Core Upgrade and Technical Architecture
In May 2025, Circle announced the completion of USDC’s upgrade on Sonic Labs from a bridged version to a native version. Users were able to automatically convert $500 million worth of bridged USDC (USDC.e) without manual action. The core of this upgrade lies in enhancing compliance and cross-chain efficiency. Native USDC is issued directly by Circle, supports 1:1 USD redemption, and complies with the U.S. Monetary Transmission Act (MTA), avoiding regulatory ambiguity tied to bridged tokens.
The newly introduced CCTP V2 protocol enables near-instant USDC cross-chain transfers, reducing gas costs by 35% compared to V1. It also introduces Hooks functionality, allowing for automated post-transfer actions such as swaps or staking. As a high-performance EVM-compatible chain, Sonic Labs, with over 10,000 TPS and $0.0001 transaction costs, was chosen as the primary testnet for this upgrade. Seamless transition technology preserved existing contract addresses, ensuring smooth liquidity migration for Sonic-based DeFi protocols like Aave and RedotPay.
This Market Insights article discusses the technical architecture following Circle’s native USDC upgrade on Sonic Labs, the CCTP V2 protocol, and its implications for the DeFi ecosystem.
Market Response and Ecosystem Impact
Post-upgrade, USDC’s daily trading volume on the Sonic chain rose by 53%, with micro-payments (<$50) accounting for 27% of transactions. Binance listed the USDC/Sonic trading pair, with Jump Trading providing $80 million in market-making capital, driving first-day trading volume past $180 million. DeFi protocol Aave swiftly integrated a native USDC lending pool, and RedotPay launched a USDC payment card to enhance cross-border remittance use cases.
On the developer side, platforms like Socket integrated CCTP V2 to support automated cross-chain applications, such as transferring USDC and automatically converting it to ETH for staking. Users can track USDC prices and on-chain liquidity in real time via the JuCoin market page. The rise of automated operations may expand the DeFi user base to non-technical audiences.
Potential Risks and Challenges
While the upgrade improved user experience, technical complexity introduces new risks. The Hooks feature relies on atomic smart contract execution, which may expose new attack vectors, requiring ongoing audits and bug fixes. On the regulatory front, the U.S. SEC is evaluating the securities classification of stablecoins, potentially limiting institutional participation in USDC-related services. In terms of market competition, Tether plans to launch a similar upgrade on Sonic. Currently, USDT accounts for 61% of all stablecoins on Sonic, possibly diverting market share from native USDC.
Future Outlook and Industry Significance
Future plans between Circle and Sonic Labs focus on expanding the cross-chain ecosystem and enterprise applications. In Q3 2025, a “Cross-Chain Treasury” tool will be launched, allowing enterprises to manage multi-chain USDC in real time and enhance capital efficiency. On the compliance side, upcoming GDPR- and HIPAA-integrated templates aim to attract healthcare institutions to use encrypted USDC for sensitive data handling, such as anonymized electronic medical records. Integration with non-EVM chains like Solana and Aptos is also being explored to broaden USDC’s utility.
This upgrade accelerates the “chain abstraction” trend—users can interact with assets without perceiving differences between chains. As CCTP V2 adoption grows, cross-chain transfers may become foundational DeFi infrastructure. However, stability and regulatory cooperation remain crucial for mass adoption. For example, improving the finality confirmation mechanism for cross-chain transfers is essential to avoid transaction delays during network congestion.
Neason Oliver
