Stablecoins are a type of cryptocurrency that is designed to maintain a stable value. USD Coin (USDC) was designed as a digital dollar, also known as a stablecoin, so called because it is fully backed by US dollar assets. USDC lives natively on the internet, running on many of the world’s most advanced blockchains. Millions of USDC change hands every day, and every USDC can be exchanged 1:1 for USD.
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Detailed functioning of the stablecoin
USD Coin (USDC) is an open-source, smart contract-based stablecoin. USDC relies on a Proof-of-Reserves system to ensure that reserves will always be equal to or greater than the number of circulating tokens.
Centre contracts manage the minting and redemption / burning of stablecoins. It is necessary to maintain a peg of 1:1 to USD. The mechanism works as follows: If you initiate a transaction to buy USDC using fiat currency, then that fiat currency is deposited and stored as USD, and the new USDC is minted. If you sell USDC in exchange for fiat currency, then that USDC is burned when the fiat money is transferred back to your account.
The initial implementation is USDC, available on Ethereum (ERC-20), Algorand (ASA), Avalanche (ERC-20), Flow (FT), Hedera (SDK), Solana (SPL), Stellar, and TRON (TRC-20). Its wide availability creates a wealth of possibilities within payments, lending, investing, trading, and trade finance.
USD Coin is managed by a consortium called Centre, which was founded by Circle and includes members from the cryptocurrency exchange, Coinbase. Circle is also the principal operator of USD Coin (USDC), which has become the fastest-growing, regulated, fully reserved dollar digital currency. The amount of USDC now stands at more than 42 billion, and it has supported about 1.4 trillion USD in transactions over the past year.
Pros and Cons
- Stable value
- Highly liquid
- Widely accepted by many exchanges
- Multiple blockchain support
- Transparency reports
- Fully backed by US-regulated reserve assets
USD Coin is managed by a consortium called Centre, which was founded by Circle and includes members from the cryptocurrency exchange, Coinbase.
Company: Centre - Founded by Circle and Coinbase in 2018.
You can find information about the Centre team members here.
Company: Circle Internet Financial, LLC
For information on the Circle team members, click here.
Company: Coinbase Global, Inc.
For Coinbase team members, go to the link.
Reserves and Security
The project was launched out of the insight that the industry needed a fiat-collateralized stablecoin with strong governance and transparency, in contrast with Tether (USDT). USDC attempts to solve these issues by publishing a monthly public attestation of 100% reserves of fiat tokens on Centre.io, and providing clear rules and guidelines for Centre members regarding USDC issuance and redemption. Furthermore, to become an issuer within the Centre Consortium, members must follow key membership and operating rules which include licensing, compliance, technology & operations, accounting, and custody of fiat reserves.
USDC is an open-source project that works within US money transmission laws, uses established banks and auditors, and runs on blockchain technology via smart contracts. It provides true financial and operational transparency.
Here, you can find every month's USDC Reserve Report.
On-chain security: USDC can currently be issued on various blockchains. By hosting smart contracts and tokens on these blockchain networks, basic protection is also provided by nodes or miners, who protect the network through Proof of Work (PoW) or Proof of Stake (PoS). These platforms regularly audit their code to ensure that it is current, secure, and compliant with the relevant framework.
History of Stablecoin
- Launched in October 2018, USD Coin (USDC) is a fiat-collateralized stablecoin by the Centre Consortium, a partnership between Circle and Coinbase created to develop price-stable crypto assets and network protocols
- On March 29 2021, Visa announced that it would allow the use of USDC to settle transactions on its payment network
- As of July 2022, Circle states that there are 55 billion USDC in circulation
Importance and Uniqueness
USDC provides a stable and reliable store of value for individuals and institutions in the cryptocurrency market. Unlike other cryptocurrencies, the value of USDC does not fluctuate based on market conditions, making it a good option for those who want to avoid the volatility of the cryptocurrency market. USDC is fully collateralized and backed by the US dollar, with monthly reserve reports.
USDC is accepted on almost all centralized exchanges (CEXs) and many blockchains in decentralized finance (DeFi).
USDC may be subject to government regulations, which could limit its use or negatively impact its value. Additionally, USDC is not decentralized, which means that it is managed by the Centre Consortium and may be subject to censorship or other forms of control.
USD Coin (USDC) has long been the number-two most popular stablecoin for trading across the entire cryptocurrency environment. The problem is that USDC is backed by a centralized company that we have no choice but to trust, but they have a clear and transparent past without any history of fraud. Anyway, we should always diversify our cryptocurrencies wisely and not trust only one asset.