Cryptocurrencies are known for being highly volatile assets. This can be a positive feature since it allows for major gains in bullish markets. But it also makes them risky investments, especially because it can be a cumbersome procedure to withdraw crypto or exchange it for fiat currencies.
The introduction of stablecoins changed that, by giving investors a way to save their gains when the market goes down — all this without leaving the exchange or the crypto ecosystem. USDTA key strategy during price swings is to buy USDT or USDC and convert your assets to that token.
Among the several stablecoins pegged to the US Dollar, USDC stands out as the first one to be regulated and fully transparent. It was launched in 2018 by the renowned payments gateway Circle, along with Coinbase, the largest cryptocurrency exchange in the USA and one of the top three worldwide.
Initially, USDC was available only on the Ethereum blockchain, as an ERC-20 token. But, as the DeFi ecosystem grew, the Circle team expanded its presence to 15 different chains, like Solana, Algorand, Avalanche, Polkadot, Polygon, and others.
A Close Look at the Functionality of the USD Coin
The feature that highlights USDC over its competitors is the fact that it is more regulated and transparent. Other stablecoins have had issues with their reserves or lost their peg to the fiat currency. However, USDC publishes reports of their reserves monthly, in association with major accounting firm Grant Thornton, LLP. These reserves are held both in cash and government securities. These assets, managed by the Circle Reserve Fund, are custodied by the Bank of New York Mellon.
New USDC tokens are minted by Circle. Merchants and companies can register to become issuers in any of the supported countries. This way, they can deposit the fiat currency in the protocol and get USDC. Finance giants like Visa, MoneyGram, and Stripe are registered issuers. If they want to withdraw their dollars back, all they have to do is deposit the USDC and redeem the fiat. The deposited USDC is burned by the protocol to maintain the balance. As a financial tool, USDC should be a part of any handbook for successful crypto investments.
Strong and Weak Points of USD Coin
USDC is one of the best stablecoins in the market, but there are a few offsets. It’s important to go over the advantages and disadvantages when analyzing any cryptocurrency or investment tool. Topics such as decentralization, scalability, or transparency are central to any crypto project.
Advantages
There are major advantages for USDC, especially in regard to its association with regulated banks and financial institutions. This makes the project a lot safer than unregulated alternatives and gives investors more reasons to trust in its stability.
- Transparency: Circle, the company behind USDC, provides monthly reports about the reserves of the token. This gives a high degree of transparency over the way each token is backed, in which types of assets, and by whom. It is one of the most stable coins because each token is backed by a real dollar or dollar equivalent.
- Regulatory compliance: USDC was created by two established companies in the US: Circle and Coinbase. They are both registered companies and keep regulatory compliance at the core of the project. Since the reserves are custodied and managed by large banking institutions, users must comply with Anti-Money Laundering (AML) and Know-Your-Customer (KYC) regulations.
- Backed by established financial institutions: The reserves of USDC are kept by the Bank of New York Mellon, one of the largest custodian banks in the world, and managed by BlackRock, the largest asset manager worldwide. This makes the project trustworthy, and it’s the reason companies like Visa participate in the ecosystem.
Disadvantages
Despite all its advantages, there are still a few issues around USDC that make some investors turn away from it, especially among fundamentalist crypto enthusiasts.
- Centralization risks: Cryptocurrencies were created to be completely decentralized and independent of traditional banks. The strong ties of this project with renowned financial institutions might look like an advantage to some. But other crypto investors consider this a problem because these companies can influence who gets to use the token. One example is the list of countries where USDC is available to be minted.
- Limited innovation and flexibility: This centralization slows down the innovation of the protocol. While decentralized crypto projects can adapt quickly to market changes, USDC can be slower in the implementation of new features.
Diverse Applications of USDC
Stablecoins are now central to the crypto ecosystem, and that explains why there are two stablecoins among the top 10 cryptocurrencies by market value. Let’s review some of the most popular applications of USDC and stablecoins.
- Decentralized Finance (DeFi) protocols: USDC is used in DeFi protocols thanks to its stable price. For example, investors can deposit USDC in lending platforms and borrow another currency, since price swings won’t affect interest rates.
- Remittances and financial inclusion: International transfers in traditional finance can take several days, and they charge high fees. Crypto transfers take a few seconds to be final, and they cost only a few cents. Using USDC to send remittances and international payments benefits people who otherwise couldn’t access traditional financial tools.
- Tokenization of assets: Thanks to smart contract technologies, USDC can be used to tokenize real-world assets of any kind: from works of art to securities, real estate, or any other tangible or intangible goods.
Stablecoins play a significant role in the crypto markets, and in the worldwide financial ecosystem altogether. USDC is one of the top stablecoins and the second-largest by market volume. Moreover, it is the most transparent and secure one, issuing reports of their reserves and working with large banks to custody their assets.
