USDC: Everything to Know
By Beluga Research July 14, 2023
- USDC is a stablecoin that is backed by an equivalent amount of US dollars held in reserve
- USDC operates with a strong emphasis on transparency, which helps to build trust and confidence in the stablecoin
- USDC is an ERC-20 token originally built on the Ethereum blockchain, and is also available on other major blockchain platforms
- While the transparency of USDC may be viewed as advantageous to some users, other users may view the lack of privacy as a disadvantage
USDC is a stablecoin that is pegged to the US dollar. This means that for every one USDC token in circulation, there is one US dollar held in reserve. The purpose of USDC is to provide a stable cryptocurrency that can be used for everyday transactions, without the volatility that is associated with other cryptocurrencies like bitcoin or ether.
USDC was created by Circle, a peer-to-peer payments technology company, in partnership with Coinbase, one of the largest cryptocurrency exchanges in the world. The goal of creating USDC was to provide a stablecoin that was transparent, secure and compliant with regulations.
A Brief History
Circle and Coinbase collaborated to launch USDC in September 2018 with the intent to create a cryptocurrency that could be used for everyday transactions without being impacted by the volatility associated with other cryptocurrencies.
While initially launched on the Ethereum blockchain, USDC has since expanded to other blockchains to broaden its use across platforms and applications. These blockchains include but are not limited to Algorand, Solana and Stellar.
Centre Consortium, a consortium of companies that includes Circle and Coinbase, manages USDC. The consortium's goal is to promote the use of USDC as a stablecoin and to ensure that it remains compliant with regulations.
What Is USDC?
USDC is a stablecoin that maintains a 1:1 ratio with the US dollar. There is a corresponding reserve of US dollars for USDC tokens in circulation. USDC offers stability and reliability when it comes to using crypto for everyday transactions. It is immune to the volatility in the general crypto market and following its expansion to blockchains beyond Ethereum, USDC can now be used across an array of platforms and applications.
USDC is issued by regulated financial institutions, which means that it is subject to those same regulations. This regulatory aspect provides users with a level of trust and transparency that other cryptocurrencies often lack. Additionally USDC can be used for a wide range of transactions including payments, remittances and trading. It can also be used to earn interest through various lending and staking platforms.
To purchase, sell or trade USDC, investors need to ensure they have a crypto wallet designed to support ERC-20 tokens. MetaMask or Trust Wallet are two popular options. Once they've set up their wallets, crypto investors can begin to buy, sell or trade USDC. Two major advantages of USDC include its resistance to volatility and its high liquidity. The more liquidity a cryptocurrency has, the easier it is to trade on exchanges. Because it is pegged to the US Dollar, USDC is also widely accepted by merchants and service providers.
USDC is popular among traders for many reasons, but especially for its stability. As a stablecoin, every USDC token is backed by a corresponding US dollar held in reserve by a regulated financial institution. This means that USDC is fully collateralized, and the value of one token is always equal to one US dollar. In addition, Circle provides regular audits of its reserves to ensure that they match the number of USDC in circulation. These audits provide crypto traders with a sense of transparency and security when it comes to diversifying their portfolios and hedging against volatility.
Aside from its stability, USDC is recognized for its speed and low transaction fees. As an ERC-20 stablecoin, it is easy to trade globally and can be used to trade other cryptocurrencies on exchanges that do not support fiat currencies.
- Stability. As a stablecoin USDC is pegged to the US Dollar and is not subject to the same volatility as other cryptocurrencies. This makes it a more reliable store of value and a more stable medium of exchange.
- Transparency. USDC is backed by a reserve of US dollars held in a bank account, which is audited regularly by third-party firms.
- Accessibility. USDC is a digital asset that can be easily transferred between different wallets and exchanges. This makes it a more accessible and convenient form of currency that can be used for a wide range of transactions.
- Speed. Transactions with USDC are processed quickly and efficiently, thanks to the Ethereum blockchain's high speed and low transaction fees.
- Security. USDC is a digital asset that is secured by the Ethereum blockchain's robust security measures, which include cryptographic encryption and decentralized verification.
- Centralization. USDC is still controlled by a central authority, which means that it is not truly decentralized in the same way that Bitcoin or other cryptocurrencies are decentralized.
- Counterparty Risk. Because USDC is backed by a reserve of US dollars held by a central authority, there is a risk that this authority could default on its obligations, which would cause the value of USDC to plummet.
- Regulatory Risk. USDC is subject to regulation by various government agencies, which could limit its use or even ban it outright in certain jurisdictions.
- Dependence on Ethereum. The success of USDC is contingent on the success of the Ethereum blockchain. If Ethereum were to experience a major technical issue or a decline in popularity, it could negatively impact the value and usability of USDC.
- Lack of Privacy. USDC transactions are publicly visible on the Ethereum blockchain, which means that they are not completely private or anonymous.