While Bitcoin (BTC) and Ethereum (ETH) are currently the most well-known and popular cryptocurrencies based on market cap (sorry, Doge), hundreds of other cryptocurrencies and blockchain projects are working to transform the world of finance and modern industry at a global scale.
One of the significant concerns with some of the largest cryptocurrencies is the often considerable volatility in price. For example, as of this writing, Bitcoin has seen a roughly 33.3% drop in price in just the last few weeks.
Although price volatility has been commonplace since the birth of crypto, for seasoned investors of traditional financial markets and those new to the crypto economy, those wild fluctuations in price can make many cryptocurrency assets too 'risky' of an investment in the eyes of many.
To account for these large swings in price, stablecoins, a type of cryptocurrency, were created to create an asset with a (you guessed it) stable price.
In this article, we'll explore what stablecoins are and look at USDC, one of the most popular stablecoins on the market today.
Before we take an in-depth look at the stablecoin USDC, currently the #9 ranked cryptocurrency by market cap and the second most popular behind Tether, it's first important to understand what stablecoins are.
Stablecoins are a specific subset of cryptocurrencies pegged to a real-world asset (usually fiat) to ensure the price remains stable.
For example, in the case of USDC, for every one USDC in existence, there is $1 US dollar held in reserve, keeping the price steady. By design, the supply of USDC is directly correlated with the amount of USD held in reserve backing USDC. Stablecoins can also be backed by crypto and additional commodity assets as well.
Stablecoins carry the advantages of cryptocurrencies while essentially operating as a 'programmable dollar." They continue to play a significant role in the adoption of both cryptocurrencies and decentralized finance as a whole.
What is USDC?
USDC is a stablecoin launched in partnership with both Coinbase and Circle and operates as an ER20 token, meaning it runs on the Ethereum blockchain. USDC is governed by Centre, which oversees the technical and financial standards for the stablecoin and ensures that there is transparency around a true 1 to 1 backing (1 USD for every 1 USDC.) For every USDC created, $1 of USD is held in reserve.
Created in 2018, there is currently a circulating supply of 22,025,968,929 USDC. USDC can be issued by approved regulated financial institutions, which allows for the growth of the USDC ecosystem. USD Coin can be purchased and sold on a variety of exchanges and cryptocurrency providers (including MoonPay.)
Additionally, USDC can be sent and received by any wallet or exchange that is ERC-20 compatible and other major blockchain networks such as Algorand, Stellar, Binance Smart Chain, and Solana.
While USDC can be used by virtually anyone with an internet connection, as the Decrypt shared:
"USDC's parent company isn't shy about saying the currency is for those who want to move medium to large amounts. By becoming a more attractive way for institutional investors to get involved, stablecoins like USDC could help make cryptocurrencies more mainstream."
USDC or USD Coin represents exactly that, a cryptocurrency that is valued at $1 USD. Unlike USD in your bank account, however, you can transfer USDC quickly across the world to any individual and for virtually zero fees.
How does USDC work technically?
So how does USD Coin work on a technical level, given it is both a stablecoin and a cryptocurrency?
Here's how Centre, the financial institution responsible for oversight of USDC, explains the technical process.
"At a high level, customers who onboard through a USDC issuer can transfer funds into the system; the issuer then executes a series of commands with the Centre network to verify, mint, and validate USDC tokens, and the customer can transfer those tokens elsewhere as they see fit (subject to the token's compliance controls).
Redemption follows the reverse sequence: a customer requests a redemption from an issuer, and upon successful verification and validation, the appropriate USDC tokens are irrevocably deleted from circulation ("burned"), and funds from underlying reserves are transferred back to the customer's external bank."
For stablecoins and USDC to operate as intended, there needs to be trust and transparency from the overseeing parties to ensure that there is actually a 1 to 1 backing, which is why Centre provides routine updates from a top-five accounting firm Grant Thornton LLP.
The entire concept of stablecoins is dependent on there actually being a 1 to 1 backing, which is why leading stablecoins go above and beyond to demonstrate transparency on that front. Centre routinely updates its transparency report, which can be found here.
Benefits of USDC
As a stablecoin, USDC provides many unique benefits for its users.
- USDC is, by all measures, a reliable and trustworthy cryptocurrency asset pegged to $1 USD.
- USDC can be 'staked' to provide often generous APY in return currently in the ballpark of 2-2.5%.
Using USDC, investors and holders can stay within the cryptocurrency ecosystem without cashing out into traditional financial institutions.
- You can quickly and cheaply send your USDC to a variety of blockchain ecosystems which can be received in minutes, not days.
- Given the large reach and development of the Ethereum blockchain, in particular, you can use USDC to purchase a variety of cryptocurrencies, NFTs, and other assets.
As CEO John Hargrave of Media Shower, shared in his article on Medium.
Although just a few years old, USDC continues to gain popularity within the crypto ecosystem and offers an onramp and off-ramp for seasoned and newer investors alike.
USDC vs Tether
While Tether is the most used stablecoin, USDC and Tether are both quite similar in principle. Unlike USDC, however, which is overseen by Centre, Tether tokens are issued by Tether Limited, which the owners of crypto exchange Bitfinex control.
Despite Tether being the most widely used stablecoin, there has been some concern among those in crypto as to whether Tether is truly backed by the USD. As Gregory Pepin, Deltec Bank's deputy CEO, told CoinDesk earlier this year: "Every tether is backed by a reserve, and their reserve is more than what is in circulation." That said, Tether remains the #3 largest cryptocurrency by market cap and, as of this writing, has not been proven to be insolvent.
Ultimately USDC is one of the leading stablecoins for a reason, and continues to play a large role in the adoption of cryptocurrency globally.
Built through a partnership with two reputable organizations Coinbase and Circle, and overseen by Centre, a leading open source project USDC remains one of the most trusted stablecoin assets on the market today.
Giving holders the ability to transact in the crypto ecosystem cheaply and quickly, the future for USDC is bright.
Want to buy USDC? We have you covered.