USD Coin (USDC) is a digital currency that is fully backed by US dollar assets. USDC is a tokenized US dollar, the value of the USDC coin is as close as possible to the value of the US dollar. The value of USDC is designed to remain stable, which makes USDC a stablecoin.
Stablecoins are typically backed by reserve assets such as dollars or euros to achieve price stability.1 USDC’s price stability stands in stark contrast to the notorious price fluctuations of other cryptocurrencies such as Bitcoin and Ethereum.
Continue reading to learn more about USDC, including how it works and the different uses of the digital currency.
Understanding US Dollar Currency (USDC)
USD Coin (USDC) is a stablecoin, a cryptocurrency backed by US dollars or dollar-denominated assets such as US Treasury securities. USDC reserve assets are held in segregated accounts at regulated US financial institutions.
You might be wondering how USDC maintains its peg to the US dollar. If you initiate a transaction to purchase a USD coin using fiat currency, that fiat currency is deposited and stored as a US dollar and a new USDC is minted. If you sell a USD coin in exchange for fiat currency, the USDC is burned (sent to a wallet without access keys) when the fiat money is transferred back to your bank account.
1. Advantages and disadvantages of the US dollar currency
2. Advantages
3. Low price volatility
4. Fully backed by US regulated reserve assets.
5. It can be used as a hedge against inflation.
Options for using US dollar coins:
Hedging against volatility. Investors in other cryptocurrencies can reduce the volatility of their portfolios by strategically purchasing a stablecoin such as USDC. Holding USDC during periods of significant market volatility can help stabilize the value of a portfolio.
Fiat currency prices. Digital assets listed on cryptocurrency exchanges can be valued in fiat currency using a stablecoin such as USDC.
Stable Prices: USDC’s price stability allows a stablecoin to represent ownership of shares or finance investments. USDC can also be used to represent obligations or debts.
Remittances: USDC can be used to send funds across borders. Recipients can store USDC without using a bank account or worrying about price volatility.
US dollar risk. Non-USD investors looking to gain exposure to the USD can add USDC to their cryptocurrency investment portfolios.
Inflation hedging. Outside the US, investors concerned about inflation in their local currency can hold stablecoins such as USDC to protect the value of their money.
Global crowdfunding: Startups and non-profits can raise money from investors and donors around the world by requesting digital currency. Raising funds in the form of a stablecoin such as USDC ensures that the value of the money raised will not fluctuate over time.
What type of stablecoin is the US dollar coin?
USD Coin (USDC) is a fiat-backed stablecoin, meaning USDC tokens are backed by fiat money such as US dollars. Other types of stablecoins include those backed by cryptocurrency, algorithm, or a hybrid approach.
Is it risky to invest in US dollar coins?
As a cryptocurrency, USD Coin (USDC) is generally considered a risky investment. Although stablecoins such as USDC have less price volatility than other cryptocurrencies, stablecoins may be subject to greater scrutiny from regulators such as the U.S. Securities and Exchange Commission. pegged to the dollar.
Can I buy less than 1 US dollar in USD currency?
You can buy fractions of a USD coin the same way you divide US dollars into cents. You can buy as few as 0.001 (the equivalent of one tenth of a cent) US dollar coin.
Bottom line:
USD Coin is a stablecoin backed by the US fiat currency reserve. For every USDC in circulation, there is one dollar in reserve. However, the price of USDC fluctuates many times throughout the day (often minute by minute), all the way up to $0.9993. This is small compared to other cryptocurrencies, but it shows that while the coin is relatively stable, it is not a peg 100% of the time:
The currency is also susceptible to external influences: when a Silicon Valley bank collapsed, it became clear that about 8% of USDC reserves were held in the bank, causing the currency to lose its peg.
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