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Start Trading USDC on CoinMetro

27.08.2020

USDC just landed on CoinMetro! Let’s have a look at what USDC is all about. Keep reading to know more about what makes this asset so special.

What is USDC?

USDC, or USD Coin, is a fully reserved digital dollar stablecoin. It is one of the fastest growing stablecoins out there. USDC stands out for its security. It is issued by regulated financial institutions and backed by fully reserved assets. This means that USDC is redeemable on a 1:1 basis for US dollars. 

Before we go any further, let’s have a closer look at stablecoins. 

All About Stablecoins

A stablecoin is a coin that is backed by reserve assets. So, it is linked to a real asset like fiat currency, gold, or oil. Stablecoins are launched on the cryptocurrency market to hold a stable value. This means that the price per unit in fiat doesn’t vary. It is traded at a stable value, which is not the case for altcoins as their price in fiat always varies.

Types of Stablecoins

There are various types of stablecoins. They are generally divided into three groups:

Fiat-collateralized stablecoins

This stablecoin type includes stablecoins backed by fiat currencies, such as the US dollar, Euro, etc. USDC falls into this category.

Crypto-collateralized stablecoins

Crypto-collateralized stablecoins are backed by other cryptocurrency reserves. Here, a pool of coins is created to back up the value of a stablecoin. Unfortunately, this type can be tricky as cryptocurrencies are always volatile.

Non-collateralized stablecoins

This stablecoin type isn’t backed by anything, but its supply is governed by its smart contracts using algorithms, expanding or contracting to keep the value stable.

What Makes Stablecoins Stable?

As the name suggests, stablecoins promise to be stable. This is a well sought-after quality in the crypto world that is otherwise known for its price volatility. But what is the mechanism behind the price stability?

Fiat currencies are stable because they are backed by reserves and controlled by central authorities (like central banks). Since fiat currencies are pegged to an underlying asset, like gold or forex reserves which act as collateral, their valuations remain rather free from large swings.

Even if a fiat currency’s valuations move drastically, the controlling authorities jump in to maintain price stability. Heading over to the crypto world – cryptocurrencies lack these two features. They don’t have a reserve backing their valuations and they don’t have a central authority to control prices when required.

Stablecoins are bridging this gap. They are bringing the benefits of fiat to the crypto world.

How Does USDC Work?

Now that you know all about stablecoins, let’s get back to USDC.

USDC is an open source, smart contract-based stablecoin. It is brought to you by Circle and Coinbase. It is issued by regulated and licensed financial institutions that maintain full reserves of the equivalent fiat currency. USDC is issued by regulated financial institutions, and backed by fully reserved assets, and redeemable on a 1:1 basis for US dollars. USDC is governed by Centre, a membership-based consortium that sets technical, policy and financial standards for stablecoins.

The motivation behind developing USDC was to create true financial interoperability. This requires a price stable means of value exchange. Centre’s technology for fiat-backed stablecoins is doing just this – bringing stability to crypto. USDC is an ERC-20 token creating possibilities in payments, lending, investing, trading and trade finance. The ecosystem is showing great growth promise as other fiat currency tokens are added.

Fiat Meets Blockchain

As the adoption and importance of crypto assets has grown, it’s become vital to be able to use fiat currencies for payments and trading. A price-stable currency (like the US dollar) is critical for making blockchain enabled payments go mainstream. It also contributes to maturation in financial contracts built on smart contract platforms, such as tokenized securities, loans, and property. So, we can agree that bringing fiat’s benefits to the blockchain has many benefits. But USDC is clearly not the only stablecoin. So, what makes it so unique?

What Are the Benefits?

There are a large number of different stablecoin initiatives out there. These cover anything from algorithmically-backed stablecoins to crypto-backed stablecoins to dollar-backed and hybrid projects that combine those approaches.

So far, the existing approaches have lacked financial and operational transparency and failed to comply with regulations. They have often operated in unregulated offshore jurisdictions with unknown banking and audit partners. We have also seen closed-loop ecosystems and closed source technologies.

USDC solves these problems by offering a solution with detailed financial and operational transparency, operating within the regulated framework of US money transmission laws. The USD Coin is linked with established banking partners and auditors. It is also built on an open source framework with an open membership scheme. This means that eligible financial institutions can participate in it.

Technology Behind It

Let’s have a quick look at the tech behind USDC.

At a high level, customers who onboard through a USDC issuer can transfer funds into the system. The issuer then executes a series of commands with the Centre network to verify, mint, and validate USDC tokens. The customer can then transfer those tokens elsewhere as they see fit.

How about redemption? Well, it simply follows the reverse sequence. So, a customer requests a redemption from an issuer, and upon successful verification and validation, the appropriate USDC tokens are irrevocably deleted from circulation. This is known as “burning”. Funds from underlying reserves are transferred back to the customer’s external bank.

How is USDC Planning for the Future?

So, what are the building blocks of USDC? Centre believes that during this phase of the market, most market participants don’t desire a new currency. Instead, they want to use their existing major national or global reserve currencies on top of open public chains. The principle is easy – customers want price-stability and the trust and regulatory framework of existing central bank money. But they also want the openness, speed, security and global reach of crypto.

The creators of USDC also think that the market is heading towards an open architecture and membership-governed model. This is something that a wide range of market participants can build upon, including crypto companies. And this applies to every major currency zone in the world, as well as leading digital wallet providers and banks that want to take advantage of public chains for settlement.

Now that you know all about USDC, why not start trading? Head over to our crypto exchange and buy USDC with a credit card.