The Rise of Stablecoins and the GENIUS Act
With the recent signing of the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins Act), the stablecoin market has surged. According to McKinsey, the total value of issued stablecoins has jumped from $120 billion to $250 billion in just 18 months. Projections suggest this figure could exceed $400 billion by the end of the year and reach a staggering $2 trillion by 2028.
Amid this explosive growth, yield-bearing tokens such as the BlackRock USD Institutional Digital Liquidity Fund ($2.9 billion) and the Franklin OnChain U.S. Government Money Fund ($800 million) are gaining prominence. As more capital enters this space, discussions around blockchain infrastructure—specifically Layer 1 and Layer 2—are intensifying.
Understanding Layer 1 and Layer 2 Technologies
In decentralized finance (DeFi), Layer 1 refers to the base blockchain protocol, like Bitcoin or Ethereum. Layer 2 solutions operate on top of Layer 1 blockchains to enhance performance and add functionality. For example, the Lightning Network is a Layer 2 solution built on Bitcoin that enables fast, low-cost transactions using off-chain payment channels. Similarly, Arbitrum uses rollups to scale Ethereum transactions.
This technical layering is more than just an engineering detail—it has become a strategic business battleground as companies seek to control the rails of the financial future.
Major Players Enter the Layer 1 Arena
Notably, fintech giants like Circle and Stripe are developing their own Layer 1 blockchains. Stripe’s new blockchain, Tempo, is optimized for payments and compatible with Ethereum’s programming language, making it easy for developers to migrate smart contracts. Circle has introduced Arc, a Layer 1 chain designed for stablecoin-based financial services. Arc is natively integrated with Circle’s Payments Network and supports stablecoins such as USDC, EURC, and USYC1. It also features optional privacy tools for selectively shielded transactions.
Both companies are betting that custom-built Layer 1 infrastructure will provide them with the control and capabilities needed to remain competitive as stablecoins become mainstream financial tools.
Functionality and Economics Drive Innovation
Why build new Layer 1s when existing ones like Ethereum and Bitcoin already work? The answer lies in functionality and economics.
From a functionality perspective, businesses need blockchains that are secure, compliant, and capable of high-throughput transactions. As stablecoins become integral to everyday business operations, platforms must deliver reliability and custom features that generic Layer 1s may not offer.
Economically, decentralized networks like Bitcoin are expensive to operate, largely due to their emphasis on censorship resistance and energy-intensive consensus mechanisms. For regulated financial services that don’t require pseudonymity, a purpose-built Layer 1 can deliver similar benefits at a fraction of the cost.
By creating their own networks, companies like Stripe can offer stablecoin services directly to customers without touching traditional banking infrastructure—except for onboarding and offboarding. This enables a streamlined, cost-effective model that could severely disrupt incumbent financial players.
Implications for the Financial Ecosystem
While tech-savvy users care about Layer 1 versus Layer 2, the average consumer likely doesn’t—and shouldn’t need to. Whether payments are routed through open banking, SWIFT, or a stablecoin channel, end-users want seamless and secure transactions.
The real competition lies in which platforms can deliver the best cost-benefit performance for businesses. Those that succeed will redefine the global payments landscape by replacing traditional clearing and settlement processes with real-time, tokenized asset transfers.
As Circle has emphasized, the Layer 1 battle is about more than stablecoins. It’s about the future of digital value exchange. In this new world, distributed ledgers and protocols will serve as critical national infrastructure, raising important questions about governance and control.
Who Will Own the Financial Rails?
Can fintech companies like Circle and Stripe truly provide the foundational infrastructure for the next generation of finance? Or will we see Big Tech, governments, or public-private partnerships stepping in to deliver scalable, secure platforms?
The answer remains unclear. What is certain is that the implications of the Layer 1 battle extend far beyond cryptocurrency. They touch on the very fabric of how money, value, and commerce will function in a digitally native economy.
This article is inspired by content from Original Source. It has been rephrased for originality. Images are credited to the original source.