USDC

What is USDC?

USD Coin, popularly known as USDC, is an asset-backed stablecoin. It gives cryptocurrency traders the ability to move into and out of the stable safe haven of the US dollar without needing to use actual fiat.

USDC is also meant to allow businesses to accept payments in digital assets and provide more value to users of decentralized finance applications. The issuance and redemption of USDC are natively supported by several blockchains, including an ERC-20 smart contract on Ethereum.

When Was USDC Launched?

USDC was launched in September 2018 on a limited basis but has since grown to become one of the top asset-backed stablecoins in the cryptocurrency sphere. According to its backers, the Centre Consortium members, USDC is issued by regulated financial institutions.

Who are the Founders of USDC?

The Centre Consortium, which backs USDC, was founded by the Coinbase cryptocurrency exchange and peer-to-peer payment services company Circle. The consortium is open to other members from the cryptocurrency industry, but Coinbase and Circle were its founding members.

In 2020, Circle and Coinbase announced an upgrade to USDC’s smart contract and protocol, allowing USDC to be easily used for payments, finance, and P2P transactions.

Circle co-founders Jeremy Allaire and Sean Neville have detailed their vision of an open internet of value exchange. This could eliminate economic borders and connect people via an inclusive global marketplace.

How Does USDC Work?

Like many other stablecoins but unlike most cryptocurrencies, USDC does not have its own blockchain. Instead, it is built atop the open-source fiat stablecoin framework developed by the Centre Consortium.

Issued initially as an ERC-20 token, USDC gained all of the advantages of the Ethereum ecosystem from the get-go, including smart contract functionality.

It has since been issued on Algorand as an ASA token, Solana as an SPL token, TRON as a TRC-20 token, and Stellar as a native asset.

How is the USDC Network Secured?

Since USDC runs on Ethereum and other blockchains, it does not require its own hashing algorithm and instead can be secured by the chains it lives on.

However, the issuance and redemption of USDC are carried out via smart contract and the US dollar peg is secured by its reserve.

What Makes USDC Unique?

Thanks to its issuance via smart contracts on several major blockchains, USDC is one of the easiest and most common onboarding paths into the world of decentralized finance (DeFi).

Given that USDC exists on-chain, integration with blockchain-based applications is fast and easy. It also takes advantage of their safety as well as the community’s confidence in the backing of its reserves.

What is USDC Backed By?

USDC is backed by US dollars and US dollar equivalents.

According to Circle, the majority of USDC’s reserves in 2021 were pegged by cash and money market funds. The rest were made up of Certificates of Deposit issued by non-US banks, US Treasury notes, commercial paper, as well as municipal and corporate bonds.

In May 2022, Circle announced the start of weekly publication of the USDC Assurance Report, aiming to provide greater transparency, especially in the wake of UST (TerraUSD) collapsing.

As of June 2022, USDC’s circulating supply of 54 billion USDC was backed by cash ($12.9B) and short-duration US Treasuries ($41.2B), according to Circle.

What is the Use of USDC?

USDC’s main use is as a US dollar equivalent and a relatively stable, low-cost, and easy-to-use currency on the blockchain.

The tokenization of US dollars into USDC allows rapid movement of the currency tokens and extremely fast settlement. This is vital in the world of DeFi, where traditional financial instruments and institutions can be avoided.

USDC can also be used to send money across the world fast and at a low cost. It also serves as an inflation hedge for users residing in countries that are in the midst of hyperinflation.

What is DeFi?

DeFi stands for decentralized finance. It is an ecosystem of applications built on the blockchain that provides users access to financial services, akin to and even beyond that of the traditional financial services industry.

In DeFi, users retain full custody of their funds. This means that they don’t need any sort of middleman, like a financial services provider or bank. Given the decaying level of trust in Wall Street, this is a great draw for many users. Traditional finance sees plenty of activities being questionably self-reported and taking place in the shadows (sometimes amusingly literally, as in the case of Dark Pools). DeFi, on the other hand, is transparent in that the code for applications is visible to all and transactions can be tracked in perpetuity on the blockchain.

Who Controls USDC?

USDC’s technology and governing framework are developed by the Centre Consortium, whose two founding members—Coinbase and Circle—were its first commercial issuers.

Coinbase is currently one of the top centralized cryptocurrency exchanges. Meanwhile Circle, founded in 2013 and backed by Goldman Sachs, is an official Money Transmitter, making both of them an open financial book.

However, the actual issuance and redemption of USDC are carried out on the blockchain via smart contracts.

How Much USDC Is In Circulation?

The amount of USDC in circulation varies, given that it can be issued and redeemed using smart contracts like ERC-20 on Ethereum.

Following the collapse of the algorithmic stablecoin UST (TerraUSD), USDC has been able to gain market share thanks to many investors’ favorable view of its backing and reserves. As of June 2022, there were over 53 billion USDC in circulation.

To tokenize US dollars into USDC, a user sends USD to the bank account of the issuer (Circle, for example) and the issuer uses the smart contract to create an equivalent amount of USDC. This newly minted USDC is sent to the user, while the US dollars, originally sent by the user, are added to USDC’s reserve.

To redeem US dollars, the user sends the issuer a redemption request with the relevant amount. The issuer then calls the smart contract and takes the equivalent amount of tokens out of circulation before sending the requested dollar amount to the user, minus fees.

How Do You Buy USDC?

You can purchase USDC on several platforms, including Circle’s own, using fiat dollars. You can also trade it against various cryptocurrencies in different trading pairs as well as against other stablecoins like Tether.

Not to mention, you can also purchase USDC using various fiat on-ramps associated with crypto wallets, especially those corresponding to the Ethereum ecosystem.

Is It Possible to Buy USDC Instantly?

The speed of settlement when purchasing USDC can differ depending on where exactly you purchase it. Generally, purchasing any sort of cryptocurrency using fiat currency means that you’ll have to wait as long as it takes for the fiat funds to settle.

Purchasing on an exchange may seem instant, but is only a representation of a trade made by the user. The account numbers seen are only notional and real settlement occurs only when the funds are withdrawn to a private wallet.

In this case, the settlement speed will depend on how quickly the CEX is willing to release funds, as well as how many Know Your Customer and Anti Money Laundering hoops need to be jumped through.

On DeFi apps and decentralized exchanges, however, one may see how quickly USDC can work. The settlement speed on-chain depends on the blockchain being used and can take from just two or three seconds to a few minutes.

How Do You Store USDC?

Like many cryptocurrencies, USDC can be stored in a wallet. You can use several types of wallets:

• Cold wallet. Cold wallets keep private keys offline and out of the reach of potential attackers. They could be electronic devices not connected to the internet, paper, or some other physical copy of the private key.
• Hot wallet. Unlike cold wallets, these need to be online in order to use them. They could be desktop clients or online/web wallets that store credentials with the online wallet provider rather than the user’s hardware. The most common Ethereum hot wallet is Metamask with 10 million+ users and a 3.4 rating on the Chrome store. However, the new Gamestop wallet has a 5.0 rating and over 50,000 users just days after its release.
• Exchange wallet. These are forms of online or web wallets, but they don’t actually hold the user’s USDC. Instead, they constitute an electronic representation of the user’s trades, while actual funds are stored in the wallet of the exchange itself. When sending funds to an exchange account, there may be some form of identification system or memo in place to ensure that the funds reach the correct user.

USDC Energy Consumption

Since USDC doesn’t run its own blockchain and doesn’t need any sort of consensus mechanism, it requires no computing power or network of computers to be connected in order to support it.

However, the blockchains it runs on generally require validators or miners and have inherent energy costs associated with them. USDC demands only a fraction of their throughput, however, as each of these blockchains hosts an immense framework of tokens, applications, smart contracts, etc.

Besides, this usage of a fraction of the energy that a handful of blockchains require is in stark contrast to the energy consumption of the actual US dollar’s infrastructure. Given that this includes printing facilities and security in many countries, vaults and storage facilities, transport, and so on, it is vast enough to make even quantifying it difficult.

Is USDC a Good Investment?

As a stablecoin pegged 1:1 with the US dollar, USDC doesn’t offer any real upside over the real dollar in capital gains terms. That said, it does allow borderless and much faster transactions.

Traders can take advantage of USDC’s practically instantaneous settlement to quickly move into and out of various crypto assets and fiat currencies. Not to mention, it also offers a safe harbor in bearish market conditions.

However, even if USDC holds its peg and fulfills its purpose, it is still a dollar equivalent. Therefore, it may not be a very good store of value given the dynamics of inflation and the money supply employed by central bankers.

What are the Risks of Owning Stablecoins?

As an asset-backed US dollar stablecoin, the main risk USDC faces is a threat to its reserves. Although, according to Circle, USDC remains fully regulated, any shortcoming in its reserves could see it lose its peg to the dollar.

The issuance, redemption, and existence on several blockchains also make USDC subject to the risks that these platforms face. Hacks or attacks using previously unseen vectors could lead to USDC losing stability, but this is a threat faced by the industry as a whole.

Growing government interest in cryptocurrencies has also given rise to the concept of Central Bank Digital Currencies, or CBDCs. While these haven’t been implemented in the US or Europe yet, they’ve been floated by lawmakers. CBDC’s potential effect on existing stablecoins is as yet unclear.