How does USDC work?

How does USDC work?

USD Coin (USDC) is a stable coin pegged to the value of the US dollar.

USD Coin (USDC) is a stablecoin launched in 2018 by Centre, a consortium founded by Circle and Coinbase. USDC is open source, which means anyone can use it - not just Circle and its partners.

USDC, along with Tether (USDT), accounts for more than 80% of the total market capitalization of all stablecoins pegged to the U.S. dollar. Although USDT has the largest market cap among all stablecoins, USDC has its advantages and differences from its competitors.

What is the point of USDC?

USDC is basically a tokenized version of the US dollar (USD). It is fully redeemable, meaning you can exchange it for the same amount of money you deposited to set up your account. Unlike some stablecoins that are tied to the price of a single asset or a basket of assets, the value of USDC is tied directly to the U.S. dollar and backed by collateral held in trust by third parties.

The USDC protocol was developed to provide greater access to cryptocurrencies for the general public. The goal of USDC is to make the cryptocurrency sector more user-friendly.

USDC was also developed to be used by businesses and individuals alike. Since USDC provides an open-source smart contract, other companies can develop their own blockchain products, such as wallets and exchanges. However, those who want to use the U.S. dollar as a payment or reward system for their customers, employees or partners can easily access these services through USDC's disbursement solution.

How does USDC work?

USDC is designed to be used in place of the US dollar in the crypto world, making it easier to exchange and use. Since it is pegged to the US dollar, you can rely on its constant value even if the value of other cryptocurrencies fluctuates.

To exchange your US dollars or other fiat currencies into USDC, you need to do three things:

  • Register an account with a partner exchange that supports USDC.
  • Deposit fiat currency into your account with the exchange via wire transfer, credit card or bank account.
  • Buy USDC with your fiat currency.
  • On the other hand, you can convert your USDC to fiat currency by doing the following:

  • A user asks the exchange platform to exchange any number of USDC tokens into fiat currency.
  • The exchange then sends a request to the USDC smart contract to convert its tokens into fiat currency and withdraw an appropriate number of tokens from circulation.
  • The issuer sends the amount of fiat you requested back to your bank account, which is equal to the USDC tokens minus the fees incurred.
  • Unlike other stablecoins, the team behind USDC is committed to full transparency and works with financial institutions to manage its fiat reserves - a unique feature for a stablecoin. USDC exchanges and partners are required to report their US dollar holdings on a regular basis.

    Difference between USDC and other stablecoins.

    USDC is a stablecoin issued by Circle and Coinbase. They are part of the Centre Consortium, a group of companies working together on the next generation of digital money.

    The difference between USDC and other stablecoins is that it is fully backed by USD in Centre's reserves. They use a combination of collateralized reserves and multiple legal entities to reduce counterparty risk for each transaction.

    USDC is used as a substitute for U.S. dollars on major exchanges such as Coinbase, Kraken, Binance, Poloniex, and Gemini.

    USDC was recently approved by the U.S. Securities and Exchange Commission (SEC) as a permissible investment for accredited investors. USDC differs from other stablecoins primarily in three general aspects:

    • USDC is transparent and proactive in creating safeguards in the event of a future government investigation.
    • USDC is fully backed by fiat collateral and is not dependent on the potential future value of its use case or the value of other cryptocurrencies like other stablecoins.
    • USDC is backed by Circle's Prime platform, which gives Circle access to real-time data and analytics on how customers are using their USDC holdings through Circle's trade platform or over-the-counter (OTC) counter.

    Many regulated institutions have been hesitant to enter the crypto market due to a lack of regulation and security. Since USDC is fully backed by U.S. dollars, one of USDC's key value propositions is that a financial institution can hold it without fear of volatility. This is an important step forward for the crypto market, as it allows regulated institutions to offer crypto products without worrying about volatility risk.

    Closing Thoughts on USDC.

    Buying USDC will not bring investment returns to buyers as it was designed as a stablecoin. However, the benefits of buying this cryptocurrency lie in how useful it is rather than how much money you can make from a price increase.

    Based on its characteristics alone, USDC is a viable solution for businesses and individuals to transfer money in seconds while saving time and money by eliminating the need for banks or other middlemen.