What is USD Coin (USDC)?
USD Coin (USDC) is a digital currency fully backed by U.S. dollar assets, designed to maintain a stable value. As a tokenized U.S. dollar, one USDC is intended to remain as close in value to one U.S. dollar as possible, classifying it as a stablecoin.
Stablecoins like USDC attain price stability by being backed by reserve assets such as U.S. dollars or euros. This stability contrasts with the high volatility of cryptocurrencies like Bitcoin and Ethereum.
Its cash reserves are held in segregated accounts with regulated U.S. financial institutions, while its reserve portfolio is managed by the Bank of New York Mellon.
The issuer, Circle, ensures that USDC maintains a 1:1 peg with the U.S. dollar by holding an equivalent amount of cash or cash equivalents corresponding to the total USDC in circulation. When $1 is used to purchase 1 USDC, that dollar is deposited and stored. Conversely, when 1 USDC is sold for $1, the USDC is burned (sent to an inaccessible wallet) as the fiat currency is transferred back to the user’s bank account.
USD Coin was initially governed by Centre, a consortium co-founded by Coinbase (COIN) and Circle, a financial technology firm. Following the dissolution of this partnership, Circle assumed sole responsibility for managing USDC. The company envisions transforming the global financial system by fostering seamless connections between individuals, merchants, financial services, and currencies worldwide.
Advantages of USDC
- Minimal price fluctuations
- Fully backed by U.S. regulated reserve assets
- Serves as a hedge against inflation
Disadvantages of USDC
- No price appreciation
- Subject to U.S. dollar inflation
Worth of USDC
A USDC generally holds a value slightly above $1, such as $1.0001 or $1.0003, but has remained largely stable since the mid of 2020.