What is USD Coin (USDC)? How it Works & Where To Buy It?

USD Coin (USDC) is a popularly used stablecoin with a 1:1 ratio with the US dollar. It is widely used for payments, allowing a seamless value exchange.

USDC tokens are backed by dollar reserves or equivalent dollar-denominated assets equal to the number of USDC tokens. These reserves are kept in accounts with U.S-regulated financial institutions.

USD coins are essentially digital dollars issued and redeemed using blockchain-based smart contracts.

How USDC Works

You might be wondering, ‘how does USD coin work?‘

Your dollars (fiat currency) are used to mint USD coins (create new coins) by a token issuer – similar to how a treasury prints money.

This process needs to occur to ensure transparency, integrity, and balance in the supply. Remember, each USDC token needs to be backed by $1 or the dollar-denominated assets equivalent. Fiat currency is thereby used to purchase a non-government issued digital dollar, USDC.

More technically, individuals seeking to purchase directly from a USDC issuer can transfer their funds into the system. The issuer then enacts a set of commands with the Center network, which verifies, mints, and validates USDC tokens. By token compliance controls, customers can transfer their allocated tokens elsewhere should they wish to do so.

When redeeming USDC, issuers perform the reverse sequence, and tokens are burned (removed from the supply). Once the necessary verifications and validations are complete, funds will be returned to the individual’s external bank account.

Global financial institutions could become USDC issuers by capitalizing on the open-source framework. These institutions are required to become members of the Center membership scheme.

What Is USDC Used For?

USDC is the second-largest stablecoin by market cap value – with an almost $52 billion market cap.

People mainly use stable coins such as USDC because of their price stability. It makes then an excellent value exchange when facilitating payments.

Another reason the USD coin is used as a digital dollar and can be stored in a wallet on a crypto exchange. This alleviates the need to deposit funds to purchase crypto whenever an individual wants to purchase another digital asset like Bitcoin, Ethereum, or other cryptocurrencies.

Where To Buy USDC?

USDC is a commonly used stablecoin and can be bought on multiple exchanges. Individuals need to use fiat currencies to buy USDC on a crypto exchange.

The following crypto exchanges are safe places where you can buy, sell, transfer and store USDC and other cryptocurrencies.

Five of the most popular crypto exchanges are:

1. Binance (US Customers use Binance.US)
2. Gate.io
3. Coinbase
4. KuCoin
5. Bitfinex

After using dollars to purchase USDC coins, your wallet will be credited with USDC tokens. Individuals can use their debit or credit card to purchase USDC on a crypto exchange that supports USDC.

The USD coin price is pegged to the U.S dollar, but exchanges still charge fees and have varying exchange rates.

How long has USDC existed?

USD coin was released in September 2018. Its launch was powered by a major collaboration between Circle and Coinbase, which led to the founding of the CENTER consortium.

What’s controversial about USDC?

There has been a large amount of controversy surrounding USDC. Let’s take a look at 2 of the top controversies surrounding USDC, the CENTER Consortium & Coinbase.

1. Some Assets of USDC Carry Default Risk – Following the disclosure of USD coin assets by Circle, it was revealed that the “1 USDC = $1” that Coinbase had been promoting was not entirely true. Assets included corporate bonds and other assets that were susceptible to losses. This would have been evident if the majority of USDC had been redeemed by customers.
2. It Has De-Pegged Before – The entire point of a stable coin is to maintain price stability. However, in 2019 USDC briefly surged to $1.19. Most recently, USDC fell to $0.89 in May 2021. These price fluctuations have sparked severe concerns in the community.

How many USD coins are there?

There are currently 51.88Bn USDC tokens in circulation.

The USD coin (USDC) is the 2nd largest stablecoin on the market.

The supply of USDC fluctuates according to supply and demand. When customers transfer funds, new USDC is minted, and the supply increases. When customers redeem USDC, tokens are burned, and the supply is reduced.

There will always be the need for equilibrium. The supply of USDC tokens must be backed by an equivalent amount of US dollars or dollar-denominated assets held in US-regulated financial institutions.

Although stablecoins are ‘pegged,’ there have still been instances where stablecoins have moved off their peg due to supply and demand.

USDC had previously de-pegged in 2019 when it briefly surged to $1.19. The reverse occurred during the bull run of 2021, where USDC fell to $0.89.

Can you mine USDC?

It’s not possible to mine USDC. However, certain DeFi protocols allow individuals to earn through lending out their USDC passively.

What is the market cap of USDC?

The market cap of USDC is currently $51.88Bn.

USDC Market cap = total amount of coins in circulation x $1

Eg. 51,880,000,000 x $1 = $51,88Bn

The market cap of USDC has grown significantly in recent years.

Biggest Competitors Of USDC

USDC has garnered more daily active users, and its trading volume has increased exponentially. This is because people trust that it’s backed by assets, integrated with multiple blockchain networks, and more exchanges are making it available to customers.

There are, however, competitors that have been performing increasingly well. USDT is the current market leader of stablecoins, with a market cap exceeding $80 billion.

USDT has expanded, and crypto users widely use tether tokens. 57% of Bitcoin is traded into USDT.

Another major competitor was TerraUSD (UST), which saw rapid user adoption. However, it crashed when it lost its peg to the dollar.

What are the future plans for USDC?

Center consortium’s plans for USDC are evident. They plan to increase exposure and ensure more integration with projects and wallets.

USDC coin is currently compatible with an extensive list of digital wallets, and the company plans to grow this number.

The main objective is to grow the ecosystem innovatively, attracting more users and investments.

Pros and Cons of USDC:

Stable coins are inherently different from digital assets like Bitcoin and Ethereum because they do not experience the same volatility. They are utilized because of their stability. Let’s look at the pros and cons of the USD coin.

Pros

• Price Stability – The fundamental function of the USD coin (USDC) is maintaining a stable value. Achieving price stability increases user trust and encourages user adoption.
• Seamless Value Exchange – Individuals increasingly opt to make payments in USDC because of its speed and stability.
• More Exchanges Are Listing USDC – As USDC has grown in popularity, it has created a snowball effect that has led to more and more exchanges that accept USDC. This exposes more people to USDC and, in turn, drives up daily users.
• USDC Can Be Redeemed – Individuals can redeem USDC and have funds sent to their bank account. This is made possible by the backing of USDC by dollars and equivalent dollar-denominated assets. This establishes a sense of security and trust.
• Increasingly Being Used In Decentralized Finance – USDC is being used in decentralized finance, specifically lending protocols, where individuals can lend out their USDC and earn passive rewards in return.
• Used As A Shield Against Price Volatility – Volatility in crypto markets can lead to individuals experiencing sharp declines in the value of their digital assets. Many individuals trade their assets into a stablecoin like USDC to shield them against negative price volatility.

Cons

• USDC Isn’t Necessarily A Profitable Investment – USDC and other stablecoins aren’t purchased because their price is expected to appreciate; they’re purchased because their price remains stable. The opposite is the case with cryptocurrencies like Bitcoin, for example.
• USDC Not Fully Cash-backed – USD coin and Center consortium are surrounded by controversy, and many are concerned that stable assets do not entirely back USDC. According to a recent disclosure of USD coin assets, it was revealed that risky investments like corporate bonds were also backing assets of USDC. These risky assets can be subject to losses.
• There Is A Lot Of Competition – The USD coin is currently the 2nd largest stablecoin on the market, and the competition among stablecoins is tough. Because these stable assets don’t appreciate, there is often a reduced interest in customers seeking a new stablecoin. Many individuals would choose the #1 stable coin and trust it because of its reputation.Garnering additional adoption for USDC is especially challenging due to these reasons, and it’s going to take significant partnerships and investments to maintain growth.

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