Digital assets have gained some acceptance as stores of value and legitimate vehicles of investment. However, their volatility has prevented them from being a reliable means of exchange. Users simply cannot use digital currencies for everyday transactions if the value of their tokens are likely to fluctuate before the transaction is even completed.
To solve this issue, developers have created a new form of cryptocurrency that is collateralized by conventional fiat. These new digital assets are much more stable than their free-floating counterparts, which is why they’re called “stablecoins.”
The most popular fiat collateral, unsurprisingly, is the U.S. dollar. One of the most popular stablecoins is this week’s token: USDC.
Background
Launched in September of 2018, USD Coin is a stablecoin backed by the U.S. dollar. The token is managed by a consortium called Centre that includes peer-to-peer payments technology company Circle, Bitcoin miner Bitmain and cryptocurrency exchange Coinbase among others.
The coin is designed to work across several blockchain networks, including Ethereum, Solana, Stellar, and Algorand. Meanwhile, the U.S. dollar reserves are regularly audited by Grant Thornton, LLP, one of the largest auditors in the world.
At the time of writing, the USDC network had handled transactions worth over $717 billion. There are over 15.1 billion USDC in circulation.
Use Cases
An audited and verified stablecoin serves as a safe shelter for crypto investors. Most digital assets can be easily converted to USDC when traders want to book profits or stem their losses. It can also serve as a reserve asset for investors waiting on the sidelines.
USDC can also be used to generate a passive yield that is far higher than the interest rates earned on traditional US dollar savings accounts. The current yield on USDC ranges from 0.15% to 11% on various DeFi platforms. This passive yield can boost overall returns for investors.
Converting cryptocurrencies to stablecoins such as USDC is more convenient than converting back into fiat. Although the tax implications of such a transaction aren’t clear yet.
Tokenomics
USDC is an ERC-20 token that is backed 1-1 with U.S. dollars. Grant Thornton, LLP audits and verifies the U.S. dollars held in reserve on a monthly basis. The dollars are deposited by paying members of the Center consortium. To become a member and start issuing USDC, an organization needs to comply with rules in their local jurisdiction, international AML/KYC standards, hold U.S. dollar reserves to back each USDC token they issue and comply with other rules set forth by the consortium.
Based on this open-source framework, any organization can participate in the USDC network and plug the growing demand for stablecoins in the digital assets industry.
Recent developments
Global payments giant, Visa, recently adopted USDC to settle transactions on its payment network. This week, the Visa team partnered with Tala, a mobile lending service in emerging markets, to bring USDC to emerging markets such as Kenya.
