Cryptocurrencies are known for their extreme volatility, with their prices skyrocketing in a matter of hours and dropping dramatically after a few hours. Addressing such situations requires keeping the value of a currency stable while providing users with all the other benefits of decentralized payment options. Coins like USD Coin were created to solve those problems.

Today we are going to do a special review of USD Coin (USDC), a stablecoin issued by Center Consortium, LLC which consists of Circle and Coinbase.

What Is a Stablecoin?

Stablecoins are a digital form of fiat currency on the blockchain, created to simulate fiat prices using a stabilization process. This type of cryptocurrency has a stable price, so users can always redeem a single coin for $1. Stablecoins can be a tool for traders to switch to more stable digital assets when cryptocurrency markets are volatile.

 The European Central Bank defines stablecoins as digital units of value that are distinct from existing currencies and rely on a set of stabilization tools to reduce fluctuations in their value against a currency or basket.

Why Use Stablecoins?

By maintaining a stable rate regardless of market fluctuations, stablecoins are a financial tool useful for protecting capital and profits during severe drawdowns. Also, the convenience of transferring funds to exchanges without the need to convert to fiat encourages asset owners to stay within the cryptocurrency ecosystem. In this way, they avoid negative situations that may arise in some jurisdictions.

Stablecoins are a good move for deregulated exchanges that offer barriers to conversion to fiat currencies. Their reach has also been extended to customers with limited access to foreign currencies. They are faster and less expensive than fiat money. Payments are settled within a minute as a rule based on inherent blockchain. Most stablecoins exist in on the Ethereum platform.

Challenges to the adoption of stablecoins include financial sovereignty risks, AML compliance and regulatory uncertainty. Benefits include features such as lower transaction costs, improved interoperability and speed

So what are USD coins?

USD Coin is a stablecoin pegged to the US dollar and backed by US dollars in reserves. USDC stablecoin's white paper mentions that it is designed for beginners, who want to enter the world of cryptocurrency safely and without high costs.

Why was the USDC created?

Governments of various countries often resort to a method called quantitative easing, or QE, in which a new supply of money is introduced by central banks around the world. By doing so, they take politically motivated actions to reach specific goals and save some beneficiaries from collapse, which would harm the economy. QE can generally lead to a range of unintended consequences, such as inflation or deflation, as well as create favorable conditions for the crypto revolution that is currently underpinning global finance.

All these changes are limited to tech-savvy users across the globe, who have already become active participants in the cryptocurrency ecosystem. However, much remains to be done to make this technology widely accepted. Those interested in cryptocurrency are still comfortable using traditional money systems for security reasons. Motives that keep them away from cryptocurrencies are:

1. State-of-the-art systems in place on various blockchains

The UI and functionalities offered in cryptocurrencies are usually so complex that only technically proficient customers can operate them. USDC is therefore designed to facilitate the onboarding process.

2. Cryptocurrency Market Volatility

As the cryptocurrency market is highly volatile many are unprepared for sudden changes in the price of crypto assets. Therefore, the search for a reliable store of value for stablecoins attracts newcomers. A stablecoin has the same value as a fiat currency, so stablecoins are one way to avoid the inherent price volatility of cryptocurrencies. USD Coin is worth one US dollar, and its value is always stable.

The Center Consortium launched the USDC stablecoin as a way to address these issues and remove barriers to widespread cryptocurrency adoption.

Who Created USD Coin?

Circle announced the launch of USDC, a fiat-backed stablecoin, in the crypto market in September 2018. Meanwhile, Gemini and Paxos announced advanced stablecoins for their platforms. Circle, in collaboration with leading Bitcoin mining hardware manufacturer BITMAIN, designed the USD currency. Notably, BITMAIN led a $110 million investment round led by Circle in May 2018. The company touts USDC as a regulated alternative to other cryptocurrencies as well.

In October 2018 USDC was the first stablecoin listed on the largest trading platform Coinbase. Circle and Coinbase formed a joint venture known as the Center Consortium to develop and manage USDC's internal technology.

 The Growing Popularity of USDC

Binance added it to its list in November 2018 after USDC was listed on Coinbase in October 2018, helping to bootstrap the stablecoin's liquidity quickly. USDC became more popular after it became available for trading in more than 80 countries.

Its popularity skyrocketed when people started using the USDC as a hedge against fiat currencies during the reality of the coronavirus pandemic. Also, the development of the Decentralized Finance (DeFi) sector has helped to increase traffic to USDC tremendously. Innovative features such as crop cultivation have contributed to its growing popularity. This stablecoin has become a leading digital asset with volumes accumulated on various DeFi platforms. The circulating supply of USDC exceeded 9 billion after growing 500% in 2021 compared to 2020, making it the fastest-growing stablecoin on the market.

In August 2022, ByBit announced its partnership with Circle to promote the use and growth of USDC by offering users a range of USDC products, such as spot trading, perpetual contracts and options. To make transactions easier for customers around the world, Bybit allows instant automatic conversion between USD and USDC.

The announced supply of USD Coins as of March 8, 2023, is almost 43.5 billion. The future could be positive as infrastructure matures around permissionless decentralized protocols.

The Release of USDC 2.0

The Center Consortium exposed the updated version of the USDC in August 2020. Stablecoin supports USDC 2.0 digital wallet and other advanced services. Previously, USDC holders and holders of other Ethereum-based tokens had to pay a commission to process transactions. At the same time, clients have to keep ETH in the account to recompense the gas fee. According to the developers, this was a major obstacle to widespread adoption.

To overcome this hurdle, the Center has integrated a gasless delivery feature in USDC. This permits wallet developers to charge fees directly in USDC tokens rather than in ETH to pay commissions on behalf of a client. The platform team created a public USDC smart contract to integrate support. Developers can launch this service themselves, or a third-party service can be used to pay the associated fees.

How Does USD Coin Work?

The smart contract ERC-20 standard includes the following steps to complete a tokenization process:

Application for KYC verification process

Once KYC is completed, the user receives a specific bank account for a wire transfer.

The USDC issuer employs a smart contract to generate the USDC amount sent by the user.

The customer accepts USDC after saving USD sent by the customer in reserve.

A reverse process is required when converting stablecoins for customer US dollars. After sending the request to the issuer of the USDC, the smart contract is used again for the exchange.

What Uses Does USD Coin Have?

USDC is an ERC-20 token that enables payments, lending, investing and trading. The ecosystem grows with other tokens and the tokenization of goods and services if smart contract facilities are the basic building blocks of value exchange. The open-source framework enables the interaction of fiat money with smart contracts developed by the Center Consortium team, thus increasing the possibility of blockchain applications using real-world currencies.

USDC tokens are used for fast remittances and payments around the world. Customers only need to have a wallet and internet access to take advantage of sensorless interoperable transactions. Facilitates sending large amounts of money anywhere at a low cost. Since it only takes a few minutes, this type of cryptocurrency is irreversible for asset holders. In addition to near-instant resolution, it has the convenience of round-the-clock service, immutability and low risk.

Used like a fiat currency, USDC has the advantages of a wide range of uses, including highly leveraged trading and low-cost and secure transactions. The asset can also be used in the DeFi sector when buying cryptocurrency products through DApps.

This cryptocurrency is very beneficial for the unbanked. It is widely regarded as an alternative to traditional finance that brings about a process of democratization in the international financial system through blockchain technology.

Other Properties of USD Coin

Transparency of USDC is ensured due to their control and full cooperation of US institutional authorities. USDC issuers are committed to providing transparency to customers.

Stablecoins such as USDC and Euro coins are created and regulated by the Center Consortium. Equivalent amounts of fiat currency are deposited in a special account under the supervision of licensed financial institutions and regularly audited. You can find the monthly report of these accounts on the official Circle website.

A combination of USDC's value guarantee and cryptocurrency features offered by leading cryptocurrency giants Coinbase, Circle and Bybit have contributed to the increase of USDC adoption worldwide.

The transparency of USDC is evaluated by experts, especially after the reputation of Tether and Bitfinex was revealed in the investigation launched by the New York Attorney General's office. However, this stability did not tarnish the reputation of the coin. On the other hand, this case highlighted the need for a legitimate and regulated stablecoin.

Conclusion

While Bitcoin's currently high volatility makes its widespread acceptance for everyday payments uncertain for the future, there is hope that stablecoins like the USD coin have a chance to change the situation. Stablecoin is a great solution to high volatility, stablecoins have a bright future with many potential uses.