What is USD Coin (USDC)?
by LCX Team ·
USD Coin or USDC is comparatively a newer stablecoin that is backed by US dollar. It was introduced to the crypto world by a collaboration of Circle and Coinbase on September 26, 2018. Competitors of USDC include Tether (USDT), Celo Dollars (cUSD) or TerraUSD (UST).
USDC was launched to tokenize US dollars and enable their use over digital platforms and public blockchains. USD coins can be converted to USD at any time and they are issued and redeemed with ERC-20 smart contract.
Bringing USD on the blockchain facilitates their global movement within minutes and brings the much-required stability to cryptocurrencies. Additionally, the introduction of USDC opens the doors to newer opportunities for trading, lending, risk-hedging and much more.
Who Created USD Coin?
The development of USD Coin can be accredited to the Centre consortium, a partnership between Circle and Coinbase. Centre is responsible for developing the technology and governing framework of the coin while Coinbase and Circle are the first commercial issuers of USD Coin.
Circle is an authorized Money Transmitter that makes the organization an open financial book. It was founded by Jeremy Allaire and Sean Neville in the year 2013. Money transmitters are essentially US money service companies that are required to comply with federal regulations. It is commonly known to be the crypto startup backed by Goldman Sachs.
A USDC coin can only be issued when its equivalent amount of US Dollars is in possession of either of Circle’s accredited partners. This implies that each and every USD coin is regulated, transparent and verifiable.
How Does USD Coin Work?
Circle ensures that each USD token is backed by one US dollar. This process of digitizing US dollars into digital currency USDC is known as tokenization.
This process of tokenizing USD into USDC consists of three-steps:
- User transfers USD to the token issuer’s bank account.
- The issuer employs a USDC smart contract to generate an equal amount of USDC.
- The newly minted USDC are then sent to the user, while the tokenized US dollars are stored in reserve.
Redeeming USDC for USD is also a simple process:
- A request is made by the user to the issuer to redeem USDC for an equal amount of USD.
- Then the issuer sends a request to the USDC smart contract to redeem the USDC token for USD and take out an equal amount of USDC from circulation.
- The issuer then transfers the requested amount of USD minus the incurred fees to the user’s bank account.
USDC is different from Tether (USDT), another popular stablecoin as it is obligated to provide complete transparency and work in collaboration with several financial institutions to maintain complete reserves of the equal amount of fiat currency.
All USDC issuers are necessitated to regularly report their USD holdings which are then published for public viewing by Grant Thornton LLP.
Benefits of USD Coin?
- Allows tokenization of USD with easy convertibility to and from the fiat currency on exchanges supporting the ERC-20 standard.
- Facilitates quick transferability of USD around the globe allowing users to trade, lend, participate in hedging risk, etc.
- The coin brings stability to the crypto market making it more valuable.
- The rate of USDC is more reliable than any other stablecoin.
- It has strong support of Bitmain, IDG Capital, Baidu, and Goldman Sachs Group among other crediblee companies making it more attractive and increasing its chances of being more profitable in future.
USD Coin (USDC) is also available at LCX Exchange.
Register or Login at LCX to start trading $USDC.