What is a USD Coin?
USD Coin is a digital dollar issued by Circle and Coinbase Global cryptocurrency exchange. It is the second-largest stablecoin by market capitalization after Tether.
How did USDC come about?
Circle first announced plans to launch its own digital dollar in May 2018 and raised $110 million in direct investments for the project. To control the issuance and price of USD Coins, a separate governing consortium called Centre was created. The project was launched on the Coinbase exchange on September 26, 2018.
USD Coin tokenomics
According to the first report published in October 2018, around 127 million US digital dollars were in circulation at the time. As of now, the total circulating supply is 41.3 billion coins, with a daily trading volume of $2.4 billion in the USD Coin pair. USD Coins are typically used to preserve value and diversify risk in volatile markets. Its peg to the dollar compensates for cryptocurrency price instability.
A stablecoin is issued when fiat money or precious metals are invested. The growth of the total supply of the digital dollar on exchanges is an indicator of high interest in its use. Note that the overall capitalization decreases if the market is under strong pressure from bears and regulatory authorities. For example, from February 5 to 12, 2023, the circulating supply decreased by more than a billion. The reason was the mass correction of the market and the BTC price falling below $22,000.
USDC is launched on Centre's open-source fiat stablecoin platform.
To appear on the user's balance, a three-stage process is launched:
- The customer sends US dollars to the cryptocurrency platform's wallet.
- The exchange uses a smart contract to issue the same amount of USD Coin.
- The customer receives the newly created digital dollars, and the exchange sends the fiat to Coinbase Global's reserve account.
(For more information on how the algorithm maintains the coin's price at the same level as the underlying asset, see here.)
Prospects for the USD Coin project
- The creators of the digital dollar insist that it can be something more than just a safe haven from volatility for crypto traders. It is intended for use in decentralized finance and online games as well as accepting digital payments.
The goal of the Centre consortium is to create a large ecosystem that other crypto projects using USDC can join.
Currently, USD Coin can be used on different blockchains, including:
- Avalanche
- Ethereum
- Flow
- Hedera
- Solana
- Stellar
- TRON
In September 2022, Circle and Robinhood signed an agreement that envisaged USD Coin becoming the first stablecoin offered by the broker. Circle also collaborates with two of the largest payment networks, Visa and Mastercard. Payment operators of the Stripe and Checkout systems have also announced support for USDC.
USD Coins can be staked on CEX cryptocurrency exchanges as of the date of this article. Most of these platforms allow users to deposit digital dollars into liquidity pools used for trading cryptocurrencies. However, after the SEC began attempting to ban staking, this method of passive income became high-risk.
It would be wise to stay away from USD Coin staking on U.S.-registered exchanges for now due to the high regulatory risk.
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