The Breakdown - Circle’s Corporate Chain Gamble

Episode Date: August 14, 2025

Circle has announced Arc, its own EVM-compatible layer 1 blockchain powered by USDC, joining Stripe, Tether, and Robinhood in the corporate app chain trend. Critics warn it could fragment crypto and undermine decentralization, while supporters see potential for commercial finance use cases. Plus, a mixed CPI report keeps September rate cut hopes alive despite stubborn inflation, as political battles heat up over Fed appointments and proposed changes to U.S. jobs data reporting. Brought to you by: Grayscale offers more than 20 different crypto investment products. Explore the full suite at grayscale.com. Invest in your share of the future. Investing involves risk and possible loss of principal. To learn more, visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Grayscale.com⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ -- ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://www.grayscale.com//?utm_source=blockworks&utm_medium=paid-other&utm_campaign=brand&utm_id=&utm_term=&utm_content=audio-thebreakdown)⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/@TheBreakdownBW Subscribe to the newsletter: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://blockworks.co/newsletter/thebreakdown⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownBW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Wednesday, August 13th, and today we are talking a little corporate app chain, a little CPI. But before we get to that, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, friends, something that we talked about yesterday, we are continuing today. Circle is joining the trend and launching their own layer one blockchain. Now, the context for the news yesterday was that Stripe was creating their own L1,

and Tether also announced an L1 earlier this year. And added to that, Robin Hood is aiming to launch their tokenized stock product on their own L2. It seems that every crypto service feels the need to own their infrastructure rather than use existing blockchains, but is the return of corporate chains really a good idea? Circle's blockchain called ARC will be an EVM-compatible blockchain using USDC as the gas token. They expect the public test net to go live this fall. Features include sub-second blocktimes, privacy options, and interoperability with other partner blockchains.

They're promoting it as a, quote, full-stack platform for the internet financial system. Circle claims this will be an additional rail integrated into their platform and services with existing rails remaining in place. As a blockchain, it's entirely unremembered. But as a business decision, this was one of the most controversial moves that Circle has made. The timeline was in an uproar, and very little of the commentary was positive. For consensus founder Joe Lubin, this is all very familiar. He wrote, Permissioned Enterprise chains were tried and failed years ago. Why? Because nobody trusted

the central controller of those chains enough to set up shop on those chains. We've seen the deplatforming story over and over for decades. There might be ways to make some of these work, but that would involve achieving credible neutrality and rigorous decentralization. doesn't seem like that will be the plan or even achievable for most of the corporate L1 projects. Now, the concern is that because of issues like that, they make it unlikely that ARC would be able to build a thriving asset ecosystem hosted on it. In fact, some think that they'd even struggle to build out bridge assets for the majors and less Coinbase or another large sponsor is on board. As a consequence, defy infrastructure would be difficult to build out with

sufficient liquidity to make it useful, leaving the blockchain with only one function, which is to send and receive USDC. To many, if the industry goes down this path, it opens up the question of what we're even trying to do here anymore. Nera Jaguar of Coin Center posted a diagram of the existing correspondent banking system, noting that's basically what the experience of using dozens of isolated corporate chains will be like. Now, there were plenty of Ethereum folks who thought that this was still positive for their bags, largely because the EVM was mentioned, although one of the big questions here is why Circle would launch an L1

rather than fitting into Ethereum's layer 2 scaling thesis. M-team, the co-founder of Spire Labs, pointed out that this news is even worse for other chains, writing, big companies launching L1s is kind of a rejection of the L2 thesis, but it's even more of a rejection of the Salana thesis, implying basically that Solana was built around the idea of a monolithic blockchain that everyone can use, with that thesis seeming to go quickly out the window. Now, when a company like Stripe, which, although yes, a startup is a traditional fintech company,

and hasn't always been in the corner of crypto, decides to go their own way and splinter off into their own walled garden, it's one thing. But Circle is a crypto-native company, supposedly aligned with the core principles of the industry. And yet, some, like Meltem DeMirers, think that this was obvious and inevitable. She said, If you're a financial services company with a massive network and distribution, you're obviously going to launch your own L1 and Stablecoin and clip the 4.5% interest margin for yourself instead of paying it to tether or circle.

Come on, y'all, don't be thick. David Rodriguez, the head of Blockworks Advisory, isn't so sure this is a good idea, tweeting, this is a very bad move by Circle, in my opinion. Can't pass back USDC yield to users as the issuer and doesn't have distribution with end users via an exchange. Now they're directly competing with the hand that feeds them, Coinbase Binance, etc. Austin Campbell believes the end state is going to be something far more boring than a million stablecoin L1's competing, writing, I think Meltem has the economics right, why give your NIM to

circle and tether, but the outcome wrong, fragmenting the entire market into a blockchain replica of the current banking system. The future will be low-fee, high-simplicity stable coins that pass on yield to distributors. In short, it's Vanguard got MMF vibes, low brand profile on-chain so everyone can use it and get their fair share of income. But nobody likes to predict public utilities, too boring. Curiously, it doesn't even seem like Circle is doing this with the support of Coinbase. Victor Boone and a protocol specialist at Coinbase wrote, Building your own Corporate L1 in 2025 can only be the result of one, greed, two, lack of crypto-nativity, three, unbridled ambition to do it all and own it all that's going to run head-first

into reality. At the very basic level, then, this looks like Circle trying to capture more of the value by owning every part of their infrastructure. Trying to steal man with the vision might be, I think you have to assume that target audience is not crypto-native traders. Yesterday, Bloomberg reported that a repo trade was carried out in a test of the Canton Network on Saturday. Cumberland-DRW pledged tokenized treasuries to take an overnight loan in USC. The opportunity for bringing commercial financial markets activity on chain is, in many people's estimation vastly larger than the market for crypto trading. And while some think Ethereum and Solana can support this activity, it's likely to require a lot of additional

compliance tech to be bolted on. Baked-in privacy solutions could also be a big deal for a lot of capital market use cases. With their own chain, then, Circle can build the infrastructure they need from the ground up and compete for commercial financial transactions. Now, whether or not that happens is another question, but for now, the takeaway is this. The second wave of corporate chains has begun. Today's episode of The Breakdown is brought to you exclusively by Grayscale. Grayscale is almost certainly a name you know. They've been offering exposure to crypto for over a decade now and offer over 20 different crypto investment products. ranging from single asset to diversify to thematic exposure to crypto and the broader

crypto industry. They have long been innovators at the intersection of tradfi and crypto, and one of the benefits for a lot of us is that Grayscale products are available right through your existing brokerage or IRA. Now, of course, investing involves risk, including possible loss of principle. For more information and important disclosures, visitgrayscale.com. Go tograyscale.com to explore their full suite of crypto investment products, and invest in your share of the future. Moving over to the macro side of the house, yesterday's inflation data was a bit of a mixed bag. Headline CPI was steady at 2.7%, higher than in Q1, but not continuing to rise. Core CPI, which strips out food and energy, rose to 3.1%, the highest reading since February

and the largest month-over-month increase since January. The headline reading was slightly below forecasts, while Core was slightly above. Digging into the components, a 0.2% increase in shelter inflation was a key driver, reversing the long-term trend of moderation. Food prices were flat and energy was down 1.1%, providing relief in the headline figures, which was what a lot of people were looking at, were a little all over the place. New vehicles were flat, although used vehicles jumped 0.5%. Household furnishings rose by 0.7%, compounding a 1% increase last month. Apparel prices and core commodities each ticked up slightly, but not in a particularly

alarming way. Bringing it together, supercore inflation, which trips out shelter as well as food and energy, is now running at a 6% pace. The bulk of the inflation pressure is coming from services rather than goods. However, services inflation is falling while goods are spiking from negative levels at the beginning of the year. Overall, this is a big reversal. Supercore was negative in March providing a significant disinflationary impulse. So what were the takeaways? Well, there were two. First, that inflation is still a problem. Both headline and core are running well above the Fed's 2% target. And there's not a lot of signs that inflation is moderating. But second, most analysts don't see signs that tariffs are feeding through into a major inflation shock.

Biden-Whitehouse economist Jared Bernstein said, the tariffs are in the numbers, but they're certainly not jumping out hair on fire at this point. Goods prices, for example, are up, but they're only up 1.1% over the past 12 months. That's a far cry from reflecting the roughly 18% average tariff rate. Ellen Zentner, the chief economic strategist at Morgan Stanley Wealth Management commented, inflation is on the rise, but it didn't increase as much as some people feared. In the short term, markets will likely embrace these numbers because they should allow the Fed to focus on labor market weakness and keep a September rate cut on the table. Longer term, we likely haven't seen

the end of rising prices as tariffs continue to work their way through the economy. Markets indeed did embrace the numbers once trading opened. Both major U.S. stock indices saw daily gains above 1%, while the small cap Russell 2000s spiked by 3%. Bitcoin was up slightly on the day and altcoins continue with ETH registering an 8% gain on the day. Essentially, the CPI figures were benign enough to allow the risk on party to continue. Rate cut expectations rose again on the numbers. markets are now pricing in almost a 95% chance of a cut in September, up from 85% the day prior. The odds are now slightly in favor of three consecutive rate cuts across the three Fed meetings remaining this year. Now, some folks out there think this is absolutely nuts.

Ben Hunt of Epsilon Theory wrote, if we're going to cut in September with quarter 3.1 and rising, wages at 3.9 in rising, stocks and home prices at all-time highs, can we at least stop talking about the Fed's 2% inflation target? It's just insulting to continue the charade. Jim Bianco noted that a cut in this circumstance would be a historic posting, In the last 40 years, only once has the Fed cut rates when Core was above 3%, and the 3M change was above 0.3%. That was on October 1990 to March 1991. With cuts almost fully priced in, he believes the conclusion is obvious, adding, agree with Ben, the 2% inflation target is dead. We are accepting a higher inflation world.

Paulo Macro thinks the Fed is about to make another policy mistake, writing, cutting into the teeth of this is transitory on steroids, no different than doing QVACR. until March 2022 when CPI was already cycling above 7%. Only back then, inflation was a new thing after decades of disinflation and deflation. Now inflation is public knowledge, and we want a touch to match that. As someone who speaks Portuguese, I know this feeling well. Treasury Secretary Scott Besson was quick to promote a positive spin on the inflation numbers. He posted, good news for consumers. While July inflation held steady at 2.7% year over year, the near-term trend is even better, with a three-month annualized change down to just 2.3%.

Most importantly, there is no demonstrable negative impact from tariffs. Goods prices excluding food and energy are up even less since tariffs were first implemented, rising only 0.8% annualized. He continued during an appearance on Fox Business. Not only were they fantastic numbers, but a lot of the economists got the number right, but they missed the components. Everybody was expecting that there would be goods inflation, but there was actually this very odd services inflation.

Healthcare services, airline prices, which as far as I can tell has nothing to do with tariffs. Besson also took the opportunity to start job-owning the Fed, Referring to the massive revisions to jobs data, he commented, if we had the real number, the Fed could have been cutting in June or July. The real thing now is to think about should we get a 50 basis point rate cut in September to make up for the delay. Turning to personnel changes of the Fed, Besson discussed the appointment of White House lead economic advisor, Stephen Moran.

Moran was nominated by the president to fill a vacant board of governor's seat after Adriana Coogler's resignation at the beginning of the month. Besson said that he hopes Moran will be approved by the Senate in time for the next Fed meeting in mid-September. That would give the administration another ally on the FOMP to push for cuts, although it would still be skewed towards Democrat appointees. Speaking to the selection process for the next Fed chair, Besson said the president was casting a, quote, very wide net. Personally, Besson has three selection criteria.

Monetary policy, regulatory policy, and the ability to run and revamp the organization because it's gotten really bloated. I think this bloat has put its monetary independence at risk. Lastly, today, much consternation around the nomination of E.J. Antony, the chief economist of the Heritage Foundation, who has been selected to lead the Bureau of Labor statistics, which is, of course, the nation's economic data agency. If approved by the Senate, he will replace Erica McIntyre who was unceremoniously fired by Trump last week after the release of a huge negative revision to the jobs numbers. Now, a big part of the discourse has been an interview prior to his nomination, where Anthony said, until it is corrected, the BLS should

suspend issuing the monthly job reports, but keep pushing the more accurate, the less timely quarterly data. Major decision makers from Wall Street to D.C. rely on these numbers, and a lack of confidence in the data has far-reaching consequences. Now, the idea of suspending the release of jobs data doesn't just seem to be a thought bubble from the incoming BLS head, but something with real support in the administration. The Wall Street Journal wrote, In a series of closed-door discussions in recent days, White House aides and Labor Department officials have weighed new options for data collection, as well as new technologies that could make the process more efficient. Reportedly, Trump has told advisors he doesn't want large revisions

to the data in the future. Still, White House sources speaking with the journal said the interview was conducted before Anthony knew he would be appointed to the role, and that his comments do not yet represent official BLS policy. Now, this all places the BLS in a difficult position moving forward. The reason economic data is subject to such large revisions is that it's put together incredibly quickly in order to release it at a monthly pace. Surveys are often returned late, and modeling is used to fill in the gaps and speed is prioritized over accuracy. Still, with all of those issues, U.S. economic data is still the gold standard globally. No other country puts out such extensive data so regularly, which goes a long way to giving the global investment

community faith in the transparency of U.S. markets. To many, if not most market observers, pulling the data for any meaningful length of time would be simply a terrible look. Bloomberg economist Anna Wong wrote, In the absence of the jobs report, people will rely on more dispersed and or private information. More information asymmetries, more rumor-driven trades, markets don't work as well. Beside the obvious point that it will be harder to read the labor market, it will also be harder to read the financial market. Now, it's beyond the scope of the show, but from all sides, this is causing large consternation. Enough consternation to actually stop this change. I'm

skeptical, but it's fairly loud from a lot of different political perspectives, so we'll have to wait and see. For now, though, that's going to do it for today's breakdown. I appreciate you listening, as always, and until next time, be safe and take care of each other. Peace.