USD Coin is one of the most popular stablecoins in the cryptocurrency market. In this article, we will delve into what USDC is, its history, operational features, and the benefits of using it in the world of decentralized finance (DeFi).

What is USD Coin?

USD Coin is a stablecoin whose value is pegged to the US dollar at a 1:1 ratio. This means that each USDC token is backed by one US dollar held in the issuer’s bank account. USDC was created by Circle and Coinbase in collaboration with the Centre consortium, which establishes rules and standards for the issuance and use of the stablecoin.

The primary goal of USDC is to provide users of the cryptocurrency market with a stable and reliable digital asset. It can be used for storing value, trading on exchanges, and conducting fast and secure transactions. Unlike many other cryptocurrencies, its price is not subject to high volatility. This makes it an attractive tool for investors, traders, and users who want to mitigate risks associated with market fluctuations.

USDC follows the ERC-20 standard on the Ethereum blockchain, enabling easy integration into various decentralized applications (dApps) and usage within the DeFi ecosystem. Additionally, it is also available on other blockchains such as Algorand, Solana, and Stellar, which expands its potential applications and increases accessibility for users.

Creation History

USD Coin was created through a collaboration between two major cryptocurrency and blockchain companies – Circle and Coinbase. The project was launched in September 2018 with the aim of providing users with a stable and reliable stablecoin that could serve as an alternative to other popular stablecoins such as Tether (USDT).

Circle is a company specializing in payment services and blockchain technology development. Founded in 2013, it has been actively involved in the development of the cryptocurrency industry since then.

Coinbase, on the other hand, is one of the largest and most well-known cryptocurrency exchanges in the world, providing services for buying, selling, and storing digital assets.

Through the joint efforts of Circle and Coinbase, the Centre consortium was formed, responsible for developing and managing the standards for the issuance and usage of USDC. The consortium establishes rules for transparency, regular auditing, and full backing of the stablecoin with fiat reserves.

Since its launch, the coin has rapidly gained popularity among users and has secured its place among the leading stablecoins in the market. Thanks to the support of major companies and transparent management policies, USDC has become a reliable tool for investors, traders, and participants in the decentralized finance (DeFi) ecosystem.

As of today, it is one of the most widely used stablecoins with a market capitalization of $32 billion. It continues to evolve and integrate into various blockchain platforms, providing users with stability and convenience in the world of cryptocurrencies.

Are there deviations from the dollar peg?

USD Coin is designed as a stablecoin fully backed by dollar reserves, and its value should always correspond to $1. However, in practice, minor deviations from the target $1 mark are possible. These deviations are usually minimal and short-lived, often caused by market factors such as demand and supply on cryptocurrency exchanges.

As of March 27, 2024, the price stands at $1, demonstrating the high stability of the stablecoin. Its market capitalization has reached $32,350,727,572, ranking it 7th in the cryptocurrency market by market capitalization. The trading volume over the last 24 hours amounted to $8,710,492,430, confirming the high demand and liquidity of the stablecoin in the market.

Minor deviations from the $1 peg may occur due to temporary market imbalances, but they are typically quickly corrected by arbitrage operations conducted by traders. If the price exceeds $1, traders can sell the stablecoin on an exchange and profit from the price difference. Conversely, if the price falls below $1, traders can buy USDC at a discounted price and exchange them for US dollars at a 1:1 ratio with the issuer, thereby making a profit.

Such arbitrage operations, along with regular audits and transparent policies ensuring real-dollar reserves, contribute to maintaining the stability of the stablecoin’s value. Unlike uncollateralized or algorithmic stablecoins, USDC has a reliable mechanism for maintaining its peg to the US dollar.

Which blockchains does it operate on?

USD Coin was initially issued on the Ethereum blockchain in accordance with the ERC-20 standard. This standard defines rules and protocols for creating and managing tokens on the Ethereum network. Due to its compatibility with ERC-20, USDC can easily integrate with various decentralized applications (dApps) and be used within the decentralized finance (DeFi) ecosystem on Ethereum.

However, with the growing popularity and the desire to expand its usage, the stablecoin has also been issued on several other blockchains. The main networks where USDC operates are:

• Algorand: USDC has been integrated into the Algorand blockchain, providing fast and cost-effective transactions. Algorand offers high throughput, scalability, and security, making it an attractive platform for the use of stablecoins.
• Solana: The token is also available on the high-performance Solana blockchain. Solana provides fast and cost-effective transactions, making it suitable for the use of stablecoins in various applications and services.
• Stellar: The Stellar blockchain, focused on cross-border payments and asset exchange, also supports the coin. Integrating the stablecoin into the Stellar network opens up new opportunities for its use in international transfers and trading.
• TRON: USDC has also been issued on the TRON blockchain, providing users of this network with access to a stable digital asset. TRON offers fast and cost-effective transactions, as well as compatibility with the Ethereum Virtual Machine (EVM).

Support for USDC on multiple blockchains expands its potential applications and increases accessibility for users across different networks. This allows USDC to become a truly universal stablecoin that can be used in a wide range of applications and services regardless of the underlying blockchain platform. Such multi-network support also contributes to increased liquidity and adoption of USDC in the cryptocurrency industry.

What backs USDC

Initially, it was positioned as fully backed by US dollars. However, in August 2021, a scandal erupted around the coin related to changes in the information about the backing of the stablecoin on the Coinbase website, one of the issuer companies.

Previously, it was claimed that each token was backed by one US dollar held in a bank account. But after the information update on the Coinbase website, a new formulation appeared. Each USDC is backed by assets in USD, the fair value of which is at least equal to one US dollar.

Further investigation revealed that USDC was actually backed not only by cash but also by cash equivalents, such as certificates of deposit, US Treasury bonds, commercial paper, corporate, municipal, and other bonds. This information was disclosed in a report by Circle, another USDC issuer company, for May 2021.

This discovery raised concerns that in the event of mass user demands to convert USDC into USD, the stablecoin could face liquidity problems. Coinbase acknowledged responsibility for providing incorrect information earlier. It pledged that in the future, USDC reserves would consist exclusively of cash and short-term US Treasury bills.

In September 2021, Circle announced the completion of the transition to full backing of USDC with cash and US government bonds. This step was taken to restore trust in the stablecoin and ensure its stability and liquidity.

Despite the incident, USDC remains one of the leading stablecoins in the cryptocurrency market. Issuing companies have addressed issues to improve transparency and reliability of the stablecoin’s backing, which should strengthen user trust in USDC.

Why is USDC needed?

USD Coin serves as a vital tool in the world of cryptocurrencies and decentralized finance (DeFi), performing several key functions:

1. Price stability: This is crucial for many cryptocurrency traders. Unlike volatile cryptocurrencies like Bitcoin or Ethereum, the value of USDC is pegged to the USD. This allows investors and traders to store the value of their assets without the risk of significant price fluctuations.

2. Medium of exchange: USDC is used as a convenient medium of exchange on cryptocurrency exchanges and various applications. People can easily convert their crypto assets into USDC to mitigate risks associated with market volatility, quickly transfer between different platforms and services.

3. Integration with DeFi: USDC plays an important role in the decentralized finance (DeFi) ecosystem. Many DeFi protocols and applications, such as decentralized exchanges, lending platforms, and borrowing platforms, use USDC as a base asset. This allows people to participate in various financial operations: providing liquidity, borrowing funds, and earning interest without the need to convert into fiat currencies.

4. Cross-border transfers: USDC can be used for fast and inexpensive cross-border transfers. Traditional fiat bank transfers can take several days and incur high fees. USDC transfers are practically instantaneous with low fees. This makes USDC an attractive tool for international payments and transfers.

5. Risk hedging: Traders and investors can use USDC to hedge risks associated with cryptocurrency market volatility. During periods of high instability, traders can convert their crypto assets into USDC to preserve the value of their investments and reduce potential losses.

6. Accessibility and liquidity: USDC is one of the most frequently used and liquid stablecoins in the market. It is available on most major cryptocurrency exchanges and supported by many wallets and payment services. The high liquidity of USDC ensures the ability to quickly convert into other cryptocurrencies or fiat currencies when needed.

Where to buy the stablecoin

There are several ways to acquire USD Coin, suitable for both experienced cryptocurrency traders and beginners:

1. Exchanges: Services that allow you to quickly and easily exchange fiat money from bank cards to USDC and vice versa. A popular exchange is Floatchange, which offers fast and anonymous exchanges at favorable rates. Simply choose the exchange direction, specify the amount, and the wallet address where you want to receive the stablecoins.
2. Cryptocurrency exchanges: Users can buy USDC on popular cryptocurrency exchanges such as Coinbase, Binance, Kraken, OKEx, and Bitfinex. These platforms offer trading USDC in pairs with other cryptocurrencies (BTC, ETH) and fiat currencies (USD, EUR). To make a purchase, you need to create an account, undergo verification (identity verification or KYC), and fund your balance. Exchanges usually have low fees and high liquidity but require basic trading knowledge.
3. P2P platforms, such as LocalBitcoins, Paxful, and LocalCryptos. Here, parties directly negotiate the purchase of USDC for fiat or other cryptocurrencies. The advantages include a variety of payment methods (bank transfer, PayPal, Venmo, etc.) and the ability to find the best exchange rate. However, it’s important to choose reliable sellers and observe precautionary measures.

Where to store coins

After purchasing USD Coin, it’s important to ensure secure storage of your coins. There are several options, each with its own pros and cons:

1. Hardware wallets are physical devices designed for secure cryptocurrency storage. Popular models include Ledger Nano S, Ledger Nano X, and Trezor. They store private keys offline, protecting funds from hackers. Hardware wallets are a good choice for long-term storage of large sums of USDC. However, they can cost between $50 to $200.
2. Software wallets are applications for PCs, mobile devices, or browser extensions. Examples include official wallets from Circle and Coinbase, as well as Trust Wallet, Atomic Wallet, and Exodus. They are free and easy to use. However, since they are connected to the internet, it’s important to set a strong password and activate two-factor authentication.
3. Online wallets: Many platforms such as Binance, Kraken, and Changelly offer built-in online wallets. This is convenient for quick trading or exchanging but is not recommended for long-term storage due to the risk of hacking or service bankruptcy. If you choose this option, it’s advisable to enable all available security features.
4. Paper wallets: This is a document with printed public and private keys. It provides “cold storage” away from the internet. You can generate a paper wallet on sites like WalletGenerator or BitAddress. This method is secure but impractical for frequent coin usage.

When choosing a wallet for USDC, consider the amount you’re storing, the required level of security, ease of use, and costs. A sensible approach would be to split your coins between a “hot” wallet for everyday transactions and a “cold” wallet for long-term storage of the majority of your funds.

Don’t forget the basic security rules: use complex passwords, activate 2FA, store backup keys in a secure place, and never share them with anyone. By following these recommendations, you can safeguard your USDC from loss or theft.