What is USD Coin (USDC)?

Luis Clark
Luis Clark
Luis is a personal finance expert who has been passionate and writing about crypto for more than five years.
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      What is USD Coin (USDC)?

      USD Coin (USDC) is a crypto stablecoin that is completely backed by the equivalent value of US dollar-denominated assets. Simply put, USD Coin is the US dollar tokenized, as the value of a single USDC asset is designed to be the same as that of one U.S dollar without fluctuations. This is in contrast with other cryptocurrencies like Ethereum and Bitcoin known for volatility.

      USD Coin exists to fix 2 major challenges with most cryptocurrencies: convertibility between crypto assets and fiat currencies and high volatility.

      what is usdc

      Who is the Founder?

      USD Coin launched in 2018 and is run by Centre, a consortium of the fintech company Circle and the cryptocurrency exchange Coinbase. The partnership was formed to create price-stable cryptocurrency assets and network protocols.

      How does USD Coin (USDC) Work?

      Circle, the company behind USDC ensures that USD coins aren’t just minted randomly. Rather, every USDC token created is backed by the dollar in a 1:1 ratio. This is achieved through a process called tokenization. Tokenization is the conversion of US dollars into USD Coin tokens. The tokenization of USD to the USD Coin is achieved through 3 main steps. First, the user transfers USD Coin to their token issuer’s fiat bank account. Second, the issuer then uses the USDC smart contract to generate an equivalent amount of USDC. Lastly, the created USD Coin are transferred to the user and the substituted US dollars are kept in reserve. Substituting USD Coin for the US dollar also follows the process of minting the token except in the reverse. First, the user sends a substitution request to the USD Coin issuer to exchange an equivalent amount of USD for the USD Coin. Next, the USD Coin issuer sends a request to the USDC smart contract to substitute the tokens for USD and receives an equivalent amount of tokens from circulation. Lastly, the issuer transfers the requested amount of USD from its reserves to the user’s bank account. And the user receives an amount equivalent to what they sent in USD Coin tokens to the token issuer’s bank account. This is excluding all incurred fees. That said, unlike one of the other popular stablecoins, USDT (Tether), developers of the USDC are required to provide complete transparency, as well as, collaborate with a range of financial institutions to ensure that consistently maintain full reserves of its equivalent fiat currency. Also, all USD Coin issuers must regularly report their USD holdings which would then be published by the accounting firm Grant Thornton LLP.

      Key Features of USD Coin (USDC)

      USDC Lending

      USDC is one of the most popular borrowing and lending crypto assets in DeFi (decentralized finance). Businesses can easily lend USDC to other parties without an intermediary. Currently, USDC’s lending APY on DeFi platforms is typically between 2.22% to 9.99%

      The price stability of USDC is another reason why USDC lending is widespread. Because USDC is a stablecoin, it is immune to the price volatility of the crypto market. Unlike other volatile cryptocurrencies like ETH, investors who deposit USDC into a yield-generating protocol are certain that the absolute returns of their investments are not affected by the price movements of the underlying assets. And this does not affect the yield it generates.

      Another reason for the popularity of USDC lending is the fact that it is a multi-chain stablecoin. It also operates as an ERC-20 on the Ethereum network. This makes it easily accessible to Ethereum users who wish to deposit their assets into a lending DApp.

      USDC Reserve

      USD Coin is a regulated and fully reserved digital dollar stablecoin. Each USDC is backed by a dollar held in reserve or by other approved investments. Unlike other stablecoins, USDC reserves are kept in the custody of regulated financial institutions in the United States like the Bank of New York Mellon and Black Rock.

      USDC reserves are attested (but not audited) by Grant Thornton LLP monthly. Grant Thornton is one of the largest audit, tax, and advisory firms in America. This firm provides third-party assurance of the exact amount of actual funds in the USDC reserve.

      In June 2022, Circle Internet Financial released a detailed but unaudited breakdown of the firm’s reserve for USDC.

      The report showed that Circle held all of its 55.7 billion dollar reserves in cash and cash equivalents. 75% of the total amount ($42.1 billion) is held in short-term United States Treasuries, while $13.58 billion in cash is held in regulated US financial institutions including Customers Bank, New York Community Bank, Citizen Trust Bank, Silicon Valley Bank, US Bancorp, Signature Bank, Silvergate Bank and Bank of New York Mellon.

      The cash held in the United States Treasury had an average maturity period of 44 days.

      The USDC reserve is subject to the same protections under U.S. Federal and state laws.

      Asides from the protections of the reserve by US laws, just like Stripe, PayPal, and Apple Pay, Circle is also regulated under US state law as a licensed money transmitter. The company’s financial statements are audited annually and subject to SEC review.

      Weaknesses of USD Coin (USDC)

      Since the dollar backs the USDC, it cannot appreciate. The price of USDC is not volatile because it is attached to a fiat currency. Despite the problem of lack of appreciation in price, USDC is not immune to US Dollar price inflation. If the U.S Dollar suffers inflation, USDC will also be affected.

      Another weakness of the USDC is that it is not the only stablecoin in the crypto market. Other stable coins like Tether still dominate the stablecoin market. The presence of these competitors has caused a setback in the adoption of USDC.

      How is USD Coin (USDC) Created?

      usdc ecosystem

      To create USDC, companies can create a Circle account to exchange the U.S. dollar for USDC tokens. Once the business deposits USD to its Circle account, Circle issues the equivalent USDC to the company. Issuing new USDC tokens also known as minting creates new USDC in circulation.

      This process is done in reverse when a business wants to exchange its USDC for US dollars. The company transfers USDC to the users’ Circle account and then requests to get USD dollars in return. This process of redeeming USDC is termed “burning” because it takes USDC out of circulation.

      Also, when US dollars are exchanged for USDC on a cryptocurrency exchange, the platform will usually provide the available balance of USDC to complete the swap. However, if the crypto exchange requires more USDC to complete the swap, the platform will typically use its Circle account to create more USDC.

      Mining USD Coin (USDC)

      USD Coin is a stablecoin backed by fiat money so it cannot be mined. Instead, it is issued out in an exchange process that involves crypto exchanges or businesses depositing US dollars to Circle’s account or any other relevant body in exchange for new USDC. The amount deposited has to be the exact amount of USDC requested in a 1:1 ratio. So every time there’s a new USDC in circulation there’s a dollar held in a reserve that backs it.

      How to Use USDCoin (USDC)?

      USDC is an ERC-20 utility token that has a lot of use in the crypto world because of its identity as a stablecoin. Let’s take a look at some USDC uses.

      USDC is used as a means of payment in the crypto space. USDC has come to be accepted as a means of payment because it safeguards recipients against price volatility. You can purchase USDC in different crypto DApps exchanges and blockchain-based games. USDC can also be used to obtain other digital assets by trading/swapping. Digital assets listed on exchanges can be priced in fiat money using USDC.

      USDC also grants users easy access to the crypto market. Instead of going through the stressful process of converting cryptocurrencies into fiat to be able to make a purchase, users can easily exchange their crypto asset for USDC which is accepted as a means of payment by both centralized and decentralized exchanges. With USDC you can buy, sell and exchange funds without leaving the cryptocurrency space.

      With USDC, users can easily avoid traditional financial institutions and instruments. Cross-border payments can easily be made with USDC. This eliminates the long processing time and high transaction fees associated with using conventional banking institutions for such payments. With USDC, cross-border payments can be made within minutes for a negligible amount.

      The use of USDC as an alternative to regular banking solutions can help users in certain countries avoid hyperinflation. Users in such countries can buy the USD Coin to protect the value of their money.

      Nonprofit organizations and startup companies can also raise funds in USDC. Since USDC is stable, the money raised will not fluctuate over time.

      USDC’s compatibility with several independent blockchains makes it perfect for blockchain interconnection. USDC can be used to integrate payment systems and applications across blockchains.

      How to Buy USD Coin (USDC)?

      how to buy usdc

      USD Coin can be purchased on popular exchanges like Binance, Coinbase, Poloniex, CoinEx, Kucoin, OKEx, and Hotbit. You can check the USDC page on Coinmarketcap to see a list of all the exchanges that support the trading of USDC.

      To be able to buy USDC from any exchange, you need to first create and verify your account on the exchange. Once this is done, you can fund your wallet with fiat currency from your bank account and buy USDC from the exchange.

      How to Store USD Coin (USDC)?

      USDC is an ERC-20 token that is backed by Ethereum, this means that you can store it in any ERC-20 compatible wallet like Metamask, BitGo, Binance, Coinbase Wallet, and MyEtherWallet. You can also store USDC in a hardware wallet like Ledger Nano S and Ledger Nano X and the Trezor hardware wallet. While there are many wallets to choose from, you should do your research and choose a secure wallet to store your digital asset.

      Which Blockchain does USD Coin (USDC) Use?

      USDC is primarily available on the Ethereum blockchain but it currently lives natively on 8 other blockchains including TRON, Stellar, Hedera, Algorand, Flow, Solana, and Avalanche. That said, more native integrations are expected in the future.

      USD Coin has also been bridged to the Cosmos ecosystem, NEAR, Fantom, Polygon, Arbitrium, and tons of other emerging blockchains.

      Best Place to Stake USD Coin (USDC)?

      The best place to stake your USDC tokens, or earn interest for holding them, depends on the reputation of the exchange and the APY offered. That said, popular options for staking in the USDC community include the Nexo platform, which offers up to 12% APY, and Juno, which offers 6% APY.

      staking usdc crypto

      What You Need to Know about the Future of USD Coin (USDC)

      Concerning value, USDC is pegged to the US dollar so there’s no price increase to be expected. However, concerning its usability, the consortium behind the USD Coin intends to bridge the stablecoin with other new crypto projects in the future. It also intends to work natively on other blockchains beyond the current 8 protocols it uses.

      Conclusion: Should You Put Your Money in USD Coin (USDC)?

      Buying the USD Coin will not generate returns for investors in terms of price appreciation as the cryptocurrency is built to be a stable digital asset. So the benefits of investing in this cryptocurrency are in its use because there’s no expected price increase with this asset.

      Simply put, investing in the USD Coin is the equivalent of putting US dollars in a drawer at home. The outcome is that the investment will never have a value greater than the equivalent cash.

      However, there are several ways you can profit from your USDC. For example, you can get passive income with your USD Coins by lending them to other cryptocurrency investors. There are a couple of lending programs that will give you interest for lending your USDC. But this isn’t risk-free, as you’re hoping that borrowers gain yield on your USDC.

      So, as previously stated the purpose of USDC is to assist individuals and businesses carry out financial transactions more quickly and economically without depending on conventional intermediaries like banks.

      Risk in Investing in USD Coin (USDC)

      The major risk associated with USDC is that if the US dollar loses its value, it would drop the value of USDC simultaneously as the stablecoin is pegged to fiat currency. But concerning volatility as is common with other cryptocurrencies, USDC does not pose such risks.

      FAQ

      Most frequent questions and answers

      USDC is a stablecoin, which is a type of digital asset or cryptocurrency that is fully reserved. This is unlike other cryptocurrencies that undergo price fluctuations.

      You cannot make money on USD Coins by simply buying and holding them as it is pegged to the US dollar at a 1:1 ratio. This means that one USDC is equivalent to one dollar. However, you can make money on USDC by lending or staking your USD Coins.

      All crypto assets irrespective of whether they are stablecoin or volatile digital assets, USDC inclusive, have the following risks involved: cyber attack, security breaches, fraud, technological, electronic, or systematic failures, and developer withdrawal from the project.

      You can cash out USDC by logging into your exchange account that holds USDC and requesting either a withdrawal into a different USDC wallet or swapping it for fiat currency.

      USDC like any other cryptocurrency is generally viewed as a risky investment. This is because while stablecoins such as USDC have limited price volatility they are subject to deeper scrutiny by regulatory authorities like the Securities and Exchange Commission.

      USD Coin is owned by the Centre consortium so the risk there is that one of the companies in the partnership can go bankrupt. And if Coinbase or Circle runs out of the game, it’s difficult to have 100% certainty that the coin will keep its current value.

      USDC is a stablecoin, which means it cannot go up or down. It is pegged to 1 US dollar.

      If you intend to move the US dollar in crypto from country to country then holding USDC on Coinbase could be beneficial.

      USDC is like a digital dollar. It enables users to make crypto payments for goods and services without having to bother about price volatility decreasing the value of their fiat currency after conversion to cryptocurrency. The price stability of the coin has enabled companies like Visa to allow USDC to be used to settle transactions on its payment network.

      USD Coin represents the U.S dollar in the crypto world. It is pegged to the U.S dollar and can be used as an alternative to regular banking solutions.

      No. USDC is issued by a company in the private sector known as Circle.

      You can redeem USDC, through Circle and Coinbase.

      Skrumble.com provides all its content for informational purposes only, and this should not be taken as financial advice to buy, trade or sell cryptocurrency or use any specific exchange. Please do not use this website as investment advice, financial advice or legal advice, and each individual’s needs may vary from that of the author. This post includes affiliate links with our partners who may compensate us. 

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