USDC is a stablecoin pegged to the price of the US Dollar. Many people who are hesitant to invest in cryptocurrencies due to the frequent price fluctuations find themselves considering investing in USDC, but is it worth it?
USDC stands for USD Coin. It’s pegged to the price of the USD, which means that the cost of one USD Coin will always be around $1. There may be minor fluctuations of a fraction of one cent, but the USD Coin will never experience significant price swings like Bitcoin and other popular cryptocurrencies.
These types of coins are stablecoins because their price remains stable. If you buy €100 worth of USDC, you will always have €100 worth of USDC.
Circle, a regulated fintech company, started USDC in 2018. The makers of USDC include members from popular cryptocurrency companies who wanted to create a digital dollar that would remain stable.
One of the challenges of cryptocurrencies, at least as they relate to adopting them as a replacement for FIAT currency (non-digital currencies, like the USD or EUR), is that the prices of most cryptocurrencies are subject to fluctuation.
These fluctuations can happen from one day to another,another or even from one minute to another. Setting the price of a product in Bitcoin or another cryptocurrency can be difficult because the price of Bitcoin can suddenly drop in the next few minutes.
Circle wanted to create a coin that people could use to pay for products, send to family members, and more without worrying about its price.
So, what is Circle? According to its website, it is a fintech company that aims to create a bridge between the traditional financial system and the cryptocurrency world to create solutions for business people, investors, and everyday financial users.
Jeremy Allaire is the founder, CEO, and chairman of Circle. He was also the founder of Brightcove, and he has two decades of experience with creating internet software products. Michele Burns is the chair of the board of directors – she is also the director at Cisco Systems and is on the board of directors at Goldman Sachs.
Among others on the board of directors is Rajeev Date, the managing director in the financial institutions group at Deutsche Bank Securities. He is also the managing director at Fenway Summer and FS Venture Capital.
All in all, the team at Circle includes members with decades of combined experience in blockchain, software engineering, finance, and more.
Circle has also created other products for crypto enthusiasts and investors. For example, it also made the EURO Coin, which is pegged to the price of the euro instead of the dollar. Two other products include Circle Yield for institutions and SeedInvest, an equity crowdfunding platform.
As we already discussed, the USDC will always stay at the same price as the USD. However, what makes it unique, even compared to other stablecoins, is that there is one dollar in reserves for every USDC on the market. At least, that’s what Circle claims, although there has been some doubt as to the authenticity of those claims.
How it works is very simple. Before a USDC token can come into existence, the user has to first deposit one US dollar into the reserves. In other words, if someone deposits $100, the blockchain will mint 100 USDC tokens – no more than that.
This process is automatic and happens when you buy USD Coin.
The USDC has many purposes. You can use it to save money by holding it in high-yield investment accounts, which you can open at different fintech and cryptocurrency institutions. Since the price of the USDC won’t go down, your investment is safe.
You can also use it to buy goods and products. Alternatively, you can use USDC to send money to friends and family.
The USDC, like many other cryptocurrency projects, is trying to solve several problems of traditional payment systems.
Firstly, merchants who use traditional payment processing systems often need to pay a fee for each transaction. This fee is usually around 2.9%, although it varies from one payment processor to another. Over time, these fees can really eat into your profits as a seller. By accepting payments in USDC, you won’t have to worry about those fees anymore.
However, the USDC is also trying to solve several problems other cryptocurrencies face. Of course, it’s a stablecoin, but there’s more to it than that.
It doesn’t take much time to send USDC, nor do you have to pay exorbitant fees to the network like you do when sending Bitcoin. That makes it much more practical for everyday transactions.
USDC is unique because every digital USDC dollar is backed by cash or short-dated US treasuries. Financial institutions such as BNY Mellon hold these reserves.
One of the problems that stablecoins face is that they can go out of business. Consider the USDC vs USDT. The coins are essentially worthless if there are no cash reserves to back up the minted coins. If the company goes bankrupt, the currency's price will plummet to $0, and you will lose all your money. On the other hand, if the company has the reserves to back up its supply, your money is safe.
In addition, Circle is a regulated financial company. Its financial statements receive an audit every year. In addition, it is a licensed money transmitter, just like PayPal or Apple Pay, and it submits financial reports with the SEC every year.
To increase transparency, Circle has teamed up with Grant Thornton, which now provides monthly attestations, similar to audits, to ensure that Circle really does have the backup reserves of USD as per its claims.
If you want to see the reports yourself, you can go to the transparency page and check them out.