What is USD Coin and how does it work?

If you’ve scrolled through any crypto market tracker in recent times, you would have undoubtedly encountered the name “USD Coin”. In this article, we will explore what USD Coin is and how it operates, highlighting its key features and distinguishing it from other popular cryptocurrencies like Tether.

USD Coin (USDC) is a stablecoin that was launched in September 2018 by a consortium called Centre, which was founded by Circle and Coinbase. As its name suggests, USD Coin is pegged to the value of the United States dollar, with each USDC token representing one US dollar. This stability makes it an appealing option for individuals and businesses seeking to use digital assets while minimising exposure to the volatility often associated with other cryptocurrencies.

One of the primary objectives of USD Coin is to provide a trustworthy and transparent digital currency that maintains a stable value. To achieve this, USD Coin operates on a concept called “full reserves.” This means that for every USDC token in circulation, there is an equivalent amount of US dollars held in reserve by regulated financial institutions. This ensures that the value of USDC remains consistent and fully backed by actual fiat currency.

Unlike traditional fiat currencies that rely on central banks, USD Coin operates on a decentralised blockchain network. It is built on the Ethereum blockchain, which allows for transparency, security, and efficient transactions. The use of blockchain technology ensures that every transaction made with USD Coin can be traced and verified, adding an extra layer of trust to the ecosystem.

To acquire USD Coin, users can either purchase it from various cryptocurrency exchanges or convert other cryptocurrencies into USDC. The supply and demand of USD Coin are influenced by market forces, similar to any other digital asset. When users purchase or redeem USDC, the corresponding amount of US dollars is moved between the reserve accounts and the user’s digital wallet.

USD Coin vs Tether

Both USD Coin and Tether serve the purpose of providing stability in the volatile cryptocurrency market, but they differ in a few key aspects.

USD Coin is committed to transparency and regular audits. Centre, the consortium behind USD Coin, publishes attestation reports, allowing for independent third-party verification of the USD Coin reserves.  USD Coin operates within a clear regulatory framework. Centre works closely with regulators to ensure compliance and transparency. On the other hand, Tether has faced scrutiny in the past regarding its transparency↗︎ and the lack of a full audit.

When it comes to the blockchain platform, USD Coin is built on the Ethereum blockchain, which is known for its security, scalability, and widespread adoption. Tether initially started on the Bitcoin blockchain but has expanded to other blockchain platforms like Ethereum and Tron.

Market Capitalisation

The USD Coin (USDC) boasts a notable market capitalisation of $28 billion as of June 2023. Its all-time high was $55 billion in July 2022.

Takeaway

USD Coin offers the advantages of a digital asset while maintaining stability through its peg to the US dollar. USD Coin stands out with its commitment to transparency, regulatory compliance, and the use of the Ethereum blockchain.