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What is USD Coin (USDC)?

Summary of USD Coin

  • USD Coin (USDC) is a stablecoin with a value pegged to the US dollar. 
  • USDC debuted in 2018 on the Ethereum blockchain. It’s now available on several other chains. 
  • The Centre Consortium conceived USDC as an alternative to Tether (USDT), focusing on transparency over its USD backing.

 

USD Coin (USDC) is an asset backed stablecoin whose value is pegged to the U.S. Dollar (USD). 

Every USDC token in circulation is backed by $1 USD in cash or cash equivalents, such as short-term U.S. Treasury bonds held by regulated U.S. financial institutions. USDC has adopted the ERC-20 token standard, making it interoperable with all Ethereum-based applications. The token is now found on many other popular blockchains including Algorand, Solana and Tron

The price predictability of USDC has allowed it to serve as a safe haven for cryptocurrency traders during periods of market volatility. USDC also enables a more efficient transaction of value in a stable digital currency across borders than has been the norm from traditional finance. 

USDC’s utility is underscored by its extensive ecosystem of holders and service providers such as decentralized applications (dApps) and crypto exchanges.

Who created USDC? 

USDC was first announced in May 2018 and launched in September the same year by Centre, a joint enterprise between peer-to-peer payment provider known as Circle and one of the largest crypto exchanges in the world, Coinbase. 

Centre Consortium strives to provide the governance and standards required to build a digital financial ecosystem. USDC has aimed to improve the regulation, transparency and licensing standards of stablecoins when compared to other stablecoins available in the market today — namely Tether (USDT). 

The project gained the attention of other large players in the financial sector as a result of the founding institutions’ reputation and experience in the industry. USDC was initially backed by $110 million USD from Goldman Sachs and Breyer Capital, among other notable investors.

How does USDC work?


Unlike cryptocurrencies such as Bitcoin, new USDC isn’t released into circulation through the mining process. Instead, new USDC tokens are minted when users and businesses deposit United States government backed currency into their Circle account. A 1:1 representation of that asset, whose record of transactions is recorded and maintained using the efficiencies of blockchain technology, is created by exchanging USD for USDC. 

Conversely, when USDC is deposited in exchange for USD, the tokens are burned to ensure the number in circulation matches the fiat amount held in reserve at all times.

At issuance, the equivalent amount of USD is held in cash and short-term U.S. Treasuries by Circle, ensuring that the value of USDC remains pegged with the value of USD. This means that unlike most cryptocurrencies that can fluctuate in value rapidly, USDC is designed to weather financial downturns with minimal volatility. 

The one-for-one cash holdings that Circle uses to back their coin have allowed it to maintain a reliable peg to the U.S. Dollar, even during periods of extreme market volatility.


While USDC had previously held small amounts of commercial paper, a type of short term debt issued by companies to cover their more immediate liabilities, the company has recently claimed to hold only government backed assets.

As a registered money service business in the U.S., Circle’s holdings are audited by international accounting giant Grant Thornton.


Why does USDC have value?

USDC’s stability makes it a reliable currency to use as a medium of exchange, store of value and unit of account — the three qualities of money. This has allowed Circle to grow as a means of payment between individuals and corporations around the world.

Those investing in cryptocurrencies, whose price can be subject to volatility, may also hold USDC while waiting for the prices of certain assets to stabilize.

Businesses accept payment in USDC due to its perceived safety and efficiency. USDC holders can transfer the currency throughout the world quickly, often making it a more viable option than traditional channels, such as bank transfers or money wires, for cross-border transactions. 

USDC is also used to transact with a growing number of dApps to earn rewards by loaning or staking a user’s holdings on platforms like AAVE.  Similar lending protocols across the decentralized finance ecosystem have allowed users to earn higher returns on their dollars than traditional bank savings accounts.

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Why buy USDC?

Crypto investors looking to hold their funds in a safe haven currency during periods of market volatility may find USDC valuable. Unlike other stablecoins which use a algorithm to maintain their peg to the U.S. Dollar, USDC is backed by verified, government backed reserves. 

USDC holders will also find that their tokens can be used to pay for a variety of goods and services via an extensive ecosystem of dApps. USDC’s stable peg also means purchasers and vendors can transact without fear of losing value after a sale has been made — a situation often experienced by those who transact with more volatile crypto assets.

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