From Issuer to Infrastructure Owner: Circle’s Arc Strategy and the Fatal Gap in the GENIUS Act
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From Issuer to Infrastructure Owner: Circle’s Arc Strategy and the Fatal Gap in the GENIUS Act
Circle Raises $222 Million to Build Its Own Public Blockchain: When Stablecoin Issuers Own the Settlement Rails, the Conflict Has Just Begun.
Navigating Web3 tides with focused insightsBy: Zennon Kapron
Translated by: AididiaoJP, Foresight News
Circle has raised $222 million for its proprietary Layer-1 blockchain, Arc—a stablecoin issuer simultaneously owning the infrastructure underpinning USDC settlement, precisely the conflict of interest the GENIUS Act never addressed.
Over the past two years, Circle has positioned itself as a responsible stablecoin issuer—proactively seeking regulation, welcoming rules, and preferring to be a dull but fully reserved U.S. dollar issuer rather than an encrypted speculative project. This positioning made sense when Circle acted solely as an issuer. Now, however, the company is shifting into an entirely new role—one that reactivates the very conflicts financial regulators typically strive hardest to avoid.
Arc Transforms the Issuer into Infrastructure Owner
On May 11, 2026, Circle announced it had completed a $222 million token pre-sale for its proprietary Layer-1 blockchain, Arc, with a fully diluted valuation of approximately $3 billion. The round was led by Andreessen Horowitz (a16z), with participation from BlackRock, Apollo, and Intercontinental Exchange—the parent company of the New York Stock Exchange. A publicly listed company conducting a token pre-sale is unprecedented in itself; the scale of funding further underscores Circle’s commitment to the project.
Arc is Circle’s core bet. Launched in 2025, it is positioned as a native stablecoin public chain where USDC serves as the native asset for paying transaction fees. Its public testnet has already gone live. Circle’s CEO stated the company is exploring issuance of a native Arc token and transitioning to a proof-of-stake (PoS) validation mechanism.
Circle is no longer content merely issuing dollars—it wants to own the blockchain on which those dollars run, rather than letting its dollars flow across infrastructure controlled by other companies.
Why Is It Problematic for an Issuer to Own the “Railroad”?
Traditional finance strictly separates issuers of financial instruments from clearing and settlement infrastructure. Clearing systems must remain neutral and fairly order transactions for all participants, applying identical rules to both the issuer and its competitors.
When the issuer also owns the settlement layer, neutrality becomes little more than a promise—there is no structural mechanism to enforce it. Arc grants Circle authority over transaction ordering, validation, and rule-setting on the very network where its products compete.
If a competing stablecoin wishes to settle on Arc, it must operate on infrastructure owned directly by its fiercest competitor. Circle can set fees, prioritize transactions, define technical standards, and adjust network rules to favor USDC—and ownership of the chain itself imposes no obligation to exercise restraint.
The issue here isn’t predicting that Circle will abuse its power, but rather that such power should never have been granted to a stablecoin issuer in the first place, because the temptation it creates is structural and permanent.
The GENIUS Act Regulates the “Coin,” Not the “Railroad”
This is the legal gap. Signed into law in July 2025, the GENIUS Act aims to make stablecoins safe as payment instruments. It meticulously specifies reserve requirements, disclosure obligations, issuer oversight mechanisms, and holder protections for payment stablecoins. As an issuer-regulation bill, it is thorough and prudent within its own framework.
Yet at the market-structure level, it remains almost entirely silent. Drafters focused exclusively on the “coin” itself—whether the dollar token truly holds a $1 value and is genuinely redeemable. They did not consider the scenario where an issuer both owns and operates its underlying settlement network, because no major issuer had done so in 2025.
Circle has now stepped squarely into this regulatory void. The GENIUS Act governs the dollars in users’ wallets—but says nothing about a company that owns the wallet, the railroad, and the dollar itself.
Institutional Backing Reveals Arc’s True Purpose
Look at Arc’s investor list: BlackRock, the world’s largest asset manager—and also the manager of USDC’s reserves; Apollo, a major private credit firm; and Intercontinental Exchange, owner of the New York Stock Exchange. These institutions are themselves builders and operators of market infrastructure; their investment is not a bet on token price.
They’re investing in infrastructure destined to become a core financial pipeline—a settlement network for tokenized dollars, soon to expand into tokenized funds and securities. Arc is being built and capitalized as infrastructure—and the company controlling that venue is precisely the one whose stablecoin should flow neutrally across it.
Why Circle Has No Alternative
This strategy follows clear defensive logic. USDC competes with Tether’s USDT, which is more than twice its size, and faces growing competition from bank- and payments-company-issued stablecoins.
As a pure issuer, Circle survives only on reserve spread—the entire business model rests on that narrow, vulnerable margin. Every serious competitor is now trying to escape this trap by capturing more links in the value chain.
Stripe is building its own chain; Tether is expanding its infrastructure and distribution channels. If Circle remains a pure issuer while its rivals evolve into platforms, it will be left occupying the weakest seat. Arc represents Circle’s attempt to shift from “selling a product” to “operating the venue”—a move offering larger, more durable profit margins.
The same logic explains why regulators must act now: other major issuers face identical incentives to follow Circle in building their own “railroads.”
What a Real Solution Requires
Structural conflicts demand structural responses—and financial regulation already possesses mature models. Exchanges are bound by fair-access and non-discrimination rules; clearinghouses face governance requirements ensuring they do not favor any single member. The core principle is simple: infrastructure used by everyone cannot be controlled in a way that favors any one user.
Applied to Arc, this means obligations must attach to the network itself—not just to the stablecoin:
- Transaction ordering must be provably neutral between USDC and competing stablecoins;
- The fee schedule must be publicly disclosed and uniformly applied;
- Chain governance must be operationally and auditably separated from Circle’s commercial interests tied to USDC market share.
None of these are novel demands—they are standard tools for regulated market infrastructure. The sole reason they haven’t been applied is that the law was written before issuers became infrastructure operators.
Europe’s MiCA regulation offers a useful contrast: like the GENIUS Act, it focuses on issuers and reserves—and likewise lacks a market-structure chapter addressing “issuers operating settlement networks.” Now, while Arc remains in testnet ahead of mainnet launch, the cost of adding that chapter is lowest; once Arc becomes the pipeline upon which the tokenized-dollar economy depends, changes become exponentially more expensive.
Tight Entanglement Between Reserve Manager and Settlement Chain
A second conflict sits nested inside the first—and the investor list points directly to it: BlackRock both manages the reserves backing USDC and invests in Arc. Reserve manager, issuer, and settlement chain are now linked through overlapping commercial interests.
Each individual relationship may stand on its own merits, but taken together, they describe a highly concentrated cluster of mutually invested firms sitting at the center of infrastructure that ought to be neutral.
This concentration is precisely what market-structure rules must examine. Regulators shouldn’t ask whether these institutions possess credibility—they clearly do—but whether the tokenized-dollar system should crystallize around such a small group before anyone defines the neutrality obligations governing its core infrastructure.
The Window for Rulemaking Is Narrow
Regulators should heed the timing. From announcement to public testnet to financing completion, Arc took roughly one year. Circle has explicitly signaled its intent to launch mainnet and transition to PoS validation.
Once such infrastructure carries real economic value, reshaping it becomes extremely difficult—because the cost of changing rules falls on every institution built atop it. Settlement networks accumulate integrations, liquidity, and dependent applications; each additional layer raises the switching cost of future intervention.
The optimal moment to define neutrality obligations for stablecoin-issuer chains is now—while Arc remains pre-mainnet, and rule changes affect only design documents, not a live system. Once Arc handles institutional-scale transaction volumes, demanding Circle separate chain governance from its USDC commercial interests would amount to ordering real-time infrastructure reconstruction—an endeavor that is slow, costly, and certain to provoke fierce resistance.
Vertical Integration Is Strategy—and Risk
Circle’s actions are not irrational. Full-stack control aligns with the logic of firms like Stripe; from a shareholder perspective, it’s the right move—profits accrue to those who control infrastructure, while pure issuers are thin-margin businesses running on others’ rails.
A strategy serving Circle’s shareholders is precisely what regulators must now scrutinize—before it hardens into place. Preventing structural conflicts is cheap; dismantling them later is prohibitively expensive.
The question is straightforward: May a regulated stablecoin issuer own a settlement network that competitors must use? And if permitted, what neutrality obligations must that network bear?
The GENIUS Act answers neither question—because in 2025, they didn’t yet require answers. In 2026, they do—and Circle is why.
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