What is USD Coin (USDC)?

5 mins read
by Angel One

USD Coin (USDC) is a stablecoin that is linked to the US dollar. It was first released on 26th September 2018, as a result of collaboration between circle and coinbase. USDC is a US Dollar pegged cryptocurrency that competes with Tether, Binance USD and other stablecoins pegged to the dollar.

In short, USD coin is a service that tokenizes US dollars and allows them to be used on public blockchains and the internet. USDC can be converted to USD at any moment. The ERC-20 smart contract ensures the issuing and redemption of USDC coins.

Putting US Dollars on the blockchain permits them to be sent anywhere around the globe in minutes and gives cryptocurrencies much-required stability. It also offers new lending, trading, risk-hedging, and other possibilities.

History of USDC

USD Coin (USDC) is a fiat-collateralized stablecoin established by the CENTRE consortium, a collaboration among circle and coinbase to generate price-stable crypto assets and network protocols. It first was launched in October 2018.

USDC, like its antecedents, objects to address two main concerns with existing cryptocurrencies: excessive volatility and fiat currency-to-cryptocurrency conversion. In variance to tether, the project was developed out of the realisation that the industry required a fiat -collateralized stablecoin with vigorous governance and transparency.

USDC tries to label these concerns by releasing a monthly public attestation of 100 percent fiat token reserves on CENTRE, as well as providing CENTRE members with explicit regulations and procedures for USDC creation and redemption. Members of the CENTRE consortium must also meet the main membership and operating standards, such as licensing, compliance, technology and operations, and custody of fiat reserves, to become issuers.

Circle and Coinbase declared a substantial improvement to the USDC protocol and smart contract in 2020. These improvements are planned to make it simpler to use USD Coin for everyday payments, commerce, and peer-to-peer transactions.

How Does USD Coin Work?

USD Coins aren’t developed out of thin air. Every USDC is supported by a single US dollar, according to Circle. Tokenization is the process of converting US cash into USDC tokens.

The conversion of USD to USDC is a three-step process:

  • A user sends USD to the bank account of the token issuer.
  • The issuer creates an identical quantity of USDC using a USDC smart contract.
  • The user receives the freshly issued USDC, but the replaced US dollars are held in reserve.

It’s just as simple to exchange USDC for USD as it is to create the token, only the procedure is backward:

  • A user connects to the USDC issuer and requests that an equal amount of USD be exchanged for USDC tokens.
  • The issuer requests that the USDC smart contract swap the tokens for USD and remove an equal number of tokens from circulation.
  • The issuer returns the required amount of USD to the user’s bank account from its reserves. The user receives the net amount, which is equal to the amount in USDC tokens minus all costs.

What Makes USDC unique?

The stablecoin market has become considerably crowded over recent years but USD had aimed to stand much better than others competitors in several years.

One of the main concerns is transparency, this gives users a guarantee that they will be able to withdraw 1 USDC and receive $1 in return without any issues.

Unlike some crypto ventures, Circle and Coinbase have also achieved regulatory compliance and this has helped cover the way for international expansion. Both projects are also well-funded, giving the stablecoin certainty.

How to Use USDC

On the Ethereum blockchain, USD Coin (USDC) is a 1:1 representation of one US dollar. To use Circle to tokenize USDC, you must create an account, authenticate your identity (KYC), and then link a valid bank account. Users may carry out four basic actions on the Circle USD platform:

  • Tokenize USD
  • Redeem USDC
  • Send USDC to ERC20 Ethereum addresses
  • Deposit USDC from external Ethereum wallet addresses.

For What Purposes are USD Coins Used?

USDC are commonly used:

  • To short cryptocurrencies without having to pay them out, making it simpler to obtain them in the future.
  • To avoid conventional financial tools and institutions.
  • To prevent hyperinflation (for residents of countries such as Venezuela or Turkey).
  • To transfer money quickly, safely, and at a cheap cost around the globe.
  • To buy things in different crypto dApps, exchanges, and blockchain-based games.

USDC in Circulation?

It’s impossible to offer an exact amount because the number of USDC that can exist is theoretically incalculable. When someone wants to buy a coin with their dollar, new ones are made in return to demand. However, several variables have contributed to USD Coin’s meteoric rise in popularity throughout the years, particularly in 2020.

Risks of USDC

USD Coin investments are not risk-free, investment in USDC involves risk. The most important concern with stablecoins is that while it’s not impossible, it’s hard to verify the exact amount of fiat currency that the issuer holds as reserves. This risk is directly related to a stablecoin’s fundamental characteristic, so it is a big concern.

However, USDC is supported by reputed companies. Add to that Grant Thornton’s monthly audits. These factors confer a lot of credibility on USDC and make it more reliable than other fiat-supported stablecoins like Tether.

There is also an interest rate risk that accompanies USDT deposits. As it becomes more widely accepted, the rates may widen. However, the rates of return will still be much more attractive than what investors receive from the bank or other traditional channels.

Future of USDC

Traditional investors are alert about cryptocurrencies for two reasons: regulatory uncertainty and volatility. This new generation of stablecoins focus to change that by acting as a conduit for well-known organizations to come into the market.

The parent business of USDC is fearless to state that the currency is for people who wish to move medium to big quantities of money. Stablecoins like USDC might help bring cryptocurrencies into the mainstream by making them more attractive to institutional investors.