USDC

USD Coin (USDC) is a relatively new stablecoin pegged to the US dollar. It was launched on September 26, 2018 in a partnership between Circle and Coinbase. USDC is an alternative to other U.S. dollar-backed cryptocurrencies such as Tether (USDT) or TrueUSD (TUSD).

In short, USD Coin is a service that tokenizes U.S. dollars and facilitates their use on the internet and public blockchains. Additionally, USDC tokens can be redeemed back to USD at any time. ERC-20 smart contracts ensure the execution of the issuance and redemption of USDC tokens.

Bringing dollars to the blockchain allows them to be transferred anywhere in the world in minutes and brings much-needed stability to cryptocurrencies. Additionally, it opens up new opportunities for trading, lending, risk hedging, and more.

How Does USD Coin Work?

Unlike cryptocurrencies such as Bitcoin, new USDC is not released into circulation through the mining process. Instead, new USDC tokens are generated when users and businesses deposit the U.S. government-backed currency into their Circle accounts. The 1:1 representation of this asset, whose transaction records are recorded and maintained using the efficiency of blockchain technology, is created by exchanging USD for USDC. When USDC is deposited in exchange for USD, the tokens are burned to ensure that the amount in circulation always matches the amount of fiat in reserves.

At the time of issuance, Circle holds equal amounts of U.S. dollars in the form of cash and short-term U.S. Treasury bills, ensuring that the value of USDC remains pegged to the value of the U.S. dollar. This means that, unlike most cryptocurrencies, which can fluctuate rapidly in value, USDC is designed to withstand financial downturns with minimal fluctuations. Circle’s one-to-one cash holdings used to back its tokens allow it to maintain a reliable peg to the U.S. dollar, even during periods of extreme market volatility. While USDC previously held small amounts of commercial paper, a type of short-term debt issued by companies to pay for more immediate liabilities, the company has recently claimed to hold only government-backed assets.

Features of USD Coin

USD Coin retains the same value as the U.S. dollar, making it a unique option for holding digital currencies without the price risk of major cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH). Other notable features of US dollar coins are explained below:

1. USDC allows individuals and businesses to accept digital asset payments 24/7. Therefore, money can be transferred across borders as quickly as sending a text message.

2. Online retailers allow customers to purchase a variety of items using USDC. For example, users can use USDC to purchase NFT compilations of rare basketball moments on well-known online marketplaces like NBA Top Shot.

3. USDC can be loaned to those in need without third-party intervention. Likewise, it’s possible to borrow USDC instantly and start using your funds within seconds, rather than waiting weeks to get a loan.

Uses of USD Coin?

Hedging Against Volatility

Investors holding other cryptocurrencies can reduce the volatility of their portfolios by strategically purchasing stablecoins like USDC. Holding USDC during periods of significant market volatility can help stabilize the value of your portfolio.

Used for Pricing Other Digital Assets

Digital assets listed on cryptocurrency exchanges can be priced in fiat currencies using stablecoins like USDC.

Stable Price Peg

USDC’s price stability enables stablecoins to represent equity or fund investments. USDC can also be used to represent a liability or debt.

Money Transfer

USDC can be used for cross-border remittances. Recipients can store USDC without using a bank account or worrying about price fluctuations.

USD Exposure

Investors who are not U.S. citizens but want exposure to the U.S. dollar can add USDC to their cryptocurrency portfolio.

Hedging Against Inflation

Investors concerned about inflation in their national currencies can hold stablecoins like USDC to help protect the value of their funds.

Global Crowdfunding

Startups and nonprofits can raise funds from global investors and donors by raising digital currencies. Raising funds in the form of stablecoins such as USDC ensures that the value of the funds raised does not fluctuate over time.

Blockchain Interconnection

Since USDC is compatible with multiple autonomous blockchains, using USDC can be a way to integrate payment systems and applications across blockchains.

Is USD Coin Safe?

Although USD coins are regulated, investors must weigh the pros and cons of investing in stablecoins before committing money. USDC Compared to USDT, USDC is regulated as it is audited from time to time and Circle’s operations are completely transparent. However, investing in the cryptocurrency market, even stablecoins, has its own drawbacks. For example, the price of a USD Coin will never appreciate because it is pegged to the U.S. dollar.

This disadvantage is offset by the provision that USDC can be borrowed on decentralized platforms to earn passive income. Additionally, it depends on one's risk-reward profile and how much one wants to allocate to a specific asset. Additionally, with trusted exchanges like FTX going bankrupt, people must be aware of the risks of investing in stablecoins and cryptocurrencies.