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What is a USDC Stable Coin? Definition and Working Explained

  • The USD Coin is pegged to the U.S. Dollar and always maintains the same price.
  • U.S.-regulated reserve assets fully back USD Coin.

The USD Coin is a stable coin fully backed by the U.S. dollar. This means that one USD Coin is issued every time one U.S. Dollar is deposited. Since it is a stablecoin, the price of USDC is designed to remain stable. 

What are stablecoins?

These are cryptocurrencies whose price is pegged or tied to any asset. There are a variety of stablecoins. Some are pegged to U.S. dollars, while others are pegged to other assets. Stablecoins were introduced to deal with the price volatility of cryptocurrencies. 

Price volatility is a major concern for cryptocurrencies, as they are tradable assets. Trading often affects their price. Stablecoins are a perfect solution for this issue, as they allow users to enjoy all the benefits of cryptocurrencies while maintaining constant prices.

What is USDC?

USDC is a fiat-backed cryptocurrency. That’s why it’s a stablecoin. The special feature that this crypto provides is additional security and trust. Because USDC reserve assets are held in segregated accounts with U.S.-regulated financial institutions, this ensures that the users’ assets are fully secure. Although U.S.-regulated institutions segregate their assets, it should still be noted that the U.S. Government does not issue this coin. 

Every time a user initiates a transaction to buy USDC, fiat currency is deposited, and one USD Coin is issued. The inverse happens when you sell one USD Coin because every time a user sells USDC in exchange for fiat currency, one USD Coin is burned. 

Currently, USDC is compatible with many blockchains available in the market, including Ethereum, Algorand, Solana, Stellar, and Tron. 

This coin is managed by a consortium comprising two famous cryptocurrency exchanges, Coinbase and Circle. Both are old and trustworthy companies in the crypto market. The companies aim to generalize the use of the USD Coin since it is a better alternative to normal fiat currency because it can be used globally without any issues.

Advantages of USD Coin

The biggest advantage of the USD Coin is its low price volatility. This coin was launched in 2018. Since then, the crypto market has seen a lot of collapses, like the Terra Luna collapse and the Celsius collapse. These collapses shook the whole crypto market, and it is also estimated that the crypto winter started because of these collapses. Even during such volatility, this coin showed very little volatility. Still, the coin is constant and always maintains a price near $1.

The second big advantage of the USD Coin is that U.S.-regulated reserve assets fully back it. Hence, it is fully trustable, and the chances of it being a fraud are almost zero.

The third advantage of Using USDCoin is that it can be used as a hedge against the market volatility of cryptocurrencies. Apart from investing in volatile cryptocurrencies like Bitcoin and Ethereum, investors can dedicate some portion of their portfolio to Tether as a secure investment option against the high volatility of the crypto market.

Deepika

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