What happened?

Circle and Stripe are making bold moves in the stablecoin space by announcing their own Layer-1 blockchains — Arc and Tempo. Supporters see this as the next step for faster, more compliant stablecoin payments. Critics argue it risks fragmenting liquidity and ignoring the advantages of existing Ethereum-based Layer-2s. So, is this a leap forward or a corporate land grab?

Circle’s Big Play: Arc

Circle, the issuer of USDC — the world’s second-largest stablecoin — is expanding beyond being “just” an asset issuer. In mid-2025, they announced Arc, their own open Layer-1 blockchain aimed at stablecoin payments, foreign exchange, and capital markets. Arc will be EVM-compatible and use USDC as its native gas token, with a public testnet planned for later in the year.

This isn’t just a tech move — it’s a strategic shift toward owning the infrastructure their product depends on. Circle says Arc will deliver compliance, speed, and direct integration into their suite of services.

Stripe’s Tempo: A Payments L1

Stripe, best known as one of the world’s largest online payment processors, is also stepping into blockchain infrastructure. They announced Tempo, a high-performance, Ethereum-compatible Layer-1 built specifically for payments. Developed in partnership with Paradigm, Tempo builds on Stripe’s recent acquisitions — stablecoin infrastructure provider Bridge and identity platform Privy — to streamline cross-border transactions and reduce settlement costs.

While details are still emerging, the goal is clear: Stripe wants to own the rails for stablecoin-powered payments.

L1 vs. L2 in Simple Terms

• Layer 1 (L1): The base blockchain. Handles transactions, security, and settlement. Examples: Bitcoin, Ethereum, Solana.

  • Pros: Full control, custom rules, native settlement.

  • Cons: Harder to scale, needs own validator network, liquidity fragmentation.

• Layer 2 (L2): Built on top of an L1. Offloads transactions for speed/cost savings while inheriting L1 security. Examples: Arbitrum, Optimism, Base.

  • Pros: Faster, cheaper, piggybacks on L1 security.

  • Cons: Depends on L1 finality, less independence, bridging complexity.

Stablecoins & Infrastructure Choices

Today’s biggest stablecoins — USDT, USDC, DAI — mostly live on multiple L1s (Ethereum, Tron, Solana) and sometimes on L2s (Base, Arbitrum).

• Advantages of L1 for stablecoins: Direct control, tailor-made compliance, integration with issuer’s ecosystem.

• Advantages of L2: Immediate access to existing liquidity, easier interoperability with DeFi, lower launch cost.

The trade-off? L1 = control + silo risk, L2 = integration + dependence.

The Announcements — and the Backlash

Circle’s Arc and Stripe’s Tempo are both L1s, not L2s. This surprised many because Ethereum’s L2 ecosystem is thriving, and these companies already have huge stablecoin footprints there.

Critics say:

• More L1s fragment liquidity.

• Stablecoins don’t need their own chains — they thrive on interoperability.

• Feels like corporate land-grabbing rather than building on existing public rails.

Supporters argue:

• These L1s offer faster, compliance-ready rails for institutional payments.

• Control over infrastructure could cut costs and avoid L2’s dependency on Ethereum finality and third-party bridges.

• Merchant networks of Stripe and Circle give them instant distribution advantages.

KOL Hot Takes

• Adam Cochran: Arc isn’t really a public L1 — it’s a consortium chain with pre-approved validators.

• Omid Malekan: “We don’t need more L1s for stablecoins.”

• Haseeb Qureshi: If they can get adoption, great — it’ll teach the market what works.

• Others: Ethereum L2s lose their decentralization edge if underlying assets (stablecoins) are already centrally controlled.

What About Players Like AllUnity?

The German-based AllUnity project — a joint venture between DWS, Flow Traders, and Galaxy Digital — aims to issue the first fully compliant euro-denominated stablecoin under the EU’s MiCA regulation.

For such issuers, the choice of blockchain is about much more than speed or branding:

• Regulatory compliance: Meeting MiCA’s strict rules on governance, capital reserves, and transaction monitoring.

• Operational resilience: Alignment with frameworks like DORA that require high availability, disaster recovery, and risk controls.

• Institutional trust: Choosing infrastructure that meets both technical and regulatory due diligence requirements.

For AllUnity, a blockchain like Arc — with permissioned validators, clear KYC/AML integration, and EVM compatibility — could fit far better than a permissionless, high-risk L2.

Closing thoughts

Circle and Stripe aren’t just experimenting with blockchain — they’re reshaping the rails their stablecoins run on. Whether Arc and Tempo turn into high-speed expressways or walled gardens will depend on adoption, interoperability, and how the market weighs decentralization against corporate control.

For players like AllUnity — operating under Germany’s BaFin and the EU’s MiCA regime — this isn’t just a philosophical choice. It’s about building on infrastructure that can meet DORA resilience standards, regulatory audits, and institutional-grade compliance. That could make the Arc-style “regulated L1” model not just viable, but in some cases, the only realistic option.

Without meeting such requirements — or unless regulators adapt to market realities (which seems less likely) — true scalability will remain a challenge for stablecoins.

So the big questions remain:

If stablecoins are already centralized, do they really need decentralized rails?

And if payment giants own the tracks, who gets to decide where the train goes?

Thanks for reading in 🤍

// Kai