USD Coin, or USDC for short, is a stablecoin developed by Centre, a group backed by famous cryptocurrency exchange Coinbase and financial technology firm Circle. Each USD Coin is pre-mined with a fixed value of $1 and is backed by a US dollar held in a designated bank account. This makes USD Coin an attractive option for cryptocurrency investors seeking to avoid the volatility and price risk associated with large coins such as Bitcoin and Ethereum.
We’ll examine the coin’s origins, unique features, and why you’d want to use USD Coin to transact in cryptocurrency without taking on the major dangers involved with many other cryptocurrencies.
What Is USD Coin?
USD Crypto Coin is a stablecoin with a constant value of one dollar per coin. Because USD coin price will always be worth $1 and is incredibly safe and secure, at least in cryptocurrency terms, holding it in a secure cryptocurrency wallet is the closest thing to a traditional savings account in the crypto markets.
It is compatible with a vast number of ERC-20 wallets and cryptocurrency exchanges and has real-world applications in global commerce and money transfers. Additionally, it may serve as a convenient store of value for your crypto holdings.
USDC was formed by companies with extensive experience in the cryptocurrency field. Coinbase is the undisputed market leader in the cryptocurrency industry.
The History of the USD Coin
USD Coin (USDC) is a fiat-backed stablecoin developed by the Centre consortium, a collaboration between Circle and Coinbase dedicated to the development of price-stable crypto assets and network protocols. It opened for business in October 2018. Circle was formed in 2013 by Jeremy Allaire and Sean Neville, two entrepreneurs.
USDC, like its predecessors, aims to address two major shortcomings of existing cryptocurrencies: extreme volatility and fiat-to-cryptocurrency conversion. Unlike Tether, the project was created out of recognition that the industry required a stablecoin backed by fiat with strong governance and transparency. USDC solves these concerns by posting a monthly public attestation of 100% fiat token reserves on Centre and by providing its members with established production and redemption rules and procedures for USDC.
Members of the Centre must also comply with the consortium’s critical membership and operating standards, which include licensing, compliance, technology and operations, accounting, and custody of fiat reserves, in order to become issuers.
In 2020, Coinbase and Circle announced an important update to the USD Coin protocol and smart contract. These features are supposed to make it easier to use USD Coin for everyday payments and peer-to-peer transactions.
Pros
- USDC is rapidly eclipsing USDT as the most widely used stablecoin.
- It is the second most popular stablecoin, after only USDT.
- It makes a considerable contribution to the overall value of the blockchain ecosystem.
- USDC is backed by a combination of cryptographic features and the value guarantee offered by the world’s largest cryptocurrency exchanges.
Cons
- The field associated with stablecoins is competitive.
The Unusual Characteristics of USD Crypto Coin
The fundamental feature that distinguishes USD crypto Coin from other digital currencies is that it is permanently worth $1. This is in stark contrast to highly volatile coins such as Bitcoin, Ethereum, and Dogecoin, the prices of which can fluctuate significantly within a single day.
USD Coin is not the market’s sole stablecoin. Tether (USDT), Binance USD (BUSD), and Dai are other notable dollar-denominated stablecoins. Tether has been the subject of controversy due to the reserves utilised to back the stablecoin. Dai is a cryptocurrency based on the Maker protocol that acts as a viable alternative to the industry’s leading players.
January 5th Updtae: It has 42,604,033,557 USDC coins that are in circulation.
Takeaways
- USDC is a stablecoin, which is a cryptocurrency backed by tangible assets.
- It was formed through a partnership between Circle, a fintech firm, and Coinbase, a crypto exchange.
- It started off as an ERC-20 token but has subsequently expanded to other blockchains.
What Distinguishes USDC from other Financial Institutions?
The United States Dollar Coin is not the first or most popular coin backed by the United States Dollar. That is Tether’s title. Tether’s finances, on the other hand, are being extensively scrutinised. It formerly claimed to have a real dollar for every Tether in circulation, but that claim was revoked following an investigation by the New York Attorney General. The investigation is ongoing.
As a result, alternative USD-backed stablecoins with more transparent funding and auditing methods have grown in popularity. The Gemini dollar, the True USD, the Paxos, and the United States Dollar Coin are all examples of these (USDC).
While USDC is not completely unique in compared to its competitors, the following qualities set it apart:
Grant Thornton, one of the world’s top 10 accounting firms, audits USDC.
When banks are involved, it can take an extended period of time to transfer US Dollars to individuals and businesses. USDC blends the reliability and allure of the US Dollar with the rapidity of cryptocurrency transactions.
January 5th 2022 Update: In the last 24 hours, the value of USD Coin has gone up by 0.04%.
How Does the US Dollar Coin Work?
Coins in the United States of America are not made at random. Circle guarantees that each USDC token is backed by a single US dollar. Tokenization is the process through which US dollars are converted into USDC tokens.
To convert USD to USDC, three steps are required.
- A user transfers USD to the token issuer’s bank account.
- Using a USDC smart contract, the issuer generates an equivalent amount of USDC.
- The user receives the freshly issued USDC, but the US dollars that were substituted are retained in reserve.
USDC redemption is identical to token minting, except that the method is reversed.
- A user contacts the USDC issuer with a redemption request, demanding an equivalent amount of USD in exchange for USDC tokens.
- The issuer submits a request to the USDC smart contract, requesting that the tokens be exchanged for USD and an equal amount of tokens be removed from circulation.
- The issuer transfers the required amount of USD from its reserves to the user’s bank account. The user receives a net amount equal to the USDC tokens paid, less any fees incurred).
Unlike the most popular stablecoin, Tether (USDT), the inventors of the USD Coin are mandated to maintain total transparency and to engage with a number of financial institutions to ensure that the similar fiat currency has sufficient reserves.
All USDC issuers are required to submit quarterly reports on their USD holdings. Grant Thornton LLP then publishes these reports. All monthly attestation reports are available there.
January 5th 2022: At this point in time, the CoinMarketCap ranking is #7.
The Most Effective Method of Using USD Coin
USD Coin (USDC) is a blockchain-based cryptocurrency based on Ethereum that is a 1:1 representation of one US dollar. Because it is an ERC-20 token, it is interoperable with any programme that adheres to the standard.
To redeem USDC, you first must register an account, verify your identity through Know Your Customer (KYC), and link an authorized bank account. Users of the Circle USD platform can perform four basic functions:
USDC tokenization; USDC redemption; USDC transfer to Ethereum addresses that conform to the ERC20 standard; USDC deposit from external Ethereum wallet addresses.
Except for a $50 cost for incorrect or rejected bank transfers, Circle USDC does not charge users for tokenizing or redeeming services. All Coinbase USDC fees are applicable.
The minimum amount redeemable in USDC is 100 USDC. Tokens are processed Monday through Friday and may take up to 24 hours to process.
Tokenization does not need a minimum transaction value, and the process may take up to two business days.
Typically, USD COIN are used to:
- Shorting cryptocurrencies without the need to cash out simplifies future cryptocurrency purchases;
- Avoid conventional financial products and Insurance Institutions;
- Avoid hyperinflation (for Venezuelan and Turkish residents);
- Send money safely, quickly, and affordably;
- Purchase goods using a variety of decentralised cryptocurrency applications, exchanges, and blockchain-based games.
January 2022 Update: Circle’s USDC stablecoin is now running on the Avalanche blockchain.
What Sets USD Coin Apart from Other Stablecoins?
Stablecoins based on crypto can be categorised into four categories.
- Fiat-collateralized -This category includes all stablecoins that are pegged to a specific amount of fiat cash. All fiat-collateralized coins are centralised by design. E
- Crypto-collateralized – These are stablecoins that are pegged to the value of crypto assets that have been reserved. Makercoin (MKR) and Dai (DAI) are two examples; another is Havven (nUSD & HAV).
- Algorithmic without Collateral – These are economic models that are computer-based and aim to preserve price stability in the absence of collateralized assets. Basis, Kowala, and Fragments are examples of completed projects.
- Hybrid – Stablecoins that combine the aforementioned techniques. Carbon is an example of a typical
USD Coin is a centralised stablecoin that belongs to the first category of fiat-backed coins. By and large, all initiatives falling under the same category work similarly and with few exceptions. Among the most famous are Tether (USDT), which has a reputation for refusing to submit to a truly public audit, and Digix Gold (DGX), a gold-backed cryptocurrency.
The remaining stablecoins with fiat collateral are backed by US dollars and provide periodical attestations. Their key distinctions are in their pricing structures and partner organisations; nonetheless, their business strategies are mostly unchanged.
January 2022 Update: By thye end of 2021 the amount of stablecoins in the market rose by 388 percent, thanks to DeFi and derivatives.
Wallets
USD Coin is supported by the majority of popular cryptocurrency wallets because of its Ethereum blockchain-based foundation. This category includes both software wallets such as Coinbase Wallet and Exodus and hardware wallets such as the Ledger Nano S.
Transaction Times
According to Kraken, transactions of USD coins take around five minutes to complete and require twenty confirmations. This is comparable to the operation of other coins on the Ethereum blockchain.
Fees and Expenses are Not Included
Since USD coin transactions utilise the Ethereum blockchain, they are subject to Ethereum gas fees. Due to network congestion, Ethereum gas prices fluctuate.
Are USD Coins a Good Investment?
Traditional investors are wary about cryptocurrencies for two key reasons: the market’s lack of regulation and its volatility. Numerous platforms are aiming to remedy this with the creation of new stablecoins such as USDC, among others, by allowing them to operate as a conduit for established institutions wishing to invest.
USDC is well-positioned for continuous and sustained growth because USDC transactions are compliant with US remittance legislation. USDC has also developed a strong following among investors in recent years, according to various commentators.
Stablecoins have grown in popularity in recent years as a result of the market’s extreme volatility generated by major cryptocurrencies such as Ethereum and Bitcoin. USDC on the other hand, is not expected to see this level of volatility.
Additionally, USDC will continue to be listed on a variety of platforms, including Luno, one of the most well-known and user-friendly exchanges, commencing in early 2022, with additional expansion anticipated in the coming years.
The Future of USD Coin
Due to two factors, traditional investors are unwilling to invest in cryptocurrencies: regulatory uncertainty and volatility. This new generation of stablecoins aims to change that by providing a gateway for well-known enterprises to enter the cryptocurrency space.
The parent firm of USDC is unafraid to state that the currency is designed for those desiring to transfer modest to big sums of money. USDC may help bring cryptocurrencies into the mainstream by making them more acceptable to institutional investors.
At Solutiontales we make it easy to understand the throes of cryptocurrencies, but our words should not be taken as a financial advice. Remember, a wise investor can make money in a bull or bear market when given the right data.