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USDC is a stablecoin, a particular form of crypto designed to maintain a stable value by being backed by a pool of underlying assets.
In the case of USDC, this pool is made up of US dollars (USD).
Thus, 1 USDC is always supposed to be worth 1 USD.
Created by a consortium of technology companies, the USDC stablecoin is intended to offer a digital alternative to the traditional US dollar, while retaining its monetary stability.
USDC was created by Centre, a joint venture between two cryptosphere giants: Circle and Coinbase.
The partnership between these two companies has been essential in the creation and promotion of USDC.
USDC is a stablecoin based on blockchain technology and designed to maintain a stable value by being backed by a reserve of US dollars.
Its operation relies on a carefully orchestrated process to guarantee its stability and parity with the US dollar.
First of all, it’s important to note that the USDC was initially built on the Ethereum blockchain, meaning that it uses Ethereum’s decentralized technology for its transactions and records.
As an ERC-20 token, it is interoperable with a multitude of ERC-20 compatible wallets and platforms, making it much easier for users to manage and exchange.
However, with a view to further development, Circle has made the USDC available natively on eleven different blockchains (Ethereum, Algorand (price Algorand), Arbitrum, Avalanche, Flow, Hedera, Solana, Stellar, TRON, OP Mainnet, and Base).
The creation of new USDCs begins with users depositing US dollars with Circle, the entity that manages the USDC.
These dollars are then placed with verified partners, often financial institutions.
Circle can then issue an equivalent amount of USDC on the chosen blockchain.
This operation is crucial, as it guarantees that every USDC in circulation is backed by a real US dollar.
Thus, from the moment it is created, the USDC maintains parity with the dollar.
The USDC can then be used for transactions, payments, or even as a means of storing value.
It can be traded on exchange platforms, used for online payments or transferred between users via crypto wallets.
To facilitate interoperability between different blockchains, Circle has deployed the Cross-Chain Transfer Protocol (CCTP).
It enables USDCs to be transferred natively from one blockchain to another via a burn/mint mechanism.
In concrete terms, a user who owns USDCs on Ethereum and wishes to transfer them to the Avalanche blockchain will interact with the CCTP as follows:
This tool makes it possible to move from one network to another in complete security, without taking the risk of using a bridge, which is less secure and therefore more susceptible to hacking.
Historically, bridges have been prime targets for hackers.
Indeed, the very design of a bridge requires it to store a significant quantity of cryptos for its operational functioning.
The CCTP provides an answer to this problem and brings the interoperability that USDC stablecoin needs to continue developing.
The guarantee of the USDC’s value is based on a fundamental mechanism of complete reserve.
This means that every USDC in circulation must have a US dollar equivalent, which is held in a fiduciary reserve.
This reserve is an essential protection for USDC holders, as it guarantees that the USDC is always exchangeable at a fixed rate of 1:1 with the US dollar.
The guarantee process begins with the collection of funds from users who wish to exchange their US dollars for USDC.
These funds are held in specially designated bank accounts.
These accounts are managed by regulated financial institutions and are rigorously monitored.
The choice of full collateral is crucial, as it ensures the USDC’s stability.
Unlike other cryptos, whose value can fluctuate significantly due to supply and demand on the markets, USDC is designed to maintain a constant value, being backed at all times by fiduciary reserves.
Another crucial aspect of guaranteeing the USDC’s value is transparency.
Circle, which oversees USDC, is committed to publishing regular independent audit reports.
These reports are carried out by reputable auditing firms and are accessible to the public.
At present, Deloitte is one of the “Big Four“: the world’s four leading auditing and consulting firms.
Having a firm of this stature handle the monthly audits of USDC reserves is a real security for investors.
They provide independent verification of the existence and integrity of trust reserves.
This transparency is essential to establishing and maintaining user confidence in the USDC.
Circle’s transparency regarding the reserves that guarantee the USDC price, and the quality of these reserves, have gradually made it more popular with investors, particularly during 2021, when the crypto ecosystem saw the rise of decentralized finance (DeFi).
DeFi is a financial ecosystem based on blockchain technology, which aims to provide traditional financial services without the need for intermediaries such as banks.
USDC is the most present stablecoin in decentralized finance in terms of TVL (Total Value Locked), i.e. the amounts placed by investors in this environment.
USDC is also used as a reference crypto-asset in many DeFi applications.
For example, on lending and borrowing platforms, users can deposit USDC and earn interest, or borrow USDC using other crypto-assets as collateral.
This use of USDC facilitates financial transactions within the DeFi ecosystem.
Another area where USDC plays a central role is in decentralized exchanges (DEX).
DEXs enable users to exchange cryptos without having to go through a trusted third party.
USDC is often used as the exchange pair on these platforms, providing crucial stability for users who want to avoid the volatility of other assets.
The transparency and trust associated with USDC make it a popular choice in the DeFi universe.
USDC has a daily DeFi trading volume approaching $150 million.
However, it’s important to note that USDC, while for many DeFi investors the preferred choice, is only one of many stablecoins present in Decentralized Finance.
Other stablecoins, such as USDT(buy USDT with Coinhouse) and BUSD (Binance USD), are also widely used in this ecosystem.
Each has its own characteristics and advantages, and the choice between them often depends on individual preferences and specific use cases.
USDC (Circle), USDT (Tether), BUSD (Binance USD) and DAI (MakerDAO) are among the most popular stablecoins on the market.
Each has its own distinctive features:
It’s important to note that regulating the issuance of fiat currency and cryptos such as stablecoins are very different areas, with their own challenges and considerations.
Central Banks are responsible for the quality, liquidity and issuance of fiat money, as well as the financial institutions that issue the bills.
Stablecoins are created by private companies.
The latter use decentralized networks.
Because of the possible absence of a legal entity, there are questions about how these entities should be regulated, who should have the authority to do so, and how regulators can guarantee financial stability while enabling innovation.
It is essential that the activity of stablecoin issuers like Circle is properly regulated, since the funds held are US dollars.
The idea behind stablecoin regulation is to have genuine supervision of issuers to ensure the quality of their reserves.
This supervision mechanism finds its inspiration in the traditional financial sector.
Banks are subject to reserve and liquidity requirements to ensure the smooth operation of credit institutions.
Supervisory bodies ensure that these requirements are met, to avoid any financial instability which, in the worst-case scenario, could lead to a financial crisis.
USDC (USD Coin) tokens are stablecoins backed by the US dollar, designed to maintain a 1:1 parity with the dollar.
They are primarily used to facilitate transactions in the cryptocurrency ecosystem by offering a stable, less volatile alternative to other cryptocurrencies such as Bitcoin or Ethereum.
USDCs are widely used in decentralized finance (DeFi) for operations such as trading, lending and borrowing, as well as for making fast and inexpensive international payments.
What’s more, USDCs enable users to retain the value of their dollar-denominated assets while remaining within the crypto universe.
In order to generate income from USDC reserves, Circle invests part of the US dollars collected in short-dated US Treasury bills.
At the time of writing, USDC reserves are as follows:
By way of comparison,USDT reserves include only 0.12% of dollars in bank accounts.
The rest is made up of 88% US Treasury bills and 11% other media (gold, Bitcoin, corporate bonds, etc.).
The two components of USDC reserves make it one of the most liquid stablecoins on the market.
Cash in bank accounts is by definition the most liquid, and US Treasury bills all have maturities of ninety days or less to guarantee rapid availability of funds.
In 2024, Circle, the USDC issuer, plans to boost adoption of its stablecoin by expanding its partnerships with financial institutions and technology companies.
The company also aims to integrate USDC into more blockchain networks to improve interoperability and reduce transaction fees.
Circle is working on the development of innovative payment solutions based on USDC to drive the adoption of digital payments on a global scale.
USDC is one of the most promising stablecoins today.
It is the 2nd largest stablecoin on the market, with over $26 billion in capitalization, and is highly transparent about its reserves.
What’s more, its reserves are among the most liquid on the market, increasing the level of confidence that investors can have.
On the technological front, Circle is constantly directing its resources towards the development of innovative solutions to facilitate the adoption of stablecoins as a means of payment.
The Cross Chain Transfer Protocol (CCTP) is a perfect example.
Circle also invests in partnerships to support the adoption of USDC.
Although still a long way behind the USDT in terms of capitalization, the USDC presents solid arguments that make it the solution of choice in the centralized stablecoin segment.
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