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What is USDC and how does it work?

Updated on 11 July, 2022 1:35 PM
1 min read

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    Cryptocurrencies are one of the most volatile assets in the market. Their prices change continuously - with steep highs and lows. As someone who’s a believer of the technology and who doesn’t want to miss out on the opportunity to invest, volatility might be a big hindrance for them. Volatility reduces the usage of coins in transactions and an opportunity for long-term investing. 

    This problem was real and it led to the introduction of stablecoins. Stablecoins are cryptocurrencies on the blockchain, and have all the characteristics of crypto assets but are pegged to a fiat currency. These may be pegged to a fiat currency such as USD or commodities such as gold reserves etc. 

    For every stablecoin, there’s a reserve that acts as collateral to the same. A stablecoin may be fiat/commodity-backed, other cryptocurrency-backed, or algorithmic stablecoin. One of the most famous stablecoin is USDC.

    What is USD Coin (USDC)?

    Launched in 2018, the USD coin is a fully backed cryptocurrency with US Dollars in reserves. For every one dollar, there is one USD coin and hence the pegged ratio is 1:1. USDC is compatible with multiple blockchains including the Ethereum network, Solana, Algorand, etc. USDC is managed by Centre, an open-source technology project backed by Coinbase and Circle, a financial technology company. The coin is fiat-backed and audited and inspected by Grant Thornton. As per the official Circle website, “USDC transcends borders and banking hours. As a digital dollar with global reach, USDC can be available whenever and wherever you need it. Send USDC to friends and family, pay for goods and services, or save for the future

    How does USD Coin (USDC) work?

    When you intend to buy USDC, the fiat currency by which you buy gets deposited per US Dollar and a new USDC is minted. Similarly, when you intend to sell USDC the coin is burnt and the fiat currency gets transferred to the user’s bank account. USDC can be bought and sold over any crypto exchange. As these are pegged to fiat currency, they don’t generate much returns and hence can be invested further for the same.

    How USDC Can Be Used?

    1. Users can hold USDC which can be used for transferring dollar-backed funds across the globe. 
    2. As the crypto world is decentralized, USDC operated at the junction of decentralization and the US Dollar. Investors bullish and interested in both areas can gain exposure by holding USDC. 
    3. Commonly, USDC is being used by a lot of investors to protect their holding against inflation and buy other cryptocurrencies. 
    4. As the prices are stable, it gives investors an opportunity to stabilize and diversify their portfolios.  

    What are the pros and cons of USDC?

    Pros of USDC

    1. USDC as a coin provides stability to an investor looking for long-term investments. 
    2. As they are backed by US Federal reserves, it provides a sense of trust and security for the investor. 
    3. USDC can be used as a hedge against inflation. 

    Cons of USDC

    1. As the prices are less volatile, it gives little to no chance to make money for the investor via price appreciation. 
    2. The concept of stablecoins is relatively new and hence investors aren’t sure about its future. 
    3. Stablecoins are seeing increased competition. Apart from fiat-backed currencies, there is a rise of algorithm-backed coins too. Eg Dai.

    Conclusion

    Stablecoins such as USDC are trying to solve one of the biggest problems in the crypto industry i.e market volatility. They have seen early adoption by investors but are yet to be tested on a very large scale. As the market is becoming mature, newer stablecoins - both fiat and algorithm backed are being launched in the market, giving investors an option to choose from a pool of coins. 

    If you hold USDC, you can generate passive returns on your coins by investing them on Flint. Flint allows you to earn high returns on your crypto in a safe and secured manner passively.

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