Circle's Strategic Dilemma and Breakthrough: Why Are CPN and Arc Needed?

The stablecoin sector is undergoing a reallocation of power. Once dominated by issuers with bargaining power, they are now gradually being encroached upon by payment platforms and circulation channel operators, squeezing profit margins. As a leading industry issuer, Circle faces a strategic choice—continue focusing solely on issuance, or actively expand into usage and settlement layers.

Its latest offerings, the Circle Payment Network (CPN) and its proprietary settlement chain Arc, are direct responses to this challenge.

Issuance Is No Longer a Secure Job: Changes in the Stablecoin Economy Structure

Circle’s traditional business appears stable. Issuing USDC, holding reserves, earning interest—profits grow with stablecoin circulation. This model once worked well, enabling rapid growth and ultimately a public market listing.

But financial data tells a different story.

From Q4 2024 to Q3 2025, Circle’s total revenue and reserve interest rose from $435 million to $740 million, a 70% increase. Meanwhile, circulation distribution, trading, and other costs surged from $305 million to $448 million. More concerning, the profit margin—calculated as “revenue minus circulation/distribution costs”—did not improve with scale, dropping from 42% in Q3 2024 to 30% in Q4, then rebounding to 39% in Q3 2025.

In other words, the more money Circle makes, the higher the proportion of costs flowing to intermediaries like distributors, payment platforms, and wallets. Profit margins fluctuate rather than grow steadily.

This reflects a broader industry reality: as USDC expands from trading to payments, treasury management, and enterprise workflows, value is shifting from the issuance layer toward platforms that control usage and end-user touchpoints. For example, Coinbase only began disclosing stablecoin revenue separately in 2023, but by the first three quarters of 2025, stablecoin-related income had already reached $984.7 million, with a significant share.

Issuance is becoming increasingly modular and easily replicable. Providers like Paxos, Brale, and Stably offer “stablecoin-as-a-service,” enabling any enterprise to issue tokens effortlessly. Conversely, platforms that control usage—payment routing providers, compliance orchestration layers, wallet operators—hold the actual end-user relationships and real transaction data.

CPN: From Pure Issuer to Payment Coordinator

In response to this shift in power, Circle’s strategy isn’t to double down on issuance but to extend upstream. The Circle Payment Network (CPN) is the first step in this direction.

CPN is not a consumer app nor a bank substitute. It’s a global network composed of banks, payment service providers, virtual asset service providers, and other institutions, coordinating real-time 24/7 settlement via stablecoins like USDC and EURC. More precisely, the value of CPN lies in coordination—defining how stablecoins are routed, settled, and reconciled among institutions.

Specifically, CPN offers participating entities three core functions:

Counterparty Discovery: Institutions can find each other within a shared framework, avoiding bespoke integrations. All participants interact under unified rules, greatly reducing onboarding costs.

Compliance Orchestration: Anti-money laundering, sanctions screening, travel rule compliance—these are handled at the network level. This addresses the biggest friction points of traditional finance, enabling stablecoins to operate within regulated environments.

Cross-Chain Routing: Payments, FX conversions, cross-border flows can be coordinated across multiple blockchains and fiat channels, without each institution needing to build custom logic.

This model closely resembles international financial messaging systems like SWIFT (for communication coordination) and CLS (for FX settlement)—not directly handling funds but defining how capital flows move among participants.

By mid-2025, CPN has launched multiple real-time payment channels, with over 100 partners in discussions. Circle’s core move is to transform itself from a pure asset-liability sheet provider into an infrastructure operator. Although CPN’s fees remain modest, the network creates a platform for influence—Circle can shape standards, routing choices, and compliance protocols, reducing reliance on dominant distribution partners.

Arc: Gaining Control of Settlement

CPN addresses coordination but exposes a critical gap: finality of settlement.

Currently, settlements on CPN still occur on third-party public blockchains or traditional payment systems. This means Circle has no direct control over core attributes like fees, latency, or finality. These are inherited from the underlying chain’s governance and technical features, beyond Circle’s direct influence.

For retail and crypto-native activities, this trade-off may be acceptable. But for large enterprise payments and institutional fund flows, ambiguous settlement finality, unpredictable costs, and governance black boxes pose substantial risks—issues that traditional finance systems are designed to avoid.

Arc is born out of this need. It’s Circle’s self-built settlement chain, designed to provide a controlled environment for funds requiring certainty.

Key features of Arc include:

• Deterministic Finality: Eliminates ambiguity around settlement completion, providing clear finality for large transactions.
• Stable Fees: Cost structure denominated in USD, reducing operational uncertainty for enterprises.
• Permissioned Validators: Recognizable operators and governance, aligning with institutional needs rather than maximal decentralization.
• Compliance & Privacy: Privacy features integrated as compliance functions, satisfying regulatory requirements.

Note that these features are not entirely novel—other chains offer similar capabilities. Arc’s uniqueness lies in integration: the same entity issues USDC, manages reserves, coordinates CPN payments, and operates the settlement layer. This vertical integration allows Circle to offer a unified promise across issuance, routing, and settlement.

Arc does not need to process most USDC transactions to deliver value. Most retail and on-chain activity continues to settle on existing public chains. Arc’s role is more specialized—to provide an exit for funds requiring settlement certainty, while reducing Circle’s absolute dependence on third-party channels, thereby strengthening its negotiating position with distributors.

Risks are evident. Some institutions may believe existing settlement infrastructure is sufficient, limiting Arc’s adoption. But a deeper risk is that relinquishing control over the settlement layer could confine Circle structurally to issuance and compliance—positions with diminishing returns.

Long-term Significance: Profit Stability, Not Short-term Explosive Growth

For CRCL shareholders, the key question is whether these initiatives can prevent value from shifting from issuers to distributors.

The answer isn’t immediate profit explosion. Neither CPN nor Arc will generate short-term profit surges. Instead, they aim to reshape bargaining power.

Through CPN, Circle establishes a position in the stablecoin coordination layer, making itself indispensable in payment routing, counterparty discovery, and compliance workflows. Even with low fees, the network creates a touchpoint for influence—allowing Circle to shape industry standards and reduce dependence on a few dominant distributors.

Through Arc, Circle gains an internal settlement option. Its mere existence shifts negotiation dynamics—partners who previously saw no alternative now need to reassess costs.

From an equity perspective, this strategic positioning is incremental. There’s no credible path for Arc to replace major public chains like Ethereum or Solana in the near term, nor for CPN to become a high-margin network quickly.

A more tangible benefit is stability. If Circle can slightly increase the share of transactions routed through its infrastructure, it can reduce profit margin volatility and slow the erosion of issuer economic value as USDC adoption grows. This isn’t about explosive growth but about building a defensive moat.

Conclusion: Necessary Strategic Adjustments

CPN and Arc should be viewed as Circle’s strategic repositioning within the stablecoin stack, not isolated growth gambits. They are tools to prevent Circle from being locked into a subordinate position.

Without moving upstream in the business stack, Circle’s role will gradually diminish—issuance becomes a low-leverage function, value concentrates at the distribution layer, and profit margins remain volatile.

From this perspective, CPN and Arc are more about long-term leverage protection. They reflect Circle’s deep understanding: relying solely on issuance is no longer enough; controlling how stablecoins are used is key to long-term economic positioning. In a market where value is flowing toward circulation channels, proactive measures are both necessary and overdue.