Stablecoins such as the USD Coin (USDC), are emerging as the preferred medium for transacting seamlessly across the globe and as a link between relatively volatile cryptocurrencies and real-world fiat currencies.
The USDC protocol, launched jointly by Coinbase and Circle called Centre in 2018, was created to offer crypto users and investors the ability to transact with USD Coin, its native token that is pegged to the US dollar.
Stablecoins can be pegged to a fiat currency or an asset such as gold. The creators of USDC decided to algorithmically bind its value to the dollar, which is the world’s reserve currency and most preferred denomination for international transactions, to spur its adoption at a faster rate.
USDC is effectively a digital form of the dollar. Its holders can pay for goods and services without worrying about price volatility affecting the value of their fiat wealth when converting into crypto.
Created with the vision of providing the world’s citizens easy access to cryptocurrencies, the USD Coin protocol allows other blockchain projects to develop unique products such as wallets and exchanges.
The USDC token can be used by businesses and individuals as a payment or reward system for internal consumption or even to reward employees, partners, and other affiliates by using USDC’s Payouts solution.
Offered at a price consistent with the value of the US dollar, USDC tokens can be purchased and converted into any fiat money in a few simple steps.
All users need to do is register with a partner exchange that supports USDC and transfer fiat money equivalent to the number of tokens they want to buy.
Investors and businesses can directly purchase the stablecoin by opening a Circle account as well instead of opting for partner exchanges.
The fiat money can be deposited by using credit cards and bank transfers, with withdrawals being triggered when the exchange sends a request to the USDC smart contract that converts the stablecoin back into fiat money.
When USDC tokens are liquidated, an equivalent number of tokens is burnt, thus maintaining the balance needed for the entire system to perform flawlessly.
Offering a faster, more efficient, and safer way of transferring or exchanging money on a global scale, USDC has upheld high standards of trust and transparency. This has paid off in the long run, with the stablecoin emerging unscathed from the Luna debacle and quickly recovering its dollar peg in the aftermath of Terra’s spectacular crash.
USDC reserves are held in separate accounts with regulated US financial institutions in the form of cash and short-duration US Treasuries, with total reserves amounting to almost $56 billion as of last week and entirely separate from Circle’s operational accounts.
The company plans to disclose the stablecoin’s reserves on a daily basis, a move that will bolster its rise up the stablecoin rankings.
Circle has reiterated its intent to take the company public towards the end of 2022, a sign of its financial health when compared to peers.
With users incurring only minor transfer fees for transactions, USDC is fast replacing traditional banking methods in developed markets.Unlike other stablecoins like Terra, the developer team behind USDC has delivered on the promise of backing up USDC with 100 percent collateral so that the stablecoin is always redeemable, in turn winning over scores of investors across the globe.