What is USD Coin
Centre operates USD Coin, a consortium co-founded by cryptocurrency exchange Coinbase (COIN) and Circle, a peer-to-peer payments technology company founded by Jeremy Aller and Sean Neville in October 2013. Centre aims to change the global financial landscape by connecting every person, merchant, financial service, and currency globally.
USD Coin (USDC) is a digital currency that is fully backed by US dollars.
Stablecoins are usually backed by reserve assets such as dollars or euros to achieve price stability.
The price stability of USDC contrasts sharply with the notorious price fluctuations of other cryptocurrencies such as Bitcoin and Etherium.
Despite its name, it is important to note that USDC is not issued or backed by the US government. USDC is an open-source project, meaning that anyone can view and contribute to the project’s code.
Understanding USD Coin
USD Coin (USDC) is a digital currency that is fully backed by US dollars or denominated in US dollars, such as US Treasury securities. USDC reserve assets are held in segregated accounts at regulated US financial institutions. The accounting firm Grant Thornton monitors these segregated accounts and provides monthly attestation reports.
You may wonder how USDC maintains a 1:1 peg to the US dollar. If you initiate a transaction to purchase one USD Coin using fiat currency, that fiat currency is deposited and stored as one US Dollar, and a new USDC is minted. If you sell one USD Coin in exchange for fiat currency, then the USDC is burned when the fiat money is transferred back to your bank account.
USDC is compatible with several blockchains, including:
- Ethereum
- Algorand
- Solana
- Stellar
- TRON
Use Cases of USD Coin
As a digital asset with a stable price, USDC can be used in several ways:
- Hedging against volatility: Investors exposed to other cryptocurrencies can reduce the volatility of their portfolios by strategically purchasing a stablecoin like USDC. Owning USDC during periods of significant market volatility can help stabilize portfolio value.
- Pricing in fiat money: Digital assets listed on cryptocurrency exchanges can be priced in fiat money through stablecoins such as USDC.
- Stable pricing: The price stability of USDC allows stablecoins to represent equity or fund investments. USDC can also be used to represent liabilities or debt.
- Remittances: USDC can be used to send funds across borders. Recipients can store USDC without using a bank account or worrying about price volatility.
- US Dollar Exposure: Investors outside the US who wish to gain exposure to US dollars can add USDC to their cryptocurrency investment portfolios.
- Inflation Hedging: Investors outside the US who are worried about inflation in their local currency can hold stablecoins like USDC to protect the value of their money.
- Global Crowdfunding: Startups and nonprofits can raise funds from investors and donors worldwide by raising digital currency. Raising funds in the form of a stablecoin like USDC ensures that the value of the money raised does not change over time.
- Blockchain Interconnectivity: Because USDC is compatible with several standalone blockchains, using USDC can be a way to integrate payment systems and applications across different blockchains.
