Robert Steinadler, 7 months ago

What is USDC? A stablecoin explained

USDC is one out of several stablecoin solutions available on the market and while many crypto enthusiasts remained skeptical when this particular asset class became available for the first time it is now one of the most important tools that investors and traders have at their disposal.

One fine day stablecoins might even compete with credit cards and cash since they are the digital equivalent of Dollars, Euros, or Pounds. In the meantime, they are specifically needed for driving the adoption of decentralized finance. Borrowing, lending, and providing liquidity are much easier with a tokenized cash equivalent available that is not subject to high volatility as coins or tokens.

Each stablecoin has its own merits, backing, and technology. What is USDC and how is its peg collateralized? In this article we are going to explore one of the most important stablecoins in the market.

What is USD Coin?

USDC is the abbreviation for “USD Coin” as well as the official ticker of the stablecoin on exchanges and brokers as well. USD Coin is backed by actual US-Dollars in the bank account of the issuer, which is the CENTRE Consortium. CENTRE is developing USDC and was co-founded by Coinbase and the fintech Circle.

At the time of writing a total of 51,3 billion USDC are in circulation. USDC is fully backed by US Dollars and Dollar-denominated assets like U.S. treasury securities in its account. All accounts are audited by Grant Thornton, an international accounting company that also provides monthly reports to ensure as much transparency as possible.

This way USDC maintains a 1:1 peg with the US Dollar. In reality, the value of USDC varies slightly above or below 1 US Dollar. This volatility is driven by supply and demand as well as the fluctuation of underlying assets. Most of the time the price is less than 1 % above or under the value of the Dollar. Since USDC is backed by off-chain assets, its volatility is generally lowered than the volatility of algorithmic stablecoins that also face different risks.

USDC is a backbone of Decentralized Finance

USDC is second to USDT according to its capitalization and therefore one of the most important stablecoins in the broader crypto ecosystem. Its market share lies a little bit above 25 % at the time of writing.

Since USDC is a token, it depends on a smart contract that allows the issuer as well as user to interact with several different blockchains natively. USDC is available on:

  • Ethereum
  • Solana
  • Fantom
  • Algorand
  • Binance Smart Chain
  • xDai
  • Tron
  • Stellar

With such high availability and the option to bridge USDC from one blockchain to another, the stablecoin has become particularly important to the global Defi ecosystem. USDC is used for borrowing, lending, settling swaps as well as collateral for decentralized margin trading and derivatives.

What is the use-case of USDC?

USDC is used for borrowing, lending, settling swaps as well as collateral for decentralized margin trading and derivatives. Here are some more examples:

  • Remittance: USDC can be used for cross-border transactions without a bank account and at relatively low costs compared to other services available.
  • Exposure to the US Dollar: Not all investors have the option to get exposure to the US Dollar. With USDC it becomes affordable to get this exposure even for low-income retail investors at minimal costs.
  • Inflation hedge: There are several protocols available that allow to earn passively by lending or providing liquidity. This creates an opportunity to hedge against inflation using USDC holdings while traditional banking products don’t offer any interest rates on saving accounts or similar products. It is also an option for non-US investors simply to hold USDC if their own national currency is subjected to higher inflation than the US Dollar.
  • Hedge against volatility: Crypto investors can stabilize their portfolios by holding USDC. While it is possible to sell for Euros or Dollars this often requires bank transfers in and out of exchanges. USDC allows a fast, simple, and affordable hedge that this available 24/7.
  • Payments: USDC can be used for global and national payments by pricing goods and services in US dollars. Transactions are fast, it is easy to accept, and compatible with several blockchains. This makes it attractive for stores and online businesses that have to deal with high fees covering credit card payments or fees for other common payments solutions for their customers.

FAQ about USDC

What is the smallest denomination of USDC?

Like Bitcoin and other cryptocurrencies, USDC can be divided into very small units. The smallest unit is 0,000001 USD Coin which also makes a great use case for micropayments.

How do I store USDC?

One option is to simply store it in your LiteBit wallet. Depending on which blockchain you prefer you can also store the stablecoin in your personal wallet.

Which blockchain is supported by LiteBit?

LiteBit supports USDC as ERC-20 token on the Ethereum blockchain. If you like to interact with any other blockchain you’ll have to bridge USDC after receiving it in your personal wallet.

How do I earn interest on USDC?

You can use USDC in several ways to earn interest. Most blockchains on which USDC is available, offer a broad ecosystem of Defi protocols that can be used to earn with lending or providing liquidity. Please note that these opportunities also come with certain risks.

Is investing in a stablecoin less risky?

Stablecoins often face lower or no volatility, hence the name stablecoin. While this minimizes the risk of loss due to volatility other risks remain e.g., the currency risk between Euro and the underlying asset the US Dollar.

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Nov 07, 2022

Stablecoins are a vital part of the broader DeFi economy. Many assets on decentralized exchanges are denominated in “stables”. This is a trend that has set in three years ago. Before that time most crypto assets were either denominated in BTC or ETH. That is not the only reason why stablecoins have become important and serve as a pillar in the crypto economy.

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