Introducing the USDC Stablecoin
USDC or USD Coin can best be described as a “tokenised” version of the U.S. Dollar, also referred to as a stablecoin. Despite the revolutionary advent of cryptocurrencies like Bitcoin, it became increasingly clear that there was a clear need for a stability mechanism to combat the volatility of digital assets.
Launched in September of 2018 by peer-to-peer payment processing company Circle and Coinbase, the USD Coin was dreamt up to offer both traders and investors the “best of both worlds” on the blockchain. By creating a stablecoin pegged to the US dollar, people were given the option to switch between volatile digital assets like Ethereum and Bitcoin and a static store of value token, all without leaving the blockchain.Since its inception, USDC has become a staple of the digital assets industry and a flagship stablecoin thanks to its ease of use, backing by “fully reserved assets”, and dedication to compliance with governmental regulatory bodies.
Since its inception, USDC has become a staple of the digital assets industry and a flagship stablecoin thanks to its ease of use, backing by “fully reserved assets”, and dedication to compliance with governmental regulatory bodies.
Although USDC is positioning itself as the “world’s leading stablecoin” with the largest stablecoin ecosystem, it faces stiff competition from other emerging stablecoins like BUSD, DAI, and especially USDT.
|U.S. Dollar Tether
|U.S. Dollar Coin
|Binance U.S. Dollar
USDC closing in as top stablecoin. Data from Coinmarketcap.com (Oct. 2021)
What Exactly are Stablecoins?
Think of a stablecoin as a store of value on the blockchain—a digital “I-owe-you” backed by other assets. For instance, a $100 poker chip is a store of value for fiat currency within the confines of a casino, backed by $100 of fiat currency in the casino’s vault. This chip can be exchanged at the money changer at any time and redeemed for the underlying asset backing it in which in this case is USD.
Since digital assets are growing in popularity, stablecoins are becoming more and more necessary for traders and investors in the world of decentralised finance.
Stablecoins were created for a variety of reasons, most notably:
- To provide digital asset traders and investors with a store of value on blockchain that doesn’t correlate directly with other digital assets like Bitcoin or other altcoins
- Reduce financial risk and volatility between digital assets
- Establish a firm link between real-world assets and digital assets
- Maintain a low-cost, quick, and effortless way to send value around the world at a moment’s notice
By providing both investors and traders with an easy on/off-ramp, there is no longer a need to exchange between fiat currency and digital assets to execute trades or reorganise portfolios.
Types of Stablecoins
Without diving too deeply into stablecoins, it’s important to note that there are four distinct types such as:
- Fiat-backed stablecoins - pegged to the value of the US dollar or any other fiat currency
- Commodity-backed stablecoins - pegged to the value of real-world assets like gold, silver, diamonds, or even real estate
- Cryptocurrency-backed stablecoins - collateralised by a different non-stablecoin digital asset on the blockchain
- Algorithmic stablecoin - maintained by a carefully coded smart contract algorithm that keeps balance without being backed by any other asset
Each category of stablecoin offers its own advantages and disadvantages, which is why there are more and more stablecoins being created each year with different features and structures. That being said, all types of stablecoins aim to accomplish one main goal: to accurately and consistently reflect the same value as the underlying asset backing it.
Knowing the Competition
As mentioned above, USDC is far from the only option as far as stablecoins are concerned. In terms of market share and trading volume, USDT or Tether still reigns supreme, sitting firmly in the number one spot at the time of writing. This can be attributed to the fact that Tether was created back in 2014 and is widely considered to be the first true major stablecoin.
However, Tether has faced scrutiny from the US government in the past for failing to disclose what assets it uses to back USDT. In contrast, Circle’s USDC has remained fully compliant and transparently discloses this information. Tether also faces criticism for its “lack of decentralisation” when compared to other competitors like MakerDAO’s DAI token.
DAI is an interesting competitor as it is one of the only main stablecoins successfully backed by an on-chain asset, in this case, Ether. Since the token is maintained by a DAO (decentralised autonomous organisation), it is considered one of the most decentralised stablecoins on the market. USDC and Tether, on the other hand, are primarily centralised.
Pros and Cons of USDC
The world has yet to find a “perfect” stablecoin thus far, but there is a reason why USDC maintains a massive ecosystem and is trusted by major exchanges everywhere. Here are a few advantages and disadvantages of utilising this stablecoin option:
- Top 2 stablecoin in terms of market cap, liquidity, and ease of conversion
- Backed by both Coinbase and Circle, two trusted names in the digital asset space
- Quick and easy global USD transactions
- Heavily regulated and fully compliant with NYDFS, one of the strictest financial regulators in the United States
- Has monthly audits to ensure it is backed by USD on a 1:1 ratio
- Available on a variety of networks, including Algorand, Ethereum, Tron, Stellar, and Solana
- Top-notch developer team
- Due to the centralised nature of USDC, it can be frozen or confiscated by Circle in certain situations when foul play is suspected
- Users must undergo KYC before redeeming USDC into fiat currency in order to abide by the law
- USDC and all other stablecoins don’t increase or decrease in value and therefore can not be considered an investment vehicle
- Not the first stablecoin (Tether has first mover’s advantage)
Find USDC on SMART VALOR
Any savvy investor knows that you should always do your own research. If you’re interested in using buying, selling, trading, or storing value in USDC, the VALOR Platform is a quick, convenient, and simple way to do just that.
SMART VALOR’s enhanced trading and decentralised finance Platform also hosts a variety of other trading pairs, including the most prominent bluechip tokens like Bitcoin, Ethereum, Cardano, and a variety of stablecoins as well.