launch the mainnet and transition to PoS validation.
Once this type of infrastructure carries real value, it is difficult to reshape—because the cost of changing rules is passed on to all institutions building on it. Settlement networks accumulate integrations, liquidity, and dependent applications; each added layer increases the switching cost for subsequent intervention.
The practical best time to decide the neutral obligations for a stablecoin issuer's chain is now—while Arc is still in its pre-mainnet phase, and rule changes modify design documents, not a live system. Once Arc processes institutional-grade volume, regulators demanding that Circle separate chain governance from its USDC commercial interests would be equivalent to ordering a rebuild of live infrastructure, a process that is slow, expensive, and fiercely resisted.
Vertical Integration is Strategy, and Risk
Circle's behavior is not irrational. Owning the full stack follows the same logic as companies like Stripe. From a shareholder perspective, it's the right move—because profits flow to those who control the infrastructure, while a pure issuer is a thin business lying on someone else's rails.
The strategy that serves Circle's shareholders is precisely what regulators should examine now, before it solidifies. Preventing structural conflict is cheap; unwinding it later is costly.
The question is not complicated: Can a regulated stablecoin issuer own the settlement network its competitors must use? If allowed, what neutral obligations must that network assume?
The GENIUS Act answers neither of these questions because, in 2025, they didn't need answers. But in 2026, they do, and Circle is the reason why.
