What Is USD Coin (USDC)?
|— Stablecoins offer a great way to spend digital assets in day-to-day and institutional use cases: they avoid market volatility by pegging their value to fiat currencies or commodities.
— USDC is currently one of the most popular stablecoins, available across global exchanges and P2P platforms.
— USDC is just one of the many supported assets in the Ledger Ecosystem, most easily managed as the ERC-20 token standard with your Ethereum wallet.
Stablecoins are a unique type of digital asset. The value of these assets is pegged to real-world assets: fiat currencies, like the U.S. dollar, or commodities, such as gold or silver. These types of assets also have unique positioning to avoid the impact of market fluctuations. Since a stablecoin’s value is pegged to a real-world asset, crypto market volatility doesn’t affect them. This offers traders a great way for crypto traders to take profits or make swaps without off-ramping.
Essentially stablecoins often operate as fiat on-chain. Much like cash, they are suitable for everyday purchases, such as buying in-game items or paying for crypto services.
But unlike fiat, stablecoins operate on blockchain networks, just like traditional cryptocurrencies such as Bitcoin or Ether. As such, they get all the perks of blockchain tech: sending assets from one person to another doesn’t require a middleman, and transactions are transparent and secure. Peer-to-peer (p2p) transfer slashes the waiting times you’d expect with traditional financial transactions, thus allowing you to execute cross-border trades with ease. Essentially, stablecoins can help funds get to places where banks have struggled.
But beyond that more compelling use case, stablecoins are also popular with crypto traders, speculators, and digital artists alike. Thus today, countless iterations exist. That said, there are only a handful of stablecoins people actually use. One such stablecoin is USDC.
But what is it and how does it help the crypto ecosystem? Let’s take a look.
What is USDC?
USD Coin (USDC) is a tokenized version of the U.S. dollar (USD) that works on 15 different blockchain networks: Algorand, Arbitrum, Avalanche, Base, Ethereum, Flow, Hedera, NEAR, Noble, OP Mainnet, Polkadot, Polygon PoS, Solana, Stellar, and TRON. Designed to maintain a constant value of $1, you can always trade USDC for the same value you deposited at any time. But unlike the traditional dollar, you can use USDC to access countless crypto platforms and services. It’s currently the second largest stablecoin with a market capitalization of $24.37 billion, accounting for 19% of the total stablecoin market.
USDC also provides an open-source smart contract for companies to develop blockchain products such as wallets and exchanges. It further powers apps to provide real-time access to payments, trading, and financial services.
So how did it get to this point?
Who Created USDC?
USDC was created by a non-profit consortium funded by crypto exchange Coinbase and financial technology company Circle. Circle aims to change the way money moves around the world. Its mission is to “raise global economic prosperity through the frictionless exchange of value”. To achieve this, it announced its digital dollar in May 2018, during the bear market, and launched in September of the same year. Then in 2021, Circle launched another stablecoin, EURC, pegged to the value of the Euro.
Both USDC and EURC are backed by highly liquid reserves managed exclusively by Circle. That said, the company has a dedication to transparency: publishing the details of its reserves every week along with a third-party assurance of its backing.
What Is USDC For?
Like most stablecoins, USDC has a range of use cases, but some of the most popular include the following:
Hedging Against Volatility
Throughout its history, USDC has largely maintained its 1:1 peg, hence providing low price volatility compared to usual crypto assets. Since it’s fully backed by US-regulated reserve assets, it provides assurances that token holders can redeem one USDC for exactly one USD at any time. This means traders can use it to hedge against market volatility.
P2P Transfer of Assets
Since USDC operates on the blockchain, it benefits from the features of blockchain technology, such as the permissionless p2p transfer of assets. That means you can transfer USDC without a middleman tampering with the transaction or taking a cut of the fee.
Permissionless and Almost Instantaneous Cross-Border Payments
Beyond that, USDC also enables users to transfer currency worldwide quickly, offering a more viable option than traditional channels, such as bank transfers for cross-border transactions. There are no 8-day processing times on the blockchain. Instead, you can make international transfers almost instantly.
Since USDC is a great method of exchanging value across borders, it also has a unique positioning in terms of remittances. To explain, political or economic instability in some countries makes receiving funds from friends and family members challenging. Using USDC, there are no hidden costs such as exchange or service fees. There are also no middlemen processing transactions, meaning there’s no one to control who you can and can’t send funds to. No matter what country you are from and the rules they may have, receiving remittances using USDC is easy.
Since USDC operates primarily as an ERC-20 token, it is supported by countless DeFi platforms and crypto apps and services. Almost every EVM-supporting platform will accept USDC. It’s also readily available on centralized and decentralized exchanges, meaning buying it is relatively simple too.
So now you know all about why it’s so popular, let’s dive a little deeper into USDC. In fact, how does it work exactly?
How Does USDC Work?
USDC is issued by Circle on a 1:1 basis in exchange for US Dollars. Circle manages these reserves, which it holds in traditional financial institutions (such as banks). The majority of the USDC reserve of these dollars is held in the Circle Reserve Fund (USDXX), an SEC-registered 2a-7 government money market fund. This Fund, according to Circle, “can contain cash, short-dated US Treasuries, and overnight US Treasury repurchase agreements with leading global banks.” Then, when USDC tokens are sold back, Circle pays the user from the reserves and handles the destruction of the original USDC to avoid inflation. Of course, there’s a bit more to it than that though, so let’s explore how USDC stays pegged to USD.
How Does USDC Stay Pegged to USD?
USDC stays pegged to USD by ensuring its entire supply is backed by U.S. fiat currency and equivalent assets. It does this by keeping one dollar or cash equivalent in reserve for each USDC in circulation. While USDC is backed, it’s important to note that the reserves do not only contain dollars. This is what can cause minor fluctuations in its price. If there is an imbalance or error in any of their calculations, or a cash equivalent they hold in reserve is worth more or less than it was previously, it may temporarily skew the price of USDC.
At its largest fluctuations, its price rose to an all-time high (ATH) of $1.19 in May 2019 and an all-time low (ATL) of $0.87764 in March 2023. Thus, the 1:1 peg may not be maintained 100% of the time. However, more often than not, Circle has managed USDC effectively, retaining its peg almost constantly.
Risks of USDC
Of course, with any digital asset, USDC has its risks too. As one of the most popular stablecoins, it faces some challenges. Let’s take a look at some of USDC’s downsides.
Vulnerable to Price Fluctuations of the United States Dollar
USDC is pegged to the value of the United States dollar. This means the stablecoin is subject to the greenback’s price inflation. In short, USDC’s purchasing power depends on the U.S. dollar’s strength. If USD loses its value, so does USDC. However, this is true for all stablecoins pegged to the dollar: not just USDC.
USDC and its reserves are managed by the centralized entity Circle. This poses a few risks. Firstly, should Circle go out of business, USDC may also take a hit. Not only that, it also means Circle could abuse its power. Using USDC, you have to trust in Circle’s centralized control: it controls the accounts where the reserves are stored and decides how many coins are issued.
In the same vein, USDC has a back door that allows Circle to stop payments if it believes the funds are being used illicitly. This was confirmed by Circle in July 2020 when it froze $100,000 of the stablecoin at the behest of law enforcement.
Although this means USDC is more centralized than some of its competitors, it also allows Circle to stop criminals in their tracks, and hopefully return stolen funds to their rightful owners.
Circle stores its reserves for both USDC and EURC in traditional financial institutions, i.e. banks. This introduces counterparty risk. Even if Circle manages the assets effectively, you’re also relying on the banks it uses to manage the reserves appropriately. If a bank containing too much of USDC’s reserves fails, it would diminish USDC’s liquid backing. This causes stablecoins to depeg. Unfortunately, that’s exactly what happened in March 2023: three US banks, Silicon Valley Bank (SVB), Signature Bank, and Silvergate Bank failed. Since Circle trusted SVB with $ 3.3 billion in cash reserves and relied on Signature and Silvergate for other services, USDC depegged by 13%. It also impacted fellow stablecoin DAI, as almost half of all DAI is backed by USDC. Fortunately, both coins recovered their pegs after the Federal Reserve agreed to support the banks’ creditors.
Transparency and Backing
The reserve backing of USDC comprises a mix of assets, the full details of which are not completely disclosed by Circle and Coinbase. Although they follow US regulations, it’s understandable that you may want to know the full details of how they are backing your assets. If the reserves aren’t managed properly, you could end up losing your funds.
For example, among these assets, USDC reserves include USD-denominated Treasury Bonds. While being low-risk investments, these are not instantly convertible to cash. That means if everyone decided to redeem their USDC for USD, it may cause USDC some liquidity issues.
That said, Circle holds USDC reserves in legally regulated financial institutions that are subject to monthly attestations. That means the reserves are audited, and you can likely trust that Circle will not decide to run away with all of your valuable assets: even though they could. Plus, since it’s backed by a majority of liquid cash and cash equivalents, it should have the liquidity to cover every asset in circulation. Plus, Circle publishes its reserves weekly.
How Do I Buy USDC?
You can buy USDC on almost every centralized and decentralized exchange today. However, every platform offers a different level of security (and a different price). One of the easiest ways to get your hands on some USDC is via the Ledger ecosystem. This way you can buy ERC-20 tokens directly with fiat currencies via an on-ramp service, and it will transfer directly to the account protected by your device. That means you can skip the risk of a centralized exchange wallet powering down and leaving you without access to your assets.
So, how do we buy USDC in the Ledger ecosystem?
Put simply, you can manage USDC with your normal Ethereum account, as it operates as an ERC-20 token. Let’s see how that works:
- Install the Ethereum app on your Ledger device if you haven’t already.
- To create an account specifically for USDC, navigate to your accounts and click “add an account”.
- Select Ethereum and click continue
- You’ve now successfully created an account for your USDC.
- Next, navigate to the “Buy” section of Ledger Live
- Search for USDC and buy it directly in Ledger Live via its Buy Provider, Coinify.
- Specify which account you want to receive it in.
- Receive the USDC in your ETH account protected by your Ledger device.
Final Thoughts on USDC
As one of the most popular stablecoins today, USDC is an important part of the crypto ecosystem. The chances are, if you’ve had any interactions with stablecoins, you know what USDC is. Of course, each stablecoin has its strengths and weaknesses: with USDC preferred by countless traders, artists, speculators, and more.
Using USDC allows you to benefit from the relative stability of fiat currencies while opening up the door to new use cases: allowing you to access trading platforms, pay for crypto services, and even in-game items.
And of course, by using a blockchain asset, there are no middlemen involved. Transferring USDC from yourself to someone else doesn’t involve an intermediary: the blockchain handles the transaction itself. Beyond that, you can keep your USDC in a non-custodial wallet, which means only you have access to it. Unlike the bank or centralized exchange, non-custodial wallets allow you to truly own your assets. And what better non-custodial wallet to use than one that keeps your keys safe in an unhackable chip?
Rest assured; your USDC is not just safe from middlemen, but remote and physical hacking too. But don’t just take our word for it: get a Ledger device and start managing your USDC with confidence, ownership, and ease. Because that’s what Ledger is all about; secure self-custody.
Is USDC Secure?
USDC is an ERC-20 token, so when it comes to security, it relies on the underlying Ethereum network. If you’re worrying about the security of its peg, then that responsibility lies with Circle. To be transparent, USDC is audited by a third party that publishes information on its reserves periodically. Plus, it also complies with US regulations. These features mean USDC is reasonably secure both technically and financially.
Of course, your USDC is only as secure as the address you store it at. If you want to make sure your USDC is as secure as possible, the best option is to secure it with a hardware wallet. That’s because hardware wallets are non-custodial, meaning only you have access to your funds. Plus, they are also immune to online threats, meaning you can explore the web3 ecosystem without worrying about hackers accessing your USDC.
Which Blockchains Is USDC Available On?
USDC is available across multiple blockchains. Its issuer, Circle, continues to expand USDC’s presence throughout the cryptocurrency ecosystem. This deployment varies depending on the blockchain type, with USDC being deployed via smart contracts for Ethereum Virtual Machine-compatible chains and using built-in token primitives for non-EVM chains.
Currently, USDC is available natively for 15 blockchain networks, including Algorand, Arbitrum, Avalanche, Base, Ethereum, Flow, Hedera, Near, Noble, Optimism, Polkadot, Solana, Stellar, and Tron, with more integrations expected in the future.
Is USDC a Stablecoin?
Yes, USDC is a stablecoin. As a stablecoin, USDC’s value is directly tied to the U.S. dollar. To achieve this, USDC is fully backed by assets of equivalent value.