The USD Coin (USDC) was announced in May 2018 and released for the first time in September 2018. It was created with the intention of providing a stable, dollar-pegged cryptocurrency for stability in the often volatile crypto market.
USDC was jointly founded by Circle Internet Financial and Coinbase, under the umbrella of the Centre Consortium. Jeremy Allaire, co-founder and CEO of Circle, and Brian Armstrong, co-founder and CEO of Coinbase, were very instrumental in the development of USD Coin, which aimed to bring trust and regulatory compliance to the stablecoin space.
The USD Coin operates as a token on multiple blockchains, each using different consensus mechanisms. Ethereum utilizes Proof of Stake (PoS) since “The Merge.” Algorand operates on Pure Proof of Stake (PPoS). Solana employs a combination of Proof of History (PoH) with Proof of Stake (PoS). The multi-chain positioning has made USDC versatile enough for both traditional and DeFi applications, though it is constantly facing the challenges of regulatory landscapes and keeping its peg during turbulence.
Due to the USD Coin operation on various blockchains, it does not have a fixed transaction per second (TPS) rate. TPS. The maximum capability depends on each of its hosting blockchains. Ethereum (ERC-20 token) has a variable TPS depending on network conditions, but it’s generally higher than 30 transactions per second with the implementation of Layer 2 scaling solutions and post-merge optimizations. USDC is also available on other networks like Algorand or Solana, where TPS can be significantly higher, with Solana boasting up to 65,000 TPS.
There is also no mining for USDC. Instead, USDC tokens are minted or burned based on the deposit or redemption of US dollars with regulated financial institutions. This process ensures that USDC maintains its peg to the US Dollar. Any time a user deposits US dollars, an equivalent amount of USDC is generated via smart contracts. Similarly, when users redeem USDC for US dollars, the corresponding amount of USDC tokens is destroyed, maintaining the 1:1 peg.
In 2020, Visa announced that it would settle transactions with some of its partners using USDC on the Ethereum blockchain, expanding its utility in real-world payments. Mastercard has also expressed interest in integrating cryptocurrencies into its payment solutions, including discussions about USDC, but specific details regarding implementation remain undisclosed.
USDC has expanded from Ethereum to many other blockchains, including Solana, Algorand, and Stellar. This move has improved USDC’s liquidity and accessibility. In 2023, Circle took full governance over USDC after dissolving the Centre Consortium with Coinbase.
Circle has been actively engaging with regulators globally to navigate the complex landscape of cryptocurrency regulation. Aiming to ensure USDC operates within legal frameworks where possible, thus attempting to bolster its credibility. However, regulatory acceptance and compliance can vary widely by jurisdiction. USDC is now widely used in DeFi applications as a stable asset for lending, borrowing, and trading. The Circle partnership with BlackRock for managing its reserves has proven to be an added layer of trust via one of the biggest asset managers in the world.
USDC is developed and designed to always maintain a 1:1 peg with the US dollar, but it has experienced deviations from this peg. Notably during events like the Silicon Valley Bank collapse in 2023, highlighting that maintaining stability can be challenging under certain circumstances. Amidst these fluctuations, USDC has remained tight within a band around its peg, showcasing its purpose as a stable digital dollar. USDC has continued to hold its place in the stablecoin market through its adherence to regulations, thus gaining trust, a high level of transparency, and a string of strategic partnerships.
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Want to know more about other cryptocurrencies? Read the basics in our articles: What is USDT?, What is ADA?, and What is XRP? to deepen your understanding.”
FAQs
Q1. How does USDC handle privacy for its users?
- A: USDC transactions on public blockchains like Ethereum are transparent by default, meaning anyone can see the transaction details. However, privacy can be enhanced through the use of privacy solutions like zero-knowledge proofs or by leveraging private transactions on blockchains that support them. Circle itself does not collect personal data for simple transactions but must comply with KYC/AML regulations for minting and redemption processes.
Q2. What are the risks associated with holding USDC?
- A: Although designed to be stable, risks include counterparty risk where if Circle or its reserve holders face financial issues, it could impact USDC’s peg, regulatory risk where changes in laws could affect how USDC functions or is accepted, and smart contract vulnerabilities where any flaw in the smart contracts managing USDC could lead to security issues.
Q3. Can I earn interest on USDC?
- A: Yes, through various DeFi platforms, you can lend your USDC to earn interest. Platforms like Aave, Compound, or savings accounts on centralized exchanges often offer yields on USDC holdings. However, the returns come with risks related to the platform’s health and market volatility.
Q4. How does USDC compare to other stablecoins like Tether (USDT)?
- A: USDC is known for its transparency and regulatory compliance, with monthly attestations of its reserves. In contrast, Tether has faced more scrutiny regarding its reserve backing. USDC also operates on more blockchains, potentially offering greater interoperability. However, USDT has a larger market cap and trading volume, suggesting higher liquidity in many markets.
Q5. What happens if USDC loses its peg?
- A: If USDC loses its peg, it could lead to a rush of redemptions or a decline in trust. Circle would need to intervene, possibly by adjusting its reserve management or providing more transparency to reassure holders. Historically, when stablecoins lose their peg, they usually recover, but the event can cause significant market turmoil.
Q6. How is the redemption process for USDC handled?
- A: To redeem USDC for USD, one must go through an authorized channel, typically involving transferring USDC to a Circle account or an approved partner, where after KYC verification, the equivalent amount in USD is credited back to the user’s bank account. This process isn’t instant and can take several business days.
Q7. Can USDC be used for international remittances?
- A: Yes, USDC can be used for international remittances due to its stability and the efficiency of blockchain transfers, which can be faster and less costly than traditional methods. However, the utility depends on the regulatory environment in both sending and receiving countries and the availability of exchange services to convert USDC back to local currency.