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What is USDC?

USDC is a stablecoin that is fully backed by U.S. dollars and dollar-denominated assets. It offers an alternative to other highly volatile cryptocurrencies such as Bitcoin and Ethereum, providing a stable digital currency. Managed by the fintech company Circle, USDC maintains an approximate 1:1 peg with the U.S. dollar by holding equivalent cash assets in segregated accounts with regulated U.S. financial institutions.

This design enables USDC to serve as a reliable medium for digital transactions and a hedge against inflation while offering interoperability across various blockchains. However, unlike other cryptocurrencies, USDC is not an investment vehicle; instead, it is designed to retain a consistent value similar to that of the U.S. dollar.

Who created USDC?

USDC was first announced in May 2018 and launched in September of that year by Centre, a joint venture between the peer-to-peer payment provider Circle and Coinbase, one of the world’s largest crypto platforms.

The Centre Consortium aims to provide the governance and standards required to build a digital financial ecosystem. Compared to other stablecoins available on the market today — namely Tether (USDT) — USDC aims to improve the regulation, transparency and licensing standards of stablecoins.

The project has attracted the attention of other major players in the financial sector thanks to the reputation and experience of the founding institutions in the industry. USDC was initially backed by $110 million USD from Goldman Sachs and Breyer Capital, among other notable investors.

How does USDC work?

Unlike cryptocurrencies such as Bitcoin, new USDC isn’t released into circulation through the mining process. Instead, new USDC tokens are minted when users and businesses deposit United States government backed currency into their Circle account. A 1:1 representation of that asset, whose record of transactions is recorded and maintained using the efficiencies of blockchain technology, is created by exchanging USD for USDC.

Conversely, when USDC is deposited in exchange for USD, the tokens are burned to ensure the number in circulation matches the fiat amount held in reserve at all times.

At issuance, the equivalent amount of USD is held in cash and short-term U.S. Treasuries by Circle, ensuring that the value of USDC remains pegged with the value of USD. This means that unlike most cryptocurrencies that can fluctuate in value rapidly, USDC is designed to weather financial downturns with minimal volatility.

The one-for-one cash holdings that Circle uses to back their coin have allowed it to maintain a reliable peg to the U.S. Dollar, even during periods of extreme market volatility.

While USDC had previously held small amounts of commercial paper, a type of short term debt issued by companies to cover their more immediate liabilities, the company has recently claimed to hold only government backed assets.

As a registered money service business in the U.S., Circle’s holdings are audited by international accounting giant Grant Thornton.

USDC Use Cases

As a stable digital asset, USDC has several uses:

• Hedge against volatility: Investors exposed to other cryptocurrencies can reduce their portfolios’ volatility by strategically buying a stablecoin like USDC. Owning USDC during periods of significant market volatility can help to stabilize a portfolio’s value.
• Pricing in fiat money: Digital assets listed on cryptocurrency exchanges can be priced in fiat money using a stablecoin like USDC.
  Stable price-pegging: The price stability of USDC enables the stablecoin to represent equity ownership or fund investments. USDC can also be used to represent liabilities or debt.
• Remittances: USDC can be used to send funds across borders. Recipients can store USDC without using a bank account or being concerned about price volatility.
• U.S. dollar exposure: Non-U.S. investors wishing to gain exposure to the U.S. dollar can add USDC to their cryptocurrency investment portfolios.
• Hedge against inflation: Non-U.S. investors concerned about inflation of their local currency can hold a stablecoin like USDC to help protect the value of their money.
• Global crowdfunding: Startup companies and nonprofit organizations can raise money from investors and donors worldwide by soliciting digital currency. Raising funds in the form of a stablecoin like USDC ensures that the value of the money raised does not fluctuate over time.
• Blockchain interconnection: Since USDC is compatible with several autonomous blockchains, USDC can be a way to integrate payment systems and applications across blockchains.