How Arc Supports Lending and Borrowing | Arc Blueprints
Summary
Lending and borrowing is one of the classic DeFi use cases. This post explores how Arc will enable a new era of onchain lending and borrowing by combining stablecoin-native infrastructure, sub-second finality, and composable smart contracts. By improving on both traditional credit systems and early DeFi protocols, Arc can support programmable, predictable, and global credit flows that improve on existing protocols and unlock new kinds of applications. These applications can benefit from stablecoin-denominated flows, realtime-execution, support for real-world assets, and capital efficiency at internet scale.
Arc1 is a stablecoin-native, Layer 1 (L1) built for real economic activity. With deterministic finality, fiat-denominated gas, and compliance-ready design, Arc is designed to support the transition of core financial primitives like lending and borrowing into a programmable, always-on environment.
Lending is one of the oldest and most fundamental pillars of finance and one of the first use cases to be explored in DeFi with $52.73 billion in TVL as of March 2026. But even today, credit markets, whether traditional or onchain, are often fragmented, opaque, and built on infrastructure that limits what’s possible. Arc is designed to support a new model where lending is programmable, predictable, and global by default.
This post explores how Arc can enable both traditional and next-generation lending use cases to thrive on programmable onchain rails.
The limitations of traditional and early onchain lending
In traditional finance, lending systems are built around intermediaries, delayed settlement, and manual processes. Credit origination typically takes days to finalize, underwriting is often opaque, and terms are rigid and jurisdiction-bound. Institutions must rely on trusted third parties for collateral, reconciliation, and payment flows. Meanwhile, smaller borrowers and lenders often face limited access or high overhead.
Early DeFi lending brought faster settlement and open access. Loan collateralization and repayment logic could be enforced via smart contracts, and borrowers and lenders could interact without intermediaries.
However, these advantages introduced new design tradeoffs. Users had to deal with transaction costs that were volatile, unpredictable, and paid in native gas tokens with variable values. For teams building early onchain lending products, another major constraint was designing around probabilistic finality, where transactions were not instantly final. That made it harder to support lending workflows that depend on immediate settlement, precise collateral management, and real-time liquidation. There were also additional hurdles in the form of user experiences that were not built for institutions and that did not integrate easily with existing banking systems.
As a result, many protocols today focus on overcollateralized lending, with more complex use cases like real-world credit and institutional integration still evolving.
How Arc upgrades onchain lending and borrowing
Arc moves the space further by offering infrastructure that solves long-standing DeFi challenges while expanding the surface area for real-world credit innovation.
Arc will provide the stable, programmable foundation developers need to build new lending and borrowing apps that serve both individuals and institutions, such as:
Reliable, stablecoin-native protocol designs
Lending protocols on Arc will denominate and settle loans directly in fiat-backed stablecoins like USDC2 or EURC.3 That means borrowers and lenders will be able to operate in a currency they already use, without wrapping or converting tokens for each transaction. Arc’s predictable, fiat-denominated gas model will further reduce friction by allowing app developers, treasurers, and institutions to price gas predictably.
Stablecoin-native infrastructure means every step in the loan lifecycle — origination, disbursement, repayment, and liquidation — can be reliable and auditable. This alone may improve the user experience by making DeFi lending flows cleaner and easier to navigate.
Capital efficient money flows with deterministic finality
Arc’s consensus engine achieves deterministic finality in under a second, which may unlock new levels of capital efficiency. Loans can settle instantly and can be rebalanced, re-hypothecated, or repaid almost immediately after confirmation. This also means liquidation mechanisms can be designed to run tighter and more precisely and margin calls can trigger with reduced slippage.
Finality is especially critical for credit markets that want to support high-frequency or intraday flows. With Arc, protocols will be able to treat repayment and settlement as final the moment the transaction confirms, reducing risk and unlocking faster liquidity rotation.
New programmable and composable credit primitives
Arc will enable programmable credit by default. Developers can compose smart contracts to define loan terms, repayment logic, and refinancing conditions directly onchain. This will make way for apps with features such as automated credit lines, dynamic collateralization, tokenized loan pools, and multi-party agreements.
Arc will be able to connect onchain lending products to offchain financial data, giving developers more flexibility to build credit applications informed by real-world context. This will make Arc fertile ground for both bringing undercollateralized lending models to DeFi as well as taking DeFi-style lending protocols closer to TradFi settings.
Support for tokenized real-world credit
Arc is designed to support the tokenization of real-world credit assets such as invoices, receivables, trade finance instruments, and other forms of offchain collateral that can be brought onchain as programmable assets. Lending protocols will be able to use these assets to structure loans backed by real-world economic activity, expanding onchain credit beyond purely crypto-native collateral.
This will be possible because RWAs on Arc can carry embedded rules for transfer restrictions, investor eligibility, and auditability directly at the asset level. Combined with Arc’s opt-in privacy features and selective disclosure tools, this will give developers a way to support compliance requirements such as KYC and AML while preserving confidentiality
As explored in our previous post, bringing credit into a software-native environment introduces important benefits such as lifecycle automation, secondary market liquidity, and new credit models that are impossible to build offchain.
Build on Arc and bring credit onchain
Arc is designed to serve as the foundation for building the next generation of credit markets — fast, stable, and programmable by default. Developers will be able to launch lending apps that settle in real time, support real-world assets, and integrate with global stablecoin liquidity.
Whether you’re building an institutional loan origination system, an undercollateralized DeFi credit protocol, or a stablecoin-native money market, Arc will offer a programmable foundation that’s designed to work with real-world finance.
Explore the docs, connect with the community, or reach out to learn how Arc can power the future of lending and borrowing onchain.
1 Arc testnet is offered by Circle Technology Services, LLC ("CTS"). CTS is a software provider and does not provide regulated financial or advisory services. You are solely responsible for services you provide to users, including obtaining any necessary licenses or approvals and otherwise complying with applicable laws.
Arc has not been reviewed or approved by the New York State Department of Financial Services.
The product features described in these materials are for informational purposes only. All product features may be modified, delayed, or cancelled without prior notice, at any time and at the sole discretion of Circle Technology Services, LLC. Nothing herein constitutes a commitment, warranty, guarantee or investment advice.
2 USDC is issued by regulated affiliates of Circle. See Circle’s list of regulatory authorizations.
3 EURC is issued by regulated affiliates of Circle. See Circle’s list of regulatory authorizations.