What is USD Coin (USDC)?

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What is USD Coin (USDC)?

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USDC as its name suggests is a stablecoin backed and pegged against the U.S Dollar. In detail, it is a stablecoin that can be exchanged for one dollar and is backed by one dollar or a dollar-denominated asset held at a regulated U.S financial institution with an equivalent value. It was developed by Centre, a technology project backed by cryptocurrency exchange Coinbase and Fintech company Circle.

It is important to note that USDC is not issued or backed by the U.S. government. The USD Coin project is open-source, which means anyone can view the code or contribute to it.

Special Features:

  • Interchangeability with USD due to its fiat peg 
  • Total Supply of 54.22 Billion as of June 2022
  • An Ethereum-based token, compatible with most ethereum wallets 

How is USD Coin (USDC) issued?

Unlike some other cryptocurrencies, USDC is not mined, it is rather issued. New coins are minted every time someone buys or converts currency and acquires USDC. If that happens, a new dollar is added to the bank account behind USDC. In simple terms, Circle the project behind USDC assures its users that every USD Coin is backed by 1 US Dollar, meaning that they tokenize actual US Dollars into a digital currency. 

Here, tokenizing refers to the process of taking a real-world asset and converting it to a digital form, so that it can be used on the blockchain.

  • A user sends a request to the USDC issuer to redeem an equivalent amount of USD for USDC tokens.
  • The issuer sends a request to the USDC smart contract to exchange the tokens for USD and take an equivalent amount of tokens out of circulation.
  • The issuer sends the requested amount of USD from its reserves back to the user’s bank account. The user receives the net amount equivalent to the one in USDC tokens, minus all incurred fees).

Unlike the most popular stablecoin Tether (USDT), creators of the USD Coin are obligated to provide full transparency and work with a range of financial institutions to maintain full reserves of the equivalent fiat currency.