Arc Network

Arc's primary architectural distinction is deterministic BFT finality. On proof-of-work and many proof-of-stake networks, a transaction passes through a probabilistic state — it has been broadcast and included in a block, but it could theoretically be reversed by a chain reorganization if a longer competing chain emerges. Ethereum's proof-of-stake achieves economic finality through the Casper FFG mechanism in approximately 14 minutes, but finalized blocks carry residual reversal risk through socially-coordinated hard forks. For institutional settlement operations, this probabilistic model creates a fundamental problem: a system of record cannot mark a trade as settled against a position that might be reversed.

Arc's Malachite consensus resolves this by implementing Tendermint BFT with a permissioned validator set. The Tendermint protocol uses a two-phase voting process: validators first broadcast pre-votes indicating a block is valid, then broadcast pre-commits. When more than two-thirds of the validator set pre-commits to the same block, that block is committed and final — the two-thirds threshold ensures that two conflicting blocks cannot both be finalized, making reorganizations impossible. Benchmark testing shows the process completing in under 350 milliseconds with 20 geographically distributed validators. The binary nature of the result — a transaction is either unconfirmed or final, with no intermediate state — is the design property that makes Arc suitable for systems of record. For downstream operational systems, the block commitment is the trigger: IBOR cash positions can be updated, accounting entries booked, and Rule 17a-3 settlement records written the moment the block is committed, without waiting for confirmation depth. For a comparative treatment of blockchain finality models, see Settlement Finality (DLT/Blockchain). For the T+0 architecture context, see T+0 Settlement Operations.

USDC as Native Gas and Predictable Fee Architecture

Arc uses USDC as the native gas token. On most blockchains, transaction fees are paid in a volatile speculative asset, creating an accounting asymmetry: the settlement instrument is a stable dollar-denominated asset, but the operational cost to settle it fluctuates with token market prices. Arc removes this asymmetry. The fee formula is: fee = gas units × base_fee_in_USDC. Market-driven price volatility is eliminated as a cost variable. The protocol's fee smoothing mechanism uses an exponentially-weighted moving average (EWMA) of block utilization to adjust the base fee gradually, dampening the fee spikes that institutional treasury desks encounter on general-purpose blockchains during network congestion. The target transaction cost is approximately $0.01. For institutional operations, gas fees become predictable USD-denominated line items — no volatile token position is required to fund settlement activity, and the unit of account for value transfer and settlement cost is identical. An additional capability enabled by the Prague hard fork is EIP-7702, which allows a USDC wallet address to temporarily operate as a smart contract. This enables Gas Station functionality — an institution or application can absorb transaction fees on behalf of other participants programmatically, without requiring each counterparty to maintain a gas reserve. Arc also supports paymaster integration, allowing other stablecoins to be used for fee payment, which broadens the model beyond USD-denominated workflows.

Programmable Compliance: Opt-In Privacy and Selective Disclosure (Planned)

Privacy features on Arc — confidential transfers and view keys — are on the development roadmap and represent a planned architecture, not a currently deployed capability. When implemented, the model establishes what the Arc Litepaper describes as programmable compliance: the ability to configure transaction confidentiality and audit access programmatically, rather than relying on either full public transparency or full anonymity. Confidential transfers shield transaction amounts from the public ledger while keeping sender and receiver addresses visible, ensuring compatibility with blockchain analytics tools and AML monitoring. View keys allow an institution to issue a cryptographic key granting a specific third party — an auditor, regulator, or compliance officer — scoped read-only access to encrypted transaction data. Selective disclosure means the institution controls which transactions each authorized party can see, rather than providing blanket ledger access. This satisfies the core compliance tension: transaction details are protected from public visibility, regulatory examination access is preserved programmatically, and the institution retains full visibility into its own customer activity for Travel Rule and transaction monitoring purposes. The cryptographic backend is planned to begin with Trusted Execution Environments (TEEs), with a modular design supporting future integration of Multi-Party Computation, Fully Homomorphic Encryption, and zero-knowledge proofs.

Atomic PvP FX Settlement and the Elimination of Herstatt Risk

Arc's FX settlement mechanism combines off-chain Request-for-Quote execution with atomic on-chain settlement through a smart contract escrow. When two counterparties agree to exchange USDC for EURC, both legs of the swap are locked into the escrow contract before either is released. The contract releases both legs simultaneously in a single atomic transaction. If either leg is absent when the configurable settlement window closes, the contract returns the encumbered balance to the originating wallet — no capital is trapped, and no manual dispute process is required. This programmable clawback is a key operational risk control with no direct equivalent in traditional FX settlement. The payment-versus-payment (PvP) structure eliminates Herstatt risk — the exposure created when one party delivers its leg of an FX swap before confirming receipt of the other. In correspondent banking, this exposure window is managed through coordination systems that operate within business-day schedules. On Arc, the PvP guarantee is enforced by the smart contract and the deterministic finality of the block containing it, and the settlement operates on a continuous 24/7 basis. Arc's crosschain liquidity architecture — CCTP for cross-chain USDC transfer and Gateway for chain-abstracted balances — addresses liquidity fragmentation by allowing USDC to flow from Arc to any connected blockchain without manual rebalancing, using sub-second CCTP transfers enabled by Arc's deterministic finality.