The traditional cryptocurrency market is known for its volatility. The value of even the most established cryptocurrencies can increase and decrease significantly in a matter of hours. This is why stablecoins like USD coin are needed for more liquidity and stability in the cryptocurrency marketplace.
This type of cryptocurrency never changes in value, and provides a high level of liquidity to the cryptocurrency market, allowing investors to take advantage of the typical features of a cryptocurrency while eliminating the risk factor.
In this article, we will take a look at the concept behind stablecoins, and will especially discuss the example of the USD Coin, which is a stablecoin issued by CENTRE. CENTRE consists of Coinbase and Circle, and they’ve collaborated to launch USDC.
What are Stablecoins?
To learn more about USDC, users must understand the concept behind stablecoins, and should learn how they work. According to financial experts, stablecoins are digital alternatives to the fiat currencies they are pegged to.
For example, in the case of USDC, the stablecoin is pegged to USD. These coins utilize a set of specific tools to keep their price away from fluctuations, and close to the fiat currency, they’re pegged to.
In short, stablecoins represent fiat currencies like USD and EUR on the blockchain and utilize specially made stabilization mechanisms to mimic the price of the fiat currency they are related to.
Since stablecoins have a 1:1 value with their related currency, you can always buy and sell 1 USDC for $1. Whenever the cryptocurrency market is volatile, crypto traders can convert their crypto assets into stablecoins, and keep them safe in their wallets until the market stabilizes.
Why Do We Need Stablecoins?
Since stablecoins always have a stable value, they can be used to keep your crypto assets safe in the case of a volatile cryptocurrency market. Moreover, you can always send and receive stablecoins across multiple cryptocurrency exchanges without converting them into fiat currency first. This keeps every crypto investor within the cryptocurrency ecosystem and makes the crypto market a self-sustaining and self-sufficient ecosystem.
Additionally, this keeps the users safe from legal actions in countries where cryptocurrency trading is banned.
Moreover, stablecoins are a great currency for unregulated cryptocurrency exchanges which do not support the conversion of cryptocurrency assets into fiat currency. This makes these crypto exchanges more accessible for foreigners with little to no access to the currency needed to trade on the platform.
Stablecoins always provide more liquidity as compared to fiat currencies. There are little to no transfer fees when you transfer stablecoins from one crypto wallet to the other.
Moreover, payments made in the form of stablecoins are settled within seconds to a minute. Most stablecoins like USDC rely on the Ethereum blockchain to exist.
However, stablecoins are still not widely adoptable because of certain security risks. Moreover, since cryptocurrency trading is banned in many jurisdictions, users are mostly afraid of investing in stablecoins.
On the other hand, once you trust the process and invest in stablecoins, you will benefit from interoperability, price stability, fast transactions, and little to no transaction fees.
Introduction to USD Coin (USDC)
USD Coin is a stablecoin as well and is backed by United States dollars locked up in a reserve. For every USDC minted on the blockchain, a United States dollar is held in reserve. This is done to maintain the 1:1 price ratio since the USDC is pegged to the United States dollar.
Stablecoins like USDC are introduced to provide a safe entry for novice cryptocurrency investors who have little to no knowledge of the market and are afraid to invest in cryptocurrencies because of their volatility. Stablecoins lower the barrier to entry for new cryptocurrency investors and help them convert these coins into any cryptocurrency and vice versa.
Creation of USD Coin (USDC)
To introduce quantitative easing, governments around the globe keep printing more currency bills to keep their supply high in the market and to facilitate liquidity. When the central bank keeps printing more money and supplying that money into the market, the value of existing currency bills decreases. This is called inflation.
Governments do this to fill their reserves and achieve their political incentives, but steps like these destroy a country’s economy in the long run.
However, when inflation and deflation occur, it makes the regular investor afraid of investing in that fiat currency, creating chances for cryptocurrencies like stablecoins to take their place in the market. This is how the crypto revolution is fueled by the ever-increasing inflation of fiat currencies.
Cryptocurrencies are always welcomed by people who are interested in technology, and love to invest in new technological initiatives introduced to make the world a better place. People who actively participate in cryptocurrency-related activities are always there to invest in projects like USDC.
However, there are still many steps that need to be taken to ensure the widespread adoption of cryptocurrencies around the globe. People who have little to no knowledge of the cryptocurrency marketplace are concerned about the security of their funds, and might still prefer fiat currencies over cryptocurrencies.
Let’s take a look at the factors which are keeping most people away from investing in the cryptocurrency marketplace.
Complex Nature of Many Blockchains
Although there are lots of benefits to investing in cryptocurrencies and blockchain technology, the benefits and functionalities are so complex that only people with lots of technical knowledge know how to take advantage of them.
This is one of the biggest reasons behind the creation of USDC. The stablecoin was introduced to make the onboarding process of new people in the crypto market possible, and simple.
High Crypto Volatility
Another reason why new investors are afraid of investing in the cryptocurrency market is because of the sudden price changes. The crypto marketplace is very volatile, and the prices of cryptocurrencies can increase or decrease by a huge percentage in a matter of a few hours.
So, anyone who is only looking to store value in the form of cryptocurrency can confidently choose stablecoins like USDC. Stablecoins eliminate the volatility which comes with traditional cryptocurrencies since they are pegged to traditional fiat currencies like USD.
For example, one USDC always equals 1 USD, and people can securely store their value in the form of USDC stablecoin on any crypto exchange.
The main reason behind the introduction of stablecoins was to minimize or even eliminate the volatility factor behind cryptocurrencies. By doing this, companies behind the creation of stablecoins are helping to normalize the widespread adoption of cryptocurrencies around the globe.
After the announcement of their stablecoins Paxos and Gemini, Circle announced their stablecoin named USDC in 2018. USDC was created as a result of a collaboration between circle and Bitmain.
Bitmain is a mining hardware manufacturer and had a $110 million investment from Circle to work with. At the start, USDC was advertised as a highly regulated stablecoin as compared to other cryptocurrencies.
Shortly after its launch, USDC made its way onto Coinbase, thus becoming the first major stablecoin to be listed on a cryptocurrency exchange. Developments teams from Circle and Coinbase collaborated to further strengthen the technology behind USDC.
CENTRE was also launched as a regulatory body to govern and regulate USDC. CENTRE is a subsidiary that is fully owned by Circle.
Growing Popularity of USD Coin (USDC)
Shortly after its launch in 2018, USDC got listed by some of the biggest cryptocurrency exchanges like Coinbase and Binance. This helped USDC gather lots of investment, and have the project bootstrap its liquidity at the beginning.
In a short time, the stablecoin USDC was available for trade in over 80 countries around the globe. This is one of the biggest reasons why it gathered lots of popularity and investments from people looking for a stable alternative to cryptocurrencies, and a secure, inflation-free alternative to fiat currencies.
In 2020, when the coronavirus pandemic hit the whole world, people started using stablecoins like USDC as a secure store of value to avoid getting hit by inflation. The decentralized finance sector also started using USDC, and it became another reason for the widespread adoption of the stablecoin by the masses.
A majority of people seem interested in the unique features of USDC like yield farming, which allow you to keep earning passive income by locking up your USDC in a secure wallet.
Because of the huge amount of investments in USDC, it has become one of the biggest stablecoins in terms of total capital investment.
After the stablecoin saw a huge rise in its value in 2020, its market capitalization crossed 9 billion USD. Moreover, as more decentralized platforms supporting USDC are launched, the stablecoin is expected to rise even more in popularity. So, the future of the USD coin seems to be bright.
The USDC 2.0 Update
With the help of the latest technology introduced in the field of cryptocurrency, CENTRE released an updated version of USDC and called it USDC 2.0. USDC 2.0 has complete support for the latest digital wallets, and DeFi projects being launched lately.
The original USDC required users to pay the gas fees in the form of ETH tokens. This forced the users to keep ETH tokens in their wallets regardless of whether they wanted to invest in Ethereum or not. Moreover, the high gas fees of the Ethereum network made the liquidity of USDC suffer greatly.
The Ethereum gas fees were a huge hurdle to the word spread adoption of USDC in the crypto market. This is why the parent company of USDC has released an updated version called USDC 2.0, which allows users to make transactions without paying any gas fees.
The fees for every transaction can be charged in the form of USDC, and the wallet developer can also choose to pay the fees on their customer’s behalf.
USDC 2.0 is simply a smart contract implemented into the ETH blockchain. With this update, the fee problems of USDC stablecoin are now resolved, and the point is ready for mass adoption.
After the release of the latest version of USDC, the developers are confident that it will make the stablecoin ready for widespread adoption and especially P2P transactions. The update is also backward compatible, meaning that users who have USDC in their crypto wallets can continue using their cryptocurrency normally without the fear of it depreciating, or becoming obsolete.
Working Process of USD Coin (USDC)
The smart contract is an ERC-20-compatible token on the Ethereum blockchain which allows tokenization to happen.
Let’s take a look at the steps you need to go through to receive USDC in your crypto wallet.
To start the process, you should first select a cryptocurrency exchange, and complete the KYC (Know Your Customer) process.
Once the KYC process is complete, you will receive a specific bank account to deposit fiat currency equivalent to the amount of USDC you want to buy.
Once the fiat money you sent is received by the reserve bank account, a smart contract for the creation of the same amount of USDC is implemented into the blockchain.
The fiat currency is locked up in the reserve bank account in the form of USD, and the user is issued an equal amount of USDC in their crypto wallet.
If you later choose to withdraw your fiat money directly with USDC, you will have to reverse the whole process you went through to buy USDC. The smart contract is reversed, and an equivalent amount of USD is released from the bank account.
Alternatively, you can sell your USDC on a P2P platform, and get the required fiat money deposited directly into your bank account by the buyer.
Uses of USD Coin (USDC)
At its very basic level, USDC is only an ERC-20 token, which makes it possible for users to trade, lend, and invest in the cryptocurrency marketplace easily, and through a faster and more effective channel. As the market of crypto coins keeps expanding and more goods and services are tokenized, the market for USDC will also expand accordingly.
The unique features of USDC allow the interaction of fiat currencies with cryptocurrencies securely and stably. Users can now use their fiat currencies to quickly buy USDC, which is a stable alternative to traditional cryptocurrencies and keeps their investment safe from high volatility and losses in the long run.
So, whenever a user has to make an international payment without any constraints, they can use USDC as a digital alternative to USD to make faster and more secure transactions. You can send huge amounts of money to any part of the world without any regulation, and with minimal transaction fees.
This makes USDC and other stablecoins available assets for investors that they cannot replace with anything else. Moreover, the transactions are irreversible, faster, secure, and immutable. These are some of the biggest reasons why USDC has become a major player in the stablecoin market.
When it comes to trading by using USDC, the stablecoin provides much higher leverage, fast transactions, and low cost per transaction. Users of USDC also have the luxury to buy digital goods and services from decentralized finance applications which support the stablecoin.
This is how we can make banking available for unbanked people around the globe. This can help create a parallel international finance sector, and can even include third-world countries with limited access to international currencies and resources.
How to Buy USD Coin (USDC)
Today, there are multiple payment options available for the user who wants to buy USDC for holding or trading purposes. Let’s take a brief look at how you can buy USDC.
Credit/ Debit Cards
Whenever you want to buy USDC, you will have to do that through a cryptocurrency exchange that supports buying and trading of USD coins. After you are done making your account and verifying it, you can use a credit or debit card for secure payment.
After adding your credit/ debit card to the cryptocurrency exchange, you can buy any amount of USDC with just one click.
However, cards from countries and territories which have banned cryptocurrency trading might be declined. This is where other methods to buy stablecoin come into play.
Another method you can use to buy USDC in any amount is through P2P trading. P2P or Peer to Peer trading can bypass every ban since it does not include linking your bank account or credit/ debit card with the cryptocurrency exchange.
In P2P trading, you can use the P2P marketplace of your cryptocurrency exchange, place a buy order, make the transaction in fiat currency to the seller’s bank account, notify them of the transaction, and wait for your USDC to be released into your cryptocurrency exchange wallet.
You can easily transfer the USDC you have just bought on the P2P marketplace into your spot wallet, and start trading right away. However, if you want to store the stablecoin, you can either leave it in your spot wallet or transfer it to a secure digital/ hardware wallet.