USD Coin (USDC) Definition – Investopedia
USD Coin (USDC) is a digital currency that is fully backed by U.S. dollar assets. USDC is a tokenized U.S. dollar, with the value of one USDC coin pegged 1:1 to the value of one U.S. dollar. The value of USDC is designed to remain stable, making USDC a stablecoin.
Stablecoins are commonly backed by reserve assets like dollars or euros to achieve price stability. The price stability of USDC contrasts sharply with the notorious price fluctuations of other cryptocurrencies like Bitcoin and Ethereum.
Despite its name, it is important to note that USDC is not issued or backed by the U.S. government. USDC is an open-source project, meaning that anyone can view and contribute to the project’s code.
Keep reading to understand more about USDC, including how it works and the various use cases for the digital currency.
USD Coin (USDC) is a digital currency that is fully backed by U.S. dollars or dollar-denominated assets like U.S. Treasury securities. USDC's reserve assets are held in segregated accounts with regulated U.S. financial institutions. The accounting firm Grant Thornton oversees these segregated accounts and provides monthly attestation reports.
You may be wondering about how USDC maintains the 1:1 peg with the U.S. dollar. If you initiate a transaction to buy one USD Coin using fiat currency, then that fiat currency is deposited and stored as one U.S. dollar and the new USDC is minted. If you sell a USD Coin in exchange for fiat currency, then the USDC is burned when the fiat money is transferred back to your bank account.
USDC is compatible with several blockchains, including:
USD Coin is managed by Centre, a consortium co-founded by the cryptocurrency exchange Coinbase (COIN) and Circle, a financial technology company. Centre aims to change the global financial landscape by connecting every person, merchant, financial service, and currency worldwide.
Low price volatility
Fully backed by U.S.-regulated reserve assets
Can be used as a hedge against inflation
No price appreciation
Mix of reserve assets not fully disclosed
Not immune to U.S. dollar price inflation
As a price-stable digital asset, USDC can be used in several ways:
USD Coin (USDC) is a fiat-collateralized stablecoin, meaning that USDC tokens are collateralized by fiat money like U.S. dollars. Other types of stablecoins include those that are collateralized by a cryptocurrency, an algorithm, or by a hybrid approach.
USD Coin (USDC), as a cryptocurrency, is generally considered risky as an investment. While stablecoins like USDC have less price volatility than other cryptocurrencies, stablecoins may be subject to increased scrutiny by regulatory agencies like the U.S. Securities and Exchange Commission. Investors should know the risks before purchasing USDC.
You can buy fractions of USD Coin just like you can divide U.S. dollars into pennies. You can purchase as little as 0.001—equal to one-tenth of a cent—of USD Coin.
Coinbase. "Introducing USD Coin (USDC) – Stablecoin By Coinbase." Accessed Feb. 2, 2022.
Centre. "Whitepaper," Pages 10-11. Accessed Feb. 2, 2022.
Circle. "The Power of USDC Brought to Multiple Blockchains." Accessed Feb. XX, 2022.
Coinbase. "USD Coin (USDC)." Accessed Feb. 2, 2022.
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